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“The truth is new and counterintuitive: we have the technology necessary to rapidly ditch fossil fuels.” – Bill McKibben
If you want to jump ahead, here’s what we’re coving in this update
If you read just one thing on climate action, please let it be this piece in the New Yorker. This is what we see as we meet with founders. There are certainly worthy deep tech problems in areas like carbon capture, hydrogen and energy storage, but we have most of the technology we need, and lots of founders are trying to find ways to rapidly ramp up deployment. The good news is that the usual early adopters are now joined by early adopters motivated by climate (like folks who stood in line for the first EVs). And now the regulators are coming.
Climate Insights The last two years saw a surge in climate interest from investors, founders, and customers. But now Russia’s invasion of Ukraine is creating more urgency. The EU is moving aggressively to cut dependence on Russian oil and gas, and the resulting IEA plan looks like something we might have seen from the cities working to meet aggressive net-zero targets: more bikes, more transit, incentives for EVs, more remote work (less commuting and travel). We already know what to do, and many people already prefer these choices over the pre-pandemic status quo anyway. And the how-tos for early adopters are getting better. For example, Rewiring America recently launched a great guidebook to rewiring everything in your home.
On the resilience front: Russia’s invasion is also contributing to global food shortages – on top of the droughts, floods, energy price increases, and supply chain issues already impacting food prices. Even as this happens, the evidence continues to accumulate that we’re underestimating the rate of change of our climate – and the costs of inaction. The recent floods in Australia led to this on-point commentary about a policy which seems to be “get f* used to it”.
Most media tends to focus on passenger cars and light trucks. But the real action is in 3-, 2- and 1-wheelers as well as buses, where more than 40% of new vehicle sales are already electric. The economics work, and while battery swapping hasn’t really made sense for larger EVs, it’s proving to be a core capability for small electric vehicle adoption in markets from India to the EU. Fleets for business are one thing, but consumer fleets for sharing have had more mixed results. It’s not as good for the planet, but consumers are choosing to own their micromobility transport like e-kickscooters. All of this is possible, in large part, because of batteries.
It's kind of insane just how much is happening with batteries, mostly centered around mobility but also tied to being bundled with wind or solar (now the source of the cheapest electricity in the history of electricity production). The vast majority of battery manufacturers are in China, South Korea, and Japan, with some new investments via automotive groups in the EU. In the US, the main focus appears to be next gen tech like Form Energy and Ambri. Here’s everything you could wish to know about the state of the battery business including a great breakout of investments by area and process stage/component like mining, recycling etc.
We’re continuing to keep an eye on some of the buzziest parts of climatech, including offsets. The appeal, especially for financial markets, is clear. Offsets create an easy path to act on climate without the messy bits like making changes in areas like procurement or operations. But financial markets don’t function properly without a certain amount of oversight, like auditors, rating agencies, and regulators. So it’s heartening to see regulators showing up and an ecosystem developing to audit and rate offsets. Coming regulations are going to clarify a lot more than offsets.
The Biden administration hinted at a role for the SEC in climate reporting. And the new rules recently proposed are related to standardizing climate-related disclosures for investors. The rules embrace concepts like scope 1, scope 2 and scope 3 GHG emissions. And interestingly, they also include reporting on climate risk exposure; for example, how weather or transition activities will impact financial outlook. Portfolio companies like Partsimony, Cove Tool, and One Concern are well positioned to help firms and investors understand these risks.
Startup Insights The last half of 2021 was a major shift to the upside in valuations and round sizes, but surprisingly, no new round stage names were titled. We’d like to propose one, "Pre-customer”, where product-market fit is safe to bet on before any evidence, and the product just needs a few finishing touches. We share more on the Better Money Podcast.
Valuations are changing again. Here’s a good overview of current VC market valuations. SaaS focused, but still a useful perspective on the relationship between public and private markets. If we’re due for a major valuation correction, we think we’re going to see founders take more time to explore new debt products. We already know debt can help unlock growth, and founders can avoid down or even flat valuations, which likely creates a new risk of losing top talent who see the value of their options collapsing.
Yes, we talk about startup debt more than most VCs. And with interest rates rising again, we wondered what correlation there might be with startup appetite for debt. Though not directly in reference to the asset and project finance our team is focused on, but focused instead on venture debt (financing based on a ratio of venture funding), Tom Tugenze does an analysis of startup venture-to-debt ratios over historical interest rate changes. Jobs and Opportunities There are now almost 600 career and job opportunities in our portfolio, and many more at our portfolio company, across the Climate Base platform. There is over $44 million worth of funding and customer opportunities across new programs at USDOE Arpa-E and Orange Silicon Valley.
So Many Portfolio Updates
[NEW] Stealth - We believe this team will build a new consumer energy brand with over one million residential customers within a few years. In the process, they’ll speed electrification and adoption of zero-emissions energy suppliers. In the United States, businesses in deregulated gas and electric markets can choose their energy suppliers – brokers help them get the best deals. Offering broker services to the 60 million residential households has not been economically viable. Until now.
[NEW] Photon Marine is a Portland-based team that is starting with electric outboard motors focused on fleets in tourism, commuting, and recreation. They have a strong start on de-risking the hardware design and are scoping clear differentiation from incumbents through the accompanying software platform. We think this market looks more like building retrofits versus vehicle replacement because fleet owners often have assets with a useful life of 30 years but outboard motors that might last 5 years or less.
There aren’t many products with videos that have 100 million views on YouTube, not even Tesla. We’re not saying Future Motion is the Tesla of micromobility; Forbes did that. Henry Mobility expanded their electric logistics fleet with MAYD and Cake. By the time electric vans show up, Henry Mobility fully electric fleets will be moving the majority of e-commerce shipments around EU cities. Oonee blew past their goal on Republic. Wright Electric will fly their 100-seater electric aircraft in 4 years. Here are some of the bigger technical decisions like hydrogen vs aluminum fuel cells.
Thrilling was named one of Fast Company’s most innovative companies in retail. Shilla also joins First Republic Bank’s board of directors. Bowery Farming is taking the next critical step to expand what they can farm - they acquired a robotic strawberry picking robot. One Concern announced their national scale framework for measuring physical climate risks. Climate Robotics announced a carbon removal agreement with Microsoft.
Radiator Labs has about enough radiators in their sales pipeline for this year to avoid .75m metric tonnes of CO2. Plentify is rolling out the largest virtual power plant in the southern hemisphere. Gradient’s self-installed mini-split-like heat pump is now available for early access. Blocpower recently announced a $30 million debt capital commitment from Microsoft and a $5.5 million grant from Bezos Earth Fund. Swell confirmed that they’ve so far raised $450 million in debt and equity for their fleet of residential batteries amounting to 300 MWh of storage. For scale, the largest battery storage system in the world is only 4x bigger, at 1,200 MWh.
Cove Tool is close to 30 million metric tonnes of CO2 avoided using their tools. Now they’ve introduced the loadmodeling.tool. Previously, there was just one tool to design HVAC systems in the US. Cove Tool also just announced that their API v2 is now available to power third-party apps with fast, accurate analysis for daylight, energy, and glare. Latest research from NREL shows that Blokable is on track to cut 60% of GHGs from multi-family housing development.
Perl Street figured out product-market fit in 2021 and then joined YC’s Winter ‘22 cohort. Resonant Link announced their $9.3 million raise to bring wireless charging technologies to the electrification of mobility. Like so many systems opportunities, it may not be obvious why wireless charging is as important as low-cost batteries. Here’s how to think about it:
Third Sphere Launch Many of you have told us that our change to Third Sphere has clarified our interests and mission. We can also see this in our numbers. For example, we’re on track for 2x our best month for meeting new climatech teams. Inbound LP interest is up even more. And although we don’t love vanity metrics, LinkedIn and Twitter followers grew by 20% in just the last three weeks.
In case you missed it, here’s why Third Sphere is much more than a name change. Tech Crunch and Impact Alpha provide their take as well.
Best, Shaun, Yana, Mark, Shilpi, Stonly, Zeev and Anthony P.S. This email is longer than usual because we skipped the last two. We’re always tempted to try to simplify, but we’d be doing you a disservice. Sinead O’Sullivan, who designed missions for human space flight and now works with Michael Porter (of Porter Five Forces fame), reflecting on the question of “How did we get here?” said, “We marginalized the people who dedicate their lives to understanding the complexity of our world. We chose to read 360 characters instead of 360 pages. We canceled before we tried to understand. We made (and lost) a quick buck instead of investing in long-term change.”
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How did we create this update? The content comes from our slack channels where we review contributions from people like you. So you can wait for this newsletter or join us on Slack. You can find our previous updates here.
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