How to Identify the Next Winners in Climate Tech
The Coronavirus presents an undeniable lesson for the Climate Emergency. Both are world-destabilizing events that threaten lives and the economy. The sooner we act the more lives we can save. According to the UN we have 10 years to address the climate crisis. As I discussed in my last post, there is a huge opportunity for the private sector to solve climate change. While the U.S. Federal government stalls on effective climate policy, companies have a huge role to play. Every industry will need a negative carbon solution. But not all solutions will be successfully adopted. The solutions that win will be the ones that people and businesses choose even if they don’t care about the climate crisis.
I’m an Entrepreneur in Residence at Entrepreneurs Roundtable Accelerator (ERA), New York’s leading tech accelerator. I’m helping to build ERA’s next class of the world’s best startups. In particular, I’m eager to find the most promising climate tech companies so they can benefit from being part of ERA. I’ve developed an investment thesis to do so. My hunch is that companies that meet this thesis will be most successful at stopping climate change and creating financial value.
If you run an early stage startup that meets the thesis below — let’s talk! DM me on Twitter @lisbethkaufman.
My Climate Tech Investment Thesis:
The companies that will successfully mitigate climate change need to provide products and services that BOTH:
- Drastically cut greenhouse gas emissions, AND
- Are superior to fossil fuel incumbents on a basic human needs and business needs level
In other words, it’s not enough to replicate existing fossil fuel products with similar low-carbon versions. People and businesses make decisions based on price, convenience, basic wants and needs. It’s hard to make decisions on enormous future global environmental impacts.
Solutions need to be significantly cheaper, faster, easier, more delicious, cooler, and/or more beautiful than the existing high-carbon solutions.
What Actually Saved the Whales?
Take the history of whale oil, which I learned from Paul Shapiro (author of Clean Meat, and CEO of The Better Meat Company). I think it is a perfect example of this thesis.
Remember whale oil, i.e. the industry behind the plot of Moby Dick? In the 1800s whale oil, made out of the blubber of dead whales, was the main source of fuel for lighting. The whale oil industry was killing off the whales, 8,000+ kills a year. There were activists at the time who were very upset about the whale die-off and lobbied the government to end it.
The killing did eventually end, but not because of activism or government policies. Whale killing ended because a better technology, kerosene, was invented that made whale blubber unattractive. Where whale oil had a short shelf-life and stank like a dead fish, Kerosine was cleaner burning, and lasted much longer. Kerosine, not the activists, saved the whales.
Similar to how kerosene replaced whale oil, we need to develop better technologies and business models to supplant fossil fuels and ghg-emitting industries.
The climate crisis is too overwhelming and abstract to influence consumer and business decisions. The low-carbon solutions need to appeal to the basic human and business instincts the way kerosene did.
I believe that is the task at hand for businesses to figure out. If we can figure it out, we can make a lot of money AND save the world at the same time.
Obvious, but Hard to Do.
The thesis is pretty obvious. But when I look at the past few decades, so many climate change business solutions were just low-carbon replicas of existing options. Monica Varman, an investor at the Venture Capital fund G2VP, put it well that “it was previously the case that consumers who wanted sustainable products had to sacrifice on price or functionality.”
For example:
- Annoying reusables: Until recently, if consumers and businesses wanted to avoid single-use disposables, they had to make the effort to recycle, wash and reuse durables.
- Expensive renewables: Until recently for the end user, renewable energy didn’t feel different from fossil fuels, except that it was more expensive and switching to renewables was confusing and annoying.
- Less delicious low-carbon food: I actually like a veggiedog. But meat eaters might argue that low-carbon meat replacements, like the standard veggie burgers and tofu dogs are not as good as the real thing.
Now however there are more and more solutions that, in addition to reducing carbon and environmental footprint, also make life better for consumers and/or increase profit for businesses. Here are a few examples:
- Easy and cheap access to renewables: Renewable energy is now cheaper than fossil fuels. In unregulated states, thanks to companies like Solstice, Arcadia, and Dandelion Energy it’s incredibly easy to get.
- Healthier and cheaper low carbon clean meat: Clean meats like Beyond Meat, Impossible Foods, the Better Meat Company, and now Cargill’s plant-based products, taste just as good as meat, but are healthier and getting cheaper, in addition reducing the carbon impact.
- Fresher low-carbon produce: Indoor vertical farming like Aero Farms and Bowery Farming are enabling fresher more delicious food closer to the eater, and reducing transportation emissions by 98%.
- Cheaper, Waste-reducing food, delivered to your door: Companies like Imperfect Foods and Misfit Markets reduce food waste, which Project Draw Down has identified as one of the top 3 ways to reduce greenhouse gas emissions. It also makes groceries cheaper and easier, delivering straight to the consumer.
- Zero-effort recycling and durables: Terracycle’s Loop is providing durable reusable packaging, that in addition to reducing waste and carbon footprint, is just as easy as disposable packaging, and more beautiful.
- Cooler futuristic electric vehicles: Tesla and Rivian have developed electric “adventure” vehicles that are insanely badass, in addition to being 100% electric. I’m not even a car person, but I can’t get enough of the Cybertruck.
I’m bullish on these types of solutions. Every industry will see major transformation from companies like these. They will both solve climate change and become incredibly profitable and valuable in the process.
We Need More Solutions
If there’s something to learn from Covid-19, it’s that we need to take action as soon as possible. The above solutions are just the beginning. To solve the climate crisis we are going to need negative carbon solutions that meet my thesis in every single industry. I want to find even more of these companies and look for the opportunities that haven’t yet been addressed. I encourage you to do so too.
If you run a company that’s addressing climate change and providing a better solution, I‘m here to help!
Talk to me and apply to Entrepreneur Roundtable Accelerator (ERA), New York’s leading tech accelerator and venture fund. I am available to help advise companies on strategy, fundraising, product, growth and business development. Let’s talk!
Next up: Diving Deeper into the Effects of Climate Change
To identify additional winning business solutions to climate change I’m going to dive deeper into the effects of climate change. Next up I’ll explore how the world has already been impacted and what scientists predict for the future. With a deeper understanding of these impacts and the future, we can start to predict or identify more of the solutions that will be the most appealing and impactful in light of my investment thesis.
I hope you find it helpful and I’d love to hear your perspective! Am I wrong? Did I miss something? Does this make you think of other ideas? Follow me on medium, comment below and reach out at @lisbethkaufman on twitter and facebook.
Thank you Jonathan Axelrad, Alan Chung, Laura Fox, James George , Charlotte Kaufman, Lily-Hayes Kaufman, Anthony Koithra, Lauren Pearl, David Phelps, Jessica Marati Radparvar, Monica Varman, and Jamie Wilkinson for your insight and edits!
Thanks to the Entrepreneur Roundtable Accelerator for having me as EIR while I do this work.
