Tackling the Climate Crisis: What’s different this time
Last decade’s clean tech is top of mind again as green energy costs have come down. But innovation in harder tech areas like synthetic bio and robotics is contributing to the new face of climate tech this time around, making it more promising than ever.
If you look around it’s easy to say that clean tech is back, this time with a makeover. I’d argue that it’s never really gone away — the tech is just better, more accessible, and more necessary than ever before. Given the current political climate, mounting interest in sustainability isn’t surprising. The climate crisis is the challenge of our generation. All founders, regardless of industry, will need to grapple with the reality of climate change as they think about scaling a business in 2021 and beyond.
Policy changes & a new American administration have given a green light to those building both clean energy infrastructure and carbon mitigation solutions. Biden’s committed to creating 10 million clean energy jobs in the coming years, working towards his goal of the US energy sector being carbon-free by 2025. New regulations for 45Q tax credit are in place as of January. The US has restored its involvement in the Paris Agreement, and established a framework for measuring the social cost of carbon (SCC) which paves the way for the carbon credit market. What does this mean? The feasibility of scaling a “clean tech” business today looks and feels very different than it did last decade. And VCs have noticed.
Since 2019, we’ve seen a wave of new attention from VCs to the climate tech space. According to PWC, VC funding of climate tech has grown at 3x the rate of AI investing since 2013. It’s not exaggeration to say that a ton of capital earmarked for climate tech has been raised over the last few years — and this includes top tier generalist firms along with sustainability-focused specialist funds.
Khosla Ventures has been actively investing in the space for over a decade. Chris Sacca & Clay Dumas just recently founded Lowercarbon, a fund dedicated to carbon mitigation. Brian Schreier of Sequoia announced on Twitter last January that the firm is actively investing in climate tech, calling it a “huge business opportunity.” Last month, Version One published their thesis on climate crisis technology, calling out the potential for software solutions to solve climate change. And notably USV just recently raised a dedicated climate fund, which comes almost exactly a year after they announced their climate change thesis in early 2020.
Setting aside policy tailwinds, the renewed VC excitement over climate tech makes absolute sense if you look at advancements in pre-existing categories like renewable energy. Version One is right — energy storage and solar tech are cheaper and more efficient. Infrastructure for EVs has greatly expanded in the last decade, making them more of a reality than ever before. Tech that’s making headway on emissions reduction, such as green hydrogen, has been a major focus of recent funding (see startups like Ekona & Heliogen). As CB Insights points out, the “vast majority of sustainability-related mega-rounds, unicorn births, and exits in 2020 have been companies focused on reducing emissions and tackling the global waste crisis.” 2021 funding levels ($1.5B already) look like they’ll blow 2020’s numbers out of the water.
But it’s not just that energy tech has been getting better over the last 10+ years. It’s worth highlighting that a big part of the climate revolution we’re currently witnessing is due to innovations in newer, deep tech fields that are now being applied to sustainability solutions. Specifically, tech advancements in synthetic bio, applied ML, and robotics are underpinning some of the most exciting new climate tech solutions we’re seeing this time around:
1: Synthetic Biology
Advancements in bioengineering have led to new sustainable solutions like alternative proteins, bio-powered crop & produce longevity, biodegradation of plastics, as well as material innovation in sectors like CPG packaging and clothing. Alternative proteins may be the most mature of these spaces so far. Funding to alternative protein startups set a new record in 2020 with $2.3B invested — nearly double the $1.2B raised in 2019. The combined value of market leaders like Impossible Foods, Beyond Meat, & Modern Meadow is over $12.0B. Protein fermentation companies like Perfect Day have also gained traction in recent years; equity funding in this space grew 4x over the last 2 years according to CB Insights. Perfect Day alone has raised close to a total of $400M since 2018.
Synthetic bio startups are now creating building blocks that have applicability in a vast range of industries. New companies are addressing a broad array of applications like industrial materials, food & ag supply chain, electronics, and chemical production. As Jason Kelly of Gingko Bioworks put it, “They are all biotech industries but just don’t know it yet.” For example, Lygos, a YC company backed by First Round & 50 Years Fund, is aiming to build sustainable plastics from sugar. Boston Metal just raised a new $50M round for emissions-free manufacturing of steel alloys. Novomer is developing plant-based polymers and chemicals for industrial use. Companies like Ginkgo Bioworks, Solugen, and Apeel (to name only a few) — all valued in the billions — have already broken the traditional mold of ‘life sciences’ companies and shown us that these are huge, scalable categories.
2: AI-Powered Robotics & Drones
Advancements in computer vision and applied ML are resulting in robotic automation and drone technology that’s more efficient & accurate than ever before. Underlying advancements in LiDAR & AV tech have broad implications beyond just mobility; for example, new startups are using intelligent drone technology to bring transparency to the carbon offsets market. Companies like Pachama (backed by Lowercarbon & Breakthrough Energy Ventures), which is an AI-powered reforestation platform for carbon capture, are using advancements in computer vision and drone technology to make forestry monitoring more feasible than ever before.
Beyond monitoring solutions, there’s also a trend of robotics-enabled automation allowing more efficient and more sustainable business processes. For example Running Tide, backed by Founder Collective & Lowercarbon, is automating ocean kelp & shellfish farming to create an alternative that’s vastly more sustainable than traditional methods. AMP Robotics is developing robotic systems for automated materials recovery, aiming to increase recycling rates; they just raised their $55M Series B from investors like XN, Valor Equity Partners, GV, & Sequoia.
With all of this venture dry powder combined with new & rapidly expanding sectors, it feels like climate tech is just getting started. And, with more generalist VC funds entering the climate tech initiatives, we’ll likely see even more capital backing deeper tech areas like synthetic bio, robotics, and industrial chemical manufacturing. Historically, backing sectors like biotech has meant adjusting exit timeline expectations & potentially underwriting a different type of working capital requirement. However, as we’ve seen with the Beyond Meat IPO, last year’s “biotech IPO boom”, & the anticipated upcoming Ginkgo Bioworks IPO, these investments still have the potential to generate huge venture-style outcomes.
Institutions far beyond VC firms are picking climate tech up as well: multinational corporations like Unilever, Nestle & Walmart have all made public commitments to reducing emissions across their supply chains. An expanding set of solutions in the voluntary carbon credits market means that it’s more possible for them to achieve their (lofty) targets. This activity also means that startups providing transparency and traceability in carbon emissions will be key in coming years — whether they’re providing tracking solutions like Pachama or setting up carbon removal marketplaces like SilviaTerra, Wren or Patch.
Here at MIT, the buy-in from global corporations is easy to see; MIT just announced a new Climate & Sustainability Consortium, a joint effort between researchers and businesses like Boeing, IBM, Apple and PepsiCo that’s dedicated to the rapid implementation of large-scale solutions tackling climate change.
There’s also a growing number of bioengineers that are applying their work to sustainability, instead of going the traditional route of therapeutics. Like Chris Sacca said, we’re witnessing a “generation of hardcore scientists who went to school knowing that they wanted to start a climate tech company.” For example, I’m on the founding team of Activate Eco, a new cross-Harvard/MIT climate-focused incubator designed to launch translational biotech solutions addressing the climate crisis. We have our first cohort of founders (from both business & post-doc backgrounds) building tech ranging from lab-grown plants to enzymes designed to break down plastics.
Judging from the activity here on campus, sustainability is a big focus for this up & coming generation. This year’s MIT $100K Accelerate finalists had a range of climate tech startups including IoT-powered ice dam monitoring systems, clean alternatives for the industrial chemical separation process, and drone technology enabling automated & intelligent reforestation. In my next post, I’ll talk with some MIT founders building in the frontier areas of climate tech and get their perspectives on what’s coming next.
