An update on our climate & energy areas of focusEnergy/Climate
Eighteen months have passed since I wrote about Version One’s areas of interest in climate and energy… it’s hard to believe how quickly time flies. Since then, the space has only heated up (bad pun, I know) with more startups building and even more venture capital available to scale them. Now the newly passed Inflation Reduction Act (IRA) offers many new incentives that may decrease the cost of climate tech by 40% – more room for innovation! Our friends at Climate Tech VC have a great summary of the IRA investments that we highly recommend reading.
My original climate post had a lengthy list of our areas of interest: new electricity providers, EnergyOS/energy management, carbon footprint assessment, climate risk assessment, new natural capital markets, zero emission mobility, wildfire detection/containment and bitcoin mining.
All those areas are still on our radar, but as we work further in the space, new themes are capturing our attention. What follows below is a supplement to our original list. This list, as well as the companies named, is by no means exhaustive. It’s also important to note that while many climate/energy companies touch the physical world, we are focused on those where the majority of value is driven by software.
Carbon Footprint Assessment & Reduction
This is not a new category, as we’ve previously listed companies that do carbon accounting and encourage reduction for enterprises (Watershed) and consumers (Aerial, Wren). But it’s worthwhile to mention that we’re seeing startups take a B2B2C approach towards more “comprehensive” behavioral change; that is, helping organizations establish a more green culture while incentivizing employees in reduction efforts. Some examples: there are platforms that evaluate enterprises top down and look for day-to-day improvements by employees (Climate Club); and 401(k) products that employees can choose that specifically invest in green sectors (Carbon Collective).
With these assessments come actions to reduce and/or offset emissions through partnerships with platforms like Patch* which have a myriad of suppliers (read our investment announcement here) or directly through a specific supplier like NCX* (read our investment announcement here).
Residential & Commercial Modernization
We’re seeing startups help with efficient energy installations (i.e. heat pumps, EV chargers, induction ranges, etc.) to reduce the home footprint. These are not straightforward DIY projects, but require design, materials and construction. With that said, we’ve seen contractor marketplaces like Elephant Energy to help find specialists in HVAC, electrical, etc.
Other startups are offering ways in which we can rely less on the grid altogether. A classic example is solar panels, and we now see geothermal energy and cooling (i.e. Dandelion Energy). And not surprisingly, we’ve also seen the retro-fitting of commercial buildings and companies like Station A which also helps fund these upgrades.
When we talk about the circular economy, it’s important to distinguish between recycling and reusing/repurposing. Recycling turns an item back into raw materials to be used again, usually for a new product; this process consumes a lot of energy. Reusing, or repurposing, uses an object as is.
Here’s one example. Many cities are adopting a ban on single-use plastics to help fight plastic pollution. As a result, the infrastructure needs to be in place for reusable containers: distribution –> collection –> sanitation/sterilization –> distribution (this, of course, is very simplified for illustrative purposes). Several companies are building in this circular economy such as Boox, Dispatch Goods, Topanga, Friendlier, Reusables, and Suppli.
Another good example comes from the booming EV market. When you recycle a battery, you recover and/or dispose of the battery’s heavy toxic chemicals so they don’t contaminate the environment. However, EV batteries have an average of 80% life left when retired from a car. And most of these batteries are sitting on shelves or in landfills because recycling costs are too high. Moment Energy* (read our investment announcement here) gives these batteries a second life, producing a highly affordable energy product, while reducing lithium waste.
Zero-Emission Mobility / EV / Logistics & Transportation
We included this category in our original post, but it’s worth mentioning again, especially as we anticipate more of the world to follow California’s plan to ban the sale of new gas cars by 2035. The resulting growth in EVs will spur lots of infrastructure and software to manage grid interaction, optimize storage, operate fleet networks, and facilitate financing. Some companies in this category: ChargeLab, Synop, Dimo. And not surprisingly, battery innovation will be important too (in addition to optimizing the use of materials for batteries as mentioned above).
Climate Fintech & Crypto
Project finance and climate investing are not new, but many startups are finding ways to infuse more capital into the space faster to fight climate change. For example, there are growth capital/investment platforms like Enduring Planet; neobanks like Atmos Financial; and crowdfunding platforms like Climatize.
And, of course, where there’s finance, there’s crypto. Regenerative Finance (ReFi) is a multi-trillion dollar opportunity to do well by doing good, and Celo* is becoming its “home,” as described in this blog post. And, KlimaDAO is a DAO that sells bonds and distributes rewards to KLIMA (currency backed by real carbon assets) holders. Every bond sold adds to an ever-growing green treasury, or improves liquidity for key environment assets.
You can further explore the intersection of climate and crypto with this amazing visualization map.
New Registries (Third Party Verification)
Whenever a tech space is hot, it attracts more entrants and thus, a need for validation and verification. In this case, there’s a real need to certify projects pertaining to carbon sequestration. Current carbon verification registries lack transparency. And there’s a lack of governance and unified standards. We see an opportunity to review and certify projects in a more open and collaborative manner. Renoster and Calyx Global are working on this, as is NCX*. And there’s the potential to do this in a more decentralized way or on the blockchain like Covalent and Mangrove… and perhaps there might be a DAO for carbon verification in our future?
As you can see, our list is diverse. And that’s intentional, as addressing climate change will require a multi-faceted approach. If you’re working in any of these areas, or in the ones we mentioned previously, please reach out to us! We’d also love to learn what we’re missing. We look forward to hearing from you!
* Version One portfolio company