Investing in climate tech: a primer
Not financial advice! Just a starting point — do your own research :)
Intro
We’re obviously pretty far off from solving our climate problem. People are energized to help: from lifestyle changes to charity donations, from starting new climate careers to throwing soup at paintings.
Another way to help is through climate / impact investing. However, the efficacy of public market impact investment strategies (like investing in stock market ESG funds) is unclear and likely low.
Investing in young companies that build new climate solutions looks more promising. Think of companies building software to accelerate solar deployment, new battery technologies, meat replacements, efficient air conditioning, geothermal energy generation, etc. Such businesses, if successful at scale, can have a real impact on our climate trajectory. Access to funding is key for them to succeed: your investment can make a difference.
My personal journey
I’ve explored this investment route myself in the last few years: reading lots of books, talking to experts, learning about new technologies and climate opportunities in different sectors, and of course investing. It’s been a fun ride so far. I decided to write down some of the more practical things I’ve learned here, hoping it will help a few others get started too.
Who this is for
Simplified, the process is that you give a startup your money and then later (say 5–10 years) one of two things happens:
- They go bankrupt, and the money is gone — this is most likely
- They have an exit (e.g. list on the stock market or get acquired), you get your money back, hopefully multiplied many times, and you are happy
This is obviously risky. So in the US for you to be allowed to do this (with the exception of crowdfunding) you need to qualify as an “accredited investor”: have over $1M in assets or over $200k income. That is, this is for people with a good amount of money, a healthy risk appetite and a long time horizon.
How to invest: angels, syndicates and venture funds
In terms of risk, luckily you don’t need to put all your eggs in one startup basket but can spread your bets. There’s a few typical ways people invest in startups:
- Direct / angel investment. You invest directly in a startup.
- Syndicates. You invest in a startup jointly with a syndicate, a group of investors that share deals and bundle investments.
- Venture funds. You invest in a venture capital fund, whose managers then invest the money in many startups for you.
The pros & cons of different approaches
There’s no single right path here, but a number of trade-offs.
Direct / angel investment. Directly investing in startups (i.e. being one of the “angel investors” providing money when the company is raising a funding round) has many benefits: there’s no intermediaries that you pay fees to, you’re free to choose the startups you invest in and you’re in direct contact with them. On the downside, you need to find and vet the deals yourself and there’s lots of paperwork. Plus, single investments are bigger, typically starting at $20k — $50k: you need to invest a lot of money if you want to spread your bets.
Venture funds. On the other end of the spectrum you find venture funds. You invest money into the fund and the fund management team does the rest: they find deals, do due diligence on the companies, negotiate, invest, and then report back to you. The big benefit is that all the hard work is done by full-time professionals and they might get access to great deals. On the downside, you pay high fees (annual management fees + carry) and have little control over how your money is invested beyond selecting the fund. The minimum investment varies wildly but the lowest I’m aware of is $10k (the biggest funds require many millions). Your investment gets spread over many (often 20+) companies, making it much less risky than a single angel investment.
Syndicates. In between direct investments and funds you find syndicates: loosely coupled groups of investors. A lead investor (the syndicate founder, or another syndicate member) finds a deal and does diligence on the company. If they decide to invest, they invite other syndicate members to join with additional investment. The lead investor gets a higher share of any potential returns but otherwise the fees in this setup are low. Investment per deal typically starts at $1k — $5k.
Equity crowdfunding. Investing in companies through crowdfunding websites is another option. It can be compared to syndicate investing, but with groups consisting of many (100s) low investment ($100+) participants. On the downside, fees can be on the higher side and there’s not always a clear lead investor who through their own research and investment has “skin in the game”.
Which path should you choose?
In all likelihood, you should go with either a fund or join a syndicate. A subjective assessment of the options:
Direct / angel investing at scale (say 10+ investments per year) is best suited for folks with a lot of wealth and time to review deals — mostly a luxury sport :)
Syndicates are ideal for people that have some expertise and take joy in reviewing startup pitches, while looking to spread the risk more (with $20k per year you can be a fairly diversified syndicate investor).
Venture funds are ideal for people that don’t want to spend the time or feel they don’t have the expertise but are still looking to invest in young climate tech companies.
My personal climate investments are split about equally across the above 3 categories.
Crowdsourcing is not something I do: given the small amounts of money at stake and nontraditional incentive structure (no lead investor), it doesn’t feel worth the time & effort. However, it can be an interesting (and fun?) option for small investments.
Good climate syndicate & fund options
I went through 50+ climate related venture funds, syndicates and other investment options and discuss a few below that I believe are worth looking at. About half of the syndicates and funds can be found on AngelList Venture, a great place to get started. This is a fast changing space, so new options will certainly arise in 2023.
Example climate syndicates
Climate Capital is an active syndicate with 50+ deals per year, as is its crowdsourced companion syndicate, Climate Capital Collective. The smaller Cool Climate Collective and Climate Avengers also have good deal flow (all on AngelList). The Launch Climate Syndicate, little brother of the big and well-run Launch Syndicate, looks promising, though deal flow at time of writing is low. 4WARD.VC is another recently set up climate syndicate worth looking into.
Example venture funds
Paired with the Climate Capital syndicate is the passive Climate Capital fund, with low starting investment of $10k per year. The My Climate Journey fund is another option starting at $50k. For higher investments, it may also be worth contacting LowerCarbon Capital, a big & reputable (though also higher fee) climate fund.
Example crowdfunding platforms
While I’m less personally familiar with crowdfunding, some relevant platforms in this space are Raise Green, WeFunder Sustainability and Energea.
Getting started
Is the above enough to get you started on a climate tech investment journey? I hope so. If you have feedback or questions, feel free to reach out to me (email is my full name at gmail.com). Good luck!
