Ted Persson: Net Zero Shouldn't Be a Zero-Sum Game for Startups
How we can assist the climate tech startups that are looking to scale
No one needs to be reminded how essential net zero is. We have less than a decade to reduce emissions and stave off the worst effects. That’s the bad news. The good news is that hardware and deep tech-based solutions have the potential to abate 90 percent of emissions by 2050.
The even better news is the innovation required is there. I’ve seen it up close. EQT Ventures and EQT Foundation have invested in a number of early-stage climate startups. We’ve invested in Candela, a manufacturer of hydro-foil boats designed for sustainable water travel; evroc who specialize in sustainable cloud computing; ViridiCo2, whose technology transforms Co2 into a variety of high-value chemical intermediaries; and Syntetica, which uses green tech to create sustainable synthetic textiles.
When we first ventured into climate tech, however, it rapidly became clear that the playbook we've used to great effect in scaling software startups in AI, fintech and SaaS just didn’t apply. It’s such a nascent area, often tied up in the need to build complex hardware or infrastructure and secure regulatory approval, that there’s no formula or sense of what type of capital is required and when. There is no agreed-upon value chain and no rules of engagement.
“This isn’t an industry that can afford to waste time or money. It must move fast and move together. Achieving the required scale demands collaboration between policymakers, industry, and entrepreneurs on an unprecedented scale.”
Catalyzing scale through community
The companies in our portfolio are just a fraction of the world’s climate-tech investment. We’re one firm among a community of investors. Considering the estimated investment needed to hit that target is around €270tn, this is also good news.
The challenge for founders is proving the space is a worthwhile investment. As blunt as it sounds, if investors aren’t seeing returns on climate tech, attention will turn elsewhere. Venture capital volumes for climate tech peaked in 2021 with $76bn of funding raised. Last year that was down to $50bn, according to Dealroom.
Climate tech startups have historically benefited from a uniquely collaborative culture born out of a shared belief that working together, albeit under healthy competition is essential for hitting net zero. When funding is plentiful and interest rates are low, it’s easy to maintain that approach. As that changes, the desire to compete can understandably overshadow the need to collaborate, and today, a more ‘traditional’ business attitude has prevailed where for some to win, others have to lose.
Founders need to not forget abut the power of collaborating. That’s why EQT Ventures and Contrarian Ventures created The Climate Brick, bringing together over 50 founders and investors to provide the go-to playbook for climate tech startups, their investors and policymakers. It’s the missing manual for anyone in climate tech looking to understand the journey to scale.
We've conducted one of the most extensive studies on new climate tech startups, analyzing over 3,000 companies and engaging with around 100 of Europe's climate pioneers and experts. The study is constantly evolving, but in its current form, it contains scaling formulas for seven types of climate techs, including key milestones and KPIs that align with funding rounds.
By mapping these journeys collaboratively, founders and their teams can reduce the time spent discussing the basics and act fast. The long-term aim is for all climate tech stakeholders to join the community, helping us to expand and refine the frameworks, allocate investor capital strategically, and streamline stakeholder engagement.
The right formula for the right funding
The climate tech ecosystem is built on the startup software paradigm of Pre-Seed, Seed, Series A, B, C, etc, but it’s a totally different journey. One of the most important parts of our work at the Climate Brick has been helping climate startups understand what capital is required and when. While traditional venture capital funding is vital, many climate tech innovations require patient capital later in their journey due to longer time horizons for commercialization, particularly where the capital intensity is higher.
Take ‘gigascalers’ ( companies building CAPEX-intensive, large-scale plants for established green production methods, such as green steel, batteries, and green fuel). We recommend they develop and execute a clear roadmap to achieve cost competitiveness compared to peers and ensure take-or-pay commitment offtakes to unlock non-dilutive financing.
For companies launching game-changing science that’s fundamental to the way entire sectors work (we call them ‘moonshots’), we recommend that, due to the time it takes to create revenue, they look to secure grants and public funding throughout the project. Marvel Fusion, for example, has raised $200m in private funding as well as collaborative projects with Colorado State University.
Net zero as a plus-sum game
For climate startups to make a real dent in global emissions, they have to think beyond local or regional solutions. The climate crisis is a global challenge, and the technologies developed must be scalable across regions and industries. This means building with scalability in mind from day one and creating systems that can adapt to different regulatory environments, climates, and customer needs. It also means fostering partnerships with established industry players who can help bring your innovations to scale faster.
Reaching net zero is not only a moral imperative but also a potential market opportunity worth trillions of dollars. By innovating, scaling, and partnering with the broader community, early-stage startups can lead the charge toward net zero and build the defining companies of the 21st century.
Ted Persson joined EQT Partners in 2015. Prior to joining EQT Partners, Ted founded leading global digital agency Great Works, advising some of the world's leading brands and startups. Since 2014, he has also led North Alliance's Startup Incubation unit.
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