Three Key Ways To Help Climate Companies Scale

Clare Anderson and Brendon Boyce
28th October 2020

As the COVID-19 pandemic grips the world, the question of whether VC and other forms of investment are backing and scaling the innovations our world really needs has never been more pertinent. Our recent blog based on PwC’s report The State of Climate Tech 2020 highlighted the key challenges climate companies face:- technology; finance; policy & process and people. PwC’s research makes clear that addressing these barriers (and amplifying the drivers) to scaling climate tech startups is crucial if society is to harness climate tech to make a net-zero emissions economy before 2050 possible. Doing so will also likely free up high-return, impact-driven investments that stakeholders seek and often mandate from their investors. 

PwC’s three key overarching recommendations to enable further scaling of the climate tech startup ecosystem can be broadly categorized as: funding needs; talent and the role of government.  

  1. Funding the early-stage investing life cycle of climate tech 

Investors need more urgency in recognizing the time-critical and strategic opportunities climate companies offer. More capital needs to be freed up to address the large funding gap. 

Venture capital firms need to respond to the implications of the net-zero transition which offers a strategic positioning for building an LP (Limited Partner) base. There is growing interest from an increasing number of LPs (including sovereign funds, corporate investors, pension funds, universities and family offices) in making portfolio decarbonization commitments, asking for climate risk disclosure and general interest in the climate tech investment opportunity.

Corporate investors are critical to many climate tech startups, particularly those with heavy capital costs who aim to disrupt asset-heavy incumbent industries with high barriers to entry, eg. the energy, heavy industry and transport sectors. Established corporates have the financial means, commercial know-how, and market knowledge to rapidly deploy and scale new innovations. Corporates need to develop new and proactive startup engagement models - these are critical to providing transformative solutions to meeting their own corporate net-zero pledge. Net-zero must be integrated into corporate innovation, M&A strategy and corporate venture/ accelerator arms to help identify and fund climate tech solutions that are not yet mature or commercially deployable. Corporates also need to be willing to pilot and proof-of-concept earlier.

Later stage investors (PE firms, investment firms) are increasingly showing interest in the climate tech investing opportunity by investing in VC firms active in this space or getting exposure directly as the lead or key investor in venture capital rounds. At the average climate tech growth rates observed in PwC’s research, there will be a considerable pool of large enough valuations within only a few years. 

  1. Foster and attract more talent to climate tech 

With fewer success stories, the climate tech sector has a smaller pool of founders to draw from. Bringing in, and fostering, the right blend of founder talent will develop more fundable climate tech companies and consequently attract even more successful and experienced founders. In order to build the climate tech talent pool, PwC recommends the following:- 

    1. Incubators, accelerators and platform VC firms help founders build and nurture early-stage teams that blend the deep technical expertise which distinguishes many domains of climate tech with commercial expertise. 
    2. Young engineers, the most sought-after talent globally, are critical to climate tech but big tech and high growth software startups win out on recruitment. University campuses and talent/recruitment agencies need to take a new approach in helping to steer passion-driven top talent into climate tech ventures. 
    3. National, regional and city level governments must support entrepreneurial and investor expertise by developing climate tech innovation hubs. There are existing hubs of innovation, e.g. fintech, but no region has yet strongly established itself as a world-leading climate tech hub. 
  1. Increase Government funding and policy incentives for climate tech 

Government intervention to create the right enabling environment is critical in nurturing the climate tech startup ecosystem. Some sectors may never receive venture funding as they do not fit the funding requirements of venture capital (capital investment heavy and long payback periods.) Government should urgently focus on developing these sectors through public R&D funding, grants, innovation prizes, joint public-private R&D efforts and government-backed incubators and accelerators. Climate policies need to be improved and include stable (long-term), efficient, and pragmatic carbon pricing mechanisms and removal of artificial support (e.g. direct and indirect fossil fuel subsidies and tax breaks.) As countries and regions around the world cautiously develop COVID-19 recovery packages in the coming months and years, these stimuli will provide an important opportunity for governments to support, and accelerate, climate tech as a high-impact area that has the potential to support the overarching goal of net-zero emissions growth. 

 

If you need help addressing your funding and talent challenges, you may like to consider connecting with the smartest STEM graduates in developing countries. The cost arbitrage will help you scale faster and more efficiently and enable you to tap into a bigger and more diverse global talent pool. Forbes, McKinsey and Harvard Business School all maintain that workforce diversity is a key driver of internal innovation and business growth. Working with a remote team in a developing country will help you manage your risks and associated processes more effectively and hit the triple bottom line of profit, people, and the planet with ease. 

For more detail around tapping into the best global talent with remote teams, download our eBook, ‘30 Hints & Tips To Get The Most Out Of Your Remote Team’. It will ensure you're informed and have the right questions to ask when considering the next step.

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