Climate Software Startups Are Suddenly A Hot Investment

As a serial entrepreneur, Diego Saez Gil is used to pitching ambitious startup ideas and getting turned down. So he was prepared for some rejection with his latest venture, Pachama, a developer of satellite data-enabled technology to monitor reforestation projects for carbon emissions offsets.

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But he’s not hearing “no” much, so far. His first pitch, to Y Combinator, provided some idea-stage funding. Since then, a long list of prominent investors have signed on to back the 3-year-old venture, including Bill Gates-founded Breakthrough Energy Ventures, Amazon.com, and Chris Sacca’s Lowercarbon Capital.

Now, with over $24 million in Pachama’s coffers, its founder is preparing to scale up a mission inspired by a trip back to his native South America, where he saw the ravages of deforestation firsthand.

“Every government, corporation and consumer should have the ability to contribute back,” Saez Gil said. “The idea is that if you want, you should be able to invest with trust, with confidence, into projects that are planting trees, preserving forests.”

While Pachama appears to be the highest recent funding recipient in the climate software space, it’s far from the only startup drawing heightened interest from investors. As more companies and governments declare commitments to reducing carbon footprints, startups offering tools to help meet those pledges are in high demand.

Looking at early-stage funding data for the past few months, it’s clear climate and carbon-tracking software is having a moment.

At least 20 startups doing something at the intersection of decarbonization and software to measure progress have raised funding in roughly the past year, per Crunchbase data. Deals are overwhelmingly seed and early stage, indicating that investors see potential for sharp growth—and much higher valuations—ahead.

Below, we take a look at some of the funding recipients:

Why now?

It’s easy to see why carbon tracking and decarbonization software hold appeal, with climate scientists pointing to a future of accelerated warming and potentially catastrophic impacts on myriad ecosystems should emissions go unchecked.

The question with a less obvious answer is: Why now? After all, we’ve known about climate change and the case for reducing carbon footprints for decades. What are the reasons for a burst of early-stage activity in the space right now?

That’s a question frequently directed at Andrew Beebe, managing director of Obvious Ventures. He says the current investment environment compares favorably to “Cleantech 1.0,” the period in the mid to late aughts when early climate startup investment peaked and crashed.

This time around, the caliber of entrepreneurs is much better, according to Beebe. He’s also seeing enterprises take on carbon accounting at the CFO and boardroom levels, with demand for more sophisticated tools to help track and reduce emissions.

“We can’t manage what we can’t measure,” Beebe said. “And once you measure … Then you ask the question: What do I do now?”

Carbon meets software

Recently funded startups offer a sampling of options for what entities can do about their carbon footprint.

• ClimateView, a Stockholm-based startup that closed on a $10 million Series A in September, offers tools for cities to manage their planning as they transition to low- or zero-carbon economies. It’s an enormous addressable market, as the company estimates cities make up 70 percent of the world’s global emissions.
• Persefoni, an Arizona-based provider of software for conducting carbon accounting and preparing sustainability disclosures, has raised just over $13 million. Such tools are in demand due to environmental conscientiousness as well as economic considerations, as more institutional investors add sustainability requirements for companies they back.
• SINAI Technologies, a San Francisco SaaS startup that works with enterprises to measure and reduce their carbon footprints, closed on $10 million in an Obvious Ventures-led round this summer. CEO Maria Fujihara said the company is filling a high-demand niche, as more companies are making net-zero commitments but have not yet hammered out a strategy for how to meet them.

“It’s kind of a new category we are creating: Decarbonization as a service,” Fujihara said. Its rollout comes as internal carbon pricing in businesses is becoming the norm, with enterprises looking to meet investors’ environmental standards, offset climate risk and prepare for future carbon taxes.

It’s a scalability thing

One standout trait about the latest crop of climate-tracking startups is that they’re a SaaS-heavy cohort, with a lot of tech credentials among founding teams and investors.

Several of the largest new climate-focused funds, including Breakthrough, LowerCarbon, and Amazon’s Climate Pledge Fund, were launched by investors better known for their tech prowess than environmental creds.

The same often holds true for founders. Pachama’s Saez Gil, for instance, has a resume that reads like a tech startup guy. Previously, he founded Bluesmart, a Y Combinator-backed smart luggage startup. Before that, he launched WeHostels, a mobile travel booking app aimed at young travelers.

It makes sense at this juncture to see more techies moving into decarbonization, Saez Gil said, observing that: “What Silicon Valley has figured out is how to use technology as leverage to scale very rapidly.”

For venture-backed technology companies, we’re used to seeing scalability translate into massive valuations and platforms that go from garage startup to global powerhouse in a few short years. In the climate software space, the hope is not only to grow big companies, but also to make a substantial impact in building the infrastructure for a lower carbon future.

Illustration: Dom Guzman