The climate-tech sector is booming, and with prescient timing, the Investible Climate Tech Fund is well positioned to benefit from investor interest and the surge in new startups working to decarbonise our economy.
The fund was launched one year ago, so far they’ve raised $30 million, and most recently, they’ve announced the first batch of eight startups that make up the portfolio.
OnImpact spoke with Tom Kline, co-head of the Investible Climate Tech Fund, about the strength of climate-tech investing amid a broad market downturn, the unique nature of early-stage investing in the climate space as well as
The Climate-Tech Opportunity
A confluence of forces are driving rapid growth, and feverish investor interest, in the field of climate-tech investing.
As the name suggests, it’s a niche field of startups that are focussed on building solutions to the climate crisis.
It captures energy storage technology, like batteries, as well as progressing the utility of lithium and hydrogen. There’s mobility in the form of electrifying all sorts of transport options; cars, boats and even airplane engines.
It’s also those accelerating the transition, such as software that measures and manages carbon emissions, or integrated systems to make buildings and houses more energy efficient.
These are businesses that have impact at their core. They’re laser focussed on cutting emissions, and greening the economy, it’s their competitive advantage, it’s not an added cost.
“The opportunity set is even bigger than we’d thought it was going to be to be honest.
We’ve had more than 1,600 opportunities to consider, it’s phenomenal!” says Tom Kline.
“There’s some absolutely amazing founders and technology out there, and the tail winds are continuing to grow. The stuff that’s happened in the last couple of months, you couldn’t have dreamed about it a couple of years ago.”
First Cohort of Climate-Tech Startups
The first eight investments have been announced, and Tom explained that they have another eight waiting to be finalised. It’s an exciting time to be building the future of a low-emissions economy.
Here’s the first batch:
Kite Magnetics – Building high-efficiency electric aircraft engines
CIM – Analytics platform to help large buildings run more efficiently and reduce emissions.
ZeroJet – Building electric boats, with their own jet propulsion system. They’re quieter, cleaner and safer and easier to drive than a petrol outboard.
Digital Harvest – Agtech platform offering crop intelligence to sugar cane farmers, to make harvesting and replanting far more efficient
Emmi – Carbon measurement platform for equity investors
Xylo Systems – Boosting biodiversity with a platform that catalogues and monitors data on animal and plant species for conservation projects
Rntr – Ecommerce plugin enabling online stores to seamlessly offer a ‘rent’ option for clothes. Circular economy made easy
Spot Ship – Digital assistant for ship brokers, reduces emissions by optimising shipping capacity and bookings
The challenge of reducing GHG emissions is not new, and investors funding climate solutions have been burned in the past, but this time, there’s a powerful community-led movement that’s merging with government action, as well as new technologies.
“Underlying momentum and tailwinds have always been part of our investment thesis, and it’s amazing to see them playing out. It’s also happening at a government level. The recent Inflation Reduction Act in the US has big implications for Australia, because a lot of those tax credits are going to be tied to friendly countries. Australia is very well placed to benefit.” Tom says.
On the tail of the Paris Agreement, there’s now global consensus about the need to reach net zero emissions by 2050, if not earlier. Government’s have made commitments, but so too have companies, and they’re going to soon realise how tough it will be without innovative new technology.
“Over the past decade, a lot of corporates have made commitments, but 2025 and 2030 are now just around the corner. Many of the start-ups we are reviewing have years of R&D behind them, they’re so far ahead, so we think there’s a great potential exit opportunity. We’re likely to see a number of our portfolio companies will likely either licence their technology, or there’ll be opportunities for them to be bought out by corporates because they just don’t have the time to get to net zero themselves.” Tom says.
Unique Nature of Climate Tech VC
Venture Capital, or VC, is renowned for giving birth to Silicon Valley and the digital revolution that has disrupted the world. These prescient investors get in early and take bets on little more than a founder and an idea.
It’s a high-risk play, and many fail. But for the deals that grow into global behemoths, the financial returns are huge.
This history is mainly in the software space. Social media platforms and enterprise SaaS systems require little capital expenditure and they benefit from huge marginal profits once the systems are built. Noting of course, there are dubious social impacts and predatory practices of certain social networks, which now highlights the fact that these are no impact investments.
Climate-tech is different.
It’s driven by a clear mission, to cut emissions, slow down climate change, and empower us to live in a more sustainable way.
Still, many of these technologies are more physical in nature. They tend towards the industrial and require capital investments in research, as well as physical production sites. They take energy to transport round the world, and when they break, it takes more than a software path sent over the wire.
“We’re looking for high-quality founders at the start of their journey. As early stage investors, we’re focused predominantly on Pre-seed and Seed rounds, so we over-index to the founding team and their unique affinity and experience toward the problems they’re looking to solve. The Climate Tech Fund uses the same process that Investible has honed over the last decade. Investible has made over 110 early stage investments, so we’ve got the benefit of experience.” Tom says.
“We’re certainly mindful of the capital expenditure, and thinking about what sort of runway is required. With these kinds of technologies where it’s still in its development stage, that’s where we do spend a lot of time and diligence on third party validation. We ask the founders to put us in contact with actual (or potential) customers so that we can explore the opportunity and the market pipeline in very tangible terms.”
Note also, that change has come to the world of industrial manufacturing. Just as SaaS software enabled the decentralisation of resources required to start a business, so too has technology made prototyping and small-scale manufacturing available to more teams.
“What’s possible now with machine learning, big data, and advanced computing is cutting down the R&D time. There’ are also improvements in robotics, AI and nanotechnology, which are having a compounding impact. We can do more today with less investment dollars.” Tom says.
“We’re quite confident about development times within the ten year time-frame of the fund. We are patient capital, with immense intent to work with and support these founders as they build lasting businesses. We very much see this as a partnership, and it’s going to require time and capital and we also look at a broader range of financing options, things like licensing the technology, rather than doing all the development themselves.”
The Fund was launched last year, and with $30 million already committed, Investible is doing deals at a rapid pace. They’re not looking to slow down.
“We’re still raising capital. We will do another close before the end of the year, based on strong investor interest at the moment. We can continue to raise capital into next year, the next several months is a big focus for us.”
They have a broad investor base, from high net worth individuals, family offices, impact investors, as well as some large foundations.
These are groups who are not afraid to invest for impact, and who want their investments to match their values. But the climate-tech space has achieved the sweet-spot where concessional returns aren’t required.
“For the first time, investors are not having to give up returns to get the impact. We’re targeting the same IRR of 25% over the life of the fund as our prior two early stage funds. We are really excited about the return potential for the fund, especially in light of the current tailwinds.” Tom says.
“There is no need to give up returns to deliver impact This makes it easier for more investors to allocate into this space.”
Impact measurement in the climate space has the benefit of some clear, quantitative metrics, that make analysing progress easier.
GHG emissions avoided, or removed, are the core factor that most businesses and investors are striving for.
But just like the carbon system, and the dynamics of climate and weather systems, the complexity blooms the closer you look.
“We assess individual company impact alongside their financial metrics, we define impact metrics for each company. And this is the challenge of this space, we’re investing in some businesses that have a direct CO2 equivalent emissions reduction, that’s relatively easy to measure. But then we’re also investing in businesses that are accelerating the transition, and those that are allowing us to adapt to a climate impacted world, but those assessments need to be more nuanced.” Tom says.
“Some don’t always have a direct CO2 emissions metric, but for example, in climate adaptation, if we can demonstrate technology that allows you to grow more food or uses less water, then we can then track that water savings and yield uplift, and in areas prone to drought, there’s huge potential for impact in a climate affected world. It does need to be individualised, to an extent.”