Over the next one to two years, I predict that we’ll see a boom in climate tech startups, and startups that build the predicted effects of climate change directly into their business plans.
Some of these companies will be explicitly ‘green,’ with business plans and marketing that directly address climate change. Opus 12, for example, is recycling pollution, putting carbon emissions to work to produce chemicals and fuels, while Craste is preventing the toxic clouds that form every year in India when farmers burn crop residue by buying the crop stubble and using it to create products like organic packaging and furniture materials. Planetly develops digital tools that help companies analyse, reduce and offset their CO2 emissions, and Kleiderly, which launched the world’s first eyewear collection made from recycled textiles, are saving unwanted clothing from ending up in landfills, and thereby creating a circular economy.
The business opportunities that climate change is creating are worldwide and across industries.
Other companies are simply looking with clear eyes at the effects of climate change and building those effects into their plans. Eversend is building banking for Africa. On the face of it, this doesn’t sound like a climate change opportunity. However, the founder, Ugandan entrepreneur Stone Atwine is looking ahead to the insurance claims, the flows of payments, the forced migrations, and more that are predictable effects of climate change, and that will dramatically impact his business. This foresight sets up companies like Eversend to successfully meet the changing financial needs of customers.
But these few companies are just the beginning of a movement, and there are three big reasons why I believe now is the moment for climate startups to take off.
The biggest trends in tech sustainability
1. The business opportunity around climate change is clear
Climate change is already impacting all of our lives, around the globe. More extreme weather patterns, raging wildfires, rising sea levels are all effects of climate change that have become much too real over the past year. Future pandemics could also potentially be increasingly likely to spread, since climate change hits across things like temperature or rainfall patterns, which just happen to influence where and when pathogens appear. The need to halt or reverse the still growing amounts of carbon dioxide and methane in the atmosphere, paired with coping with the effects of climate change that are already here, together create huge opportunities for entrepreneurs to build companies around.
Entrepreneurs are problem solvers, and climate change is creating thousands of problems that require solutions, fast. Every one of these could turn into a thriving business — all while saving lives and livelihoods.
To be clear, I don’t think we’ll stop seeing climate tech startups after the next couple of years — but I do think the opportunity horizon changes when we get to 2024, especially when you factor in Venture Capital cycles.
2. Paris Agreement 2030 goals
The next couple of years are crucial for climate tech startups to start up and gain traction and initial funding in part because of the Paris Agreement, which has set ambitious and important goals for 2030. One of the Biden-Harris administration’s first key actions was to bring the US back in line with this agreement, and we find ourselves in a unique moment in history when pretty much everyone, from investors to policy makers to entrepreneurs are in alignment. Even the US National Security Council’s point-person for climate change spent several years working at an investment firm that backed technology-enabled companies delivering transformative solutions to climate change. This gives me confidence to believe companies that get going quickly will be well placed to help meet those goals
Large institutions and governments are also making pledges for 2050, but no sane early-stage entrepreneur or investor is thinking on a 30-year horizon — there’s just too much uncertainty. 2030, however, is on the horizon, and the world is already coalescing around the shift toward a more sustainable world. If we are to meet the goals for net zero emissions by 2050, it will only be because of the work that is starting now.
How the tech sector is measuring ESG impacts
3. Venture Capital cycles
Finally, the 2030 goals drive funding for startups as well. Venture capital investing requires thinking about business cycles, which means it is also cyclical. VC funds move in cycles of seven to ten years, meaning that companies that are funded between 2020 to 2022 are expected to mature, and hopefully exit, around 2030. Now, this isn’t to say that the climate startups of 2024 won’t be useful and important — the fight against climate change is going to drive us for decades to come — but they may not have a first mover advantage baked in, and certainly will be compared against heavily-funded, mature competitors with defensible moats.
I’ve gotten a sneak peak into this new generation of climate companies, and I just can’t wait to see the ones that will be appearing on our radars, within the next few years. They’re literally going to change the world, and it’s our job as investors, mentors and partners to champion them.