What will it take to halve global greenhouse gas emissions over the next decade in order to stay on track for a net zero world by 2050? Climate tech solutions are critical to enable this transformation, and they are attracting growing investor interest. Investors are securing both climate impact and commercial returns from this emerging asset class, which are helping to maintain the Paris Agreement’s goal of limiting global warming to below 1.5 degrees Celsius.
A sharper focus on ESG in private markets, emerging regulations such as European Union’s Sustainable Finance Disclosure Regulation (SFDR), and US announcements to achieve a 50-52% reduction from 2005 levels in economy-wide net greenhouse gas pollution in 2030, among others, are combining to drive climate tech growth. Thousands of companies have made public commitments to net zero, set science-based targets, or sought to demonstrate their wider commitments to society through B Corp status.
Cleantech businesses work toward a zero emissions world by focusing on ways to improve the performance and efficiency of production. They’re companies like clean energy, clean air, water treatment, transportation, recycling and waste reduction, supply chain improvement, energy efficient built environments, or sustainable manufacturing, for example.
Climate tech is slightly different — it is explicitly focused on reducing GHG emissions or addressing the impacts of global warming. These applications directly mitigate or remove emissions, help to adapt to the impacts of climate change, or enhance our understanding of the climate. Investment in climate tech is continuing to show strong growth as an emerging asset class, with 14 cents of every venture capital dollar now invested in climate tech. By 2023, total investment in the climate and cleantech sectors is expected to reach $6.4 trillion.
The interest in climate tech has surged for a couple of reasons, according to Wired. Investors have started to see returns from earlier successes, which whets the appetite for more investment. Leaders in the EU and US have taken on measures to reduce greenhouse gas (GHG) emissions, like identifying and deploying tools to measure and verify emissions, enacting rules to cut emissions from heavy duty vehicles, or creating comprehensive accounting of global GHGs. Those areas of focus create market opportunities for startups that want to build climate tech.
Also, many climate tech founders hail from software companies like Amazon, Google, and Airbnb. Such backgrounds translate into careers like emissions analysis and management, climate change prediction models, water conservation engineering, renewable energy grid design, energy efficient freight movement, mapping the ocean floor for climate impact, and many others.
Zooming in on the Climate Tech Startups at Y Combinator
Last week, 31 founders who are building products and services to save the planet had a chance to sell their ideas to angel investors and venture capitalists. Y Combinator (YC) provides seed funding for startups and has funded 90 companies addressing climate change since 2010. They say the most important thing they do is work with startups on their ideas, with the secondary objective to help founders deal with investors and acquirers. YC invites the most promising groups to meet with them, works intensively with the companies for 3 months to mold them into the best possible shape, and guides the newbies as they refine their pitch to investors.
Each cycle culminates in Demo Day. Y Combinator’s 2022 Demo Day was an opportunity for the latest batch of startups to present to an invite-only audience of approximately 1,500 investors and media. Held livestream, the event offered each company a forum to present for one minute with the dream of obtaining a chance at the twice-a-year YC investment of $500,000 per company. Then again, YC’s influence doesn’t end on Demo Day, as their alumni network continues to help founders for the life of their company.
Alga Biosciences is one example of YC’s promising climate tech entrepreneurs. Alga Biosciences is researching a process to decrease agricultural methane emissions using one of the most scalable resources on our planet: algae. Ruminants, mainly cattle, account for 27% of annual methane emissions in the US. In ruminants, methane is produced mostly by enteric fermentation, where microbes decompose and ferment plant materials, such as celluloses, fiber, starches, and sugars in the ruminant’s digestive tract or rumen. Enteric methane is one by-product of this digestive process and is expelled by the animal through burping.
And cows sure do burp: they cows burp all day, every day, and release tons of methane into the atmosphere. And there’s another positive effect: with less energy allocated towards methane production, each cow would require substantially less feed to maintain the same weight. Alga Biosciences is working on a particular kind of algae, Asparagopsis taxiformis, that, when grown at scale, can help cows retain more nutrients. This algae feed additive is considered to be inexpensive, scalable, and safe for cattle — with the potential to reduce cows’ methane emissions by 90%.
Other Interesting Climate Tech Startups
Another climate tech startup that’s making the news is Glanris, which has developed a process to turn rice hulls into water filtration media. Forbes calls this “an incredibly simple but effective treatment of rice hulls” that sequesters billions of pounds of carbon that would usually be released into the atmosphere through burning. By repurposing the rice hulls, the process replaces harmful microplastics in traditional water filters and reduces the energy usage for filtering water. From production to landfill, Glanris’ biocarbon™ provides a green alternative to typical metals removal filtration media without yielding high standards.
Another interesting climate tech startup, Sunified, is building 27 5-megawatt (MW) solar parks across Australia and one 120 MW park with co-located, grid-scale batteries in regional centers around the country. The solar parks will showcase how small-scale solar parks can work within the existing, aging grid infrastructure to deliver renewables without the need for expensive grid upgrades — something many countries currently require. They say their electron tracking provides proof of origin, while granular, panel-level data is captured in real-time, under real-world conditions. Data is verified at the source, secured through unhackable crypto-anchors, and is viewable 24/7 on the cloud. Their encryption and blockchain technologies protect their data and unlock API potential for entire ecosystems. By 2026 – 2028, Sunified projects a total valuation at exit of $2.6 billion, offering investors a 3,000% ROI.
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