Reimagining Consumer to Regenerate Our Planet
In 2021, Regeneration.VC was established to Supercharge Consumer-Powered Climate Innovation. At the underfunded intersection of Consumer Industries and ClimateTech, we target a multi-trillion-dollar market capable of addressing up to 45% of greenhouse gas emissions and 90% of biodiversity deterioration. This brief defines ‘Consumer ClimateTech” as the next chapter of materials, brands, and recovery systems necessary to progress global environmental efforts, realize outsized economic potential, and provide for future generations of conscious consumers.
To address accelerating anthropogenic crises, the Intergovernmental Panel on Climate Change (IPCC) and Convention on Biological Diversity (CBD) outlined two critical areas of focus: greenhouse gas emissions (GHGs) and biodiversity. Emerging from the 2015 United Nations Climate Change Conference (COP21), the “Paris Agreement” created a political, philosophical, and economic foundation for international climate collaboration. To achieve science-based targets that cap global warming to 1.5oC within the century, participating countries pledged drastic emissions reduction strategies to achieve “Net Zero”–the state where GHG emission flows into the atmosphere are mitigated by equal and offsetting drawdown and removal efforts. To date, many investors have assessed climate technologies (“ClimateTech”) through the speed, efficacy and scale by which innovations reduce emissions. As a result, sectors like mobility, transportation, and power generation dominated ClimateTech investment over the last decade.
Shifting cultural, economic, and regulatory trends signal accelerating tailwinds that position ClimateTech for unprecedented performance this decade. Within venture capital, ClimateTech received a record-setting $70.1B in investment in 2022, up 89% over 2021, and accounting for more than one quarter of all venture capital funding. Across the past decade, venture investment in the category totaled $222B, further illustrating escalating growth. Last year, climate fund AUM more than doubled and a median valuation growth spiked 41% YoY, blowing by venture stalwarts like AI/ML (9%), SaaS (6%), and FinTech (1%). ClimateTech also outperformed public market indexes over the turbulence of 2022.
While governments, businesses, and investors sprint to decarbonize power generation and transportation systems, Regeneration.VC remains focused on the underfunded white space around consumer industries. While consumer spending accounted for ~70% of 2021 U.S. GDP, only 9.6% of U.S. venture capital was allocated to the consumer space, and an even smaller fraction was subject to climate mandates. Factoring in material processing, agriculture, built environment, fuels, and consumer goods, the United Nations estimates consumer lifestyles account for two thirds of global GHGs and 90% of biodiversity loss. The World Economic Forum estimates that solutions derived from principles of circular and regenerative economies are poised to unlock over $10T in global business opportunity and generate 395M jobs inside this decade.
Consumer ClimateTech comprises hardware and software companies generating meaningful environmental impact in and around consumer industries. Through a focus on the life cycle of material flows, this emerging field is retooling global supply chains in harmony with climate and resource considerations. This sector of innovation consists of three interdependent themes: Design, Use, and Reuse.
Design: novel materials and reimagined systems of production
The ‘Design’ theme considers Next-Gen Materials and AgTech and Aquaculture innovation born of advanced manufacturing techniques and regenerative means of production. Derived from microorganisms, mycelia, plant-based sources, and upcycled materials, Next-Gen Materials span dyes and coatings, formulations, packaging, metals, and textiles. Replacing fossil-fuel and animal-derived materials presents an estimated $1.1T market opportunity by 2040 (McKinsey). AgTech and Aquaculture span the waste reduction and regenerative food production technologies responsible for nourishing future generations. Evolving land use practices and broader food supply chains presents a $1.6T market opportunity by 2030 (McKinsey, MarketWatch).
Use: brands-as-a-showroom for materials science innovation
The ‘Use’ theme addresses innovative Apparel and Lifestyle and Food and Beverage consumer brands commercializing ‘Design’ solutions and employing circular ‘Reuse’ solutions. Across fashion, household products and appliances, and wellness markets, the future of durable consumer goods amounts to a $2.6T market opportunity within the decade (McKinsey, Deloitte). The next wave of healthy food and beverage brands presents a $2T market opportunity by 2030 (Bain).
Reuse: circular economy approaches that repurpose used products and materials
The ‘Reuse’ theme covers ReCommerce and Reverse Logistics systems that leverages AI and ML technology to prevent or responsibly manage post-consumer materials. By 2025, ReCommerce presents a $335B market opportunity for shared usage economies displacing unnecessary production or purchase through rental, resale, and repair strategies (PwC). By 2040, Reverse Logistics offers a $950B market opportunity for recovery and processing innovations targeting post-production emissions and post-consumer materials (McKinsey, LuxResearch).
Consumer ClimateTech Ecosystem Map
Since inception, Regeneration.VC has built a diverse portfolio of early-stage Consumer ClimateTech companies. Within Design, we invested in Cruz Foam, a California-based materials technology company manufacturing a home compostable polystyrene alternative derived from aquaculture byproducts. The team is bringing their material to market in partnership with Whirlpool and other global packaging producers and consumers. Within Use, we backed UK-based Pangaia, a materials science lab and global lifestyle brand commercializing seaweed-derived fibers, pollution-sequestering inks, and functional food snacks. In partnership with brands including H&M and Timberland, Pangaia rapidly amassed an international following. Within Reuse, we invested in TULU, a property technology company bringing rental-powered convenience to apartment buildings and tenants in 15 cities around the globe. Currently, the business works with product partners like Bosch and building partners including Greystar, RXR, and Blackstone.
By presenting opportunities for consumers to play an active role in global climate and resource regeneration, Consumer ClimateTech translates global consumer enthusiasm into corporate and regulatory action.
“It’s time for people to feel good about their purchases and for businesses to meet that challenge,” shared Regeneration.VC Strategic Advisor Leonardo DiCaprio.
Governments around the world are accelerating policies to phase out plastics and ‘forever chemicals’. Overwhelmed waste managers and municipalities feel growing pressure from superior governing bodies and their constituents to deliver transparent circular solutions to systemic waste creation. Voluntary credits for carbon capture and material reuse are already trading, with growing efforts to establish regulated market schemes. These programs generate further upside potential for businesses capturing and repurposing waste streams, such as Regeneration.VC Portfolio Company CleanO2 which sequesters HVAC emissions into value-add stable carbonates. The recent U.S. Infrastructure Investment and Jobs Act, CHIPS and Science Act, and Inflation Reduction Act allocate hundreds of billions toward investment in green growth. NextGeneration EU holds that member states must cut GHG emissions 55% by 2030, with a target to reach carbon neutrality by 2050. To date, nearly 3,000 climate policies have been enacted by governments around the world.
Further, the Covid-19 Pandemic and Russo-Ukrainian War escalations forced organizations to reconsider traditional supply chains. Disjointed post-WWII-era systems of production, distribution, and consumption are evolving into those that prioritize economical onshoring with environmentally responsible methods of material design, use, and reuse. As a means of developing national security and protecting public health, the US Department of Defense has taken swift and deliberate action to repatriate critical supply chains.
Current regulatory tailwinds present a unique opportunity for venture capital funds to support portfolio companies in building a solid foundation for impact measurement and monitoring protocols. Regeneration.VC designed the Regenerative Evaluation Gauge (REG) as a due diligence protocol and an applied monitoring and engagement system for portfolio companies. Created in alignment with leading global standards on climate and material resource impact, REG leverages hundreds of impact measurement and monitoring frameworks, methodologies, metrics, and data points to assess and improve company performance across emissions, resources, waste, toxics, and human health and safety. We published our inaugural impact report with findings in September 2022. As a co-founder of the Climate+Positive Investment Alliance (C+PIA), Regeneration.VC joins a distinguished global group of fund managers that share a vision to address this gap within venture capital and expand climate investing beyond “Net Zero”.
Across the globe, resource demand continues to overshoot Earth’s capacity to regenerate depleted natural capital. Amounting to trillions of dollars in lost ecosystem services from land and oceanic degradation, we see latent value unlocked by addressing global crises through Consumer ClimateTech. Models pricing the value of ecosystem services and risks posed by current waste and pollution streams are penetrating mainstream discourse among insurers, creditors, and other fiduciaries. As these costs become priced into manufacturing processes, Regeneration.VC Portfolio Companies VitroLabs and Colorifix start to internalize the advantages of localized synthetic biology production techniques that bypass ecosystem deterioration. While macroeconomists point to a looming global recession, this burgeoning investment universe serves as a potential hedge for investors and what many believe presents a $100T investment opportunity over the next three decades.
Reimagining economic systems and supply chains in harmony with ecological capacities requires an internationally coordinated effort. Venture capital sits at a critical inflection point, with high-value ClimateTech deals on the rise. Consumer industries will prove integral in catalyzing vital innovation with outsized economic potential. As global momentum swells, venture capital is poised to extend the scope of ClimateTech investment beyond emissions to incorporate strategies of regenerative design, conscious consumption, and circular economy.
“Regeneration.VC is supporting Consumer ClimateTech to enhance the Circular Technosphere, where materials return to supply chains, and the Regenerative Biosphere, where materials can safely return to living ecosystems,” shared Regeneration.VC Strategic Advisor William McDonough, globally celebrated architect and sustainable development thought leader.
Consumer ClimateTech presents a multi-trillion dollar opportunity currently underfunded by the asset class responsible for bringing cutting-edge innovation into the spotlight. Regeneration.VC is dedicated to supercharging Consumer ClimateTech through early-stage investments that will usher in an exciting and aligned near-future of people and planet. We look forward to deploying much needed capital into this space and coalescing a global community around these efforts.
Disclaimer: This article is intended for educational purposes only. Certain information contained herein has been obtained from other parties. While such sources are believed to be reliable, neither the Fund, the General Partner, the Management Company, nor their respective affiliates assume any responsibility for the accuracy or completeness of such information. The ecosystem mapping depicts a broad and non-exhaustive sample of companies at various business stages. Regeneration.VC holds an investment interest in some of these companies. The contents of this work should in no way be construed as investment recommendation guidance from Regeneration.VC. The information set forth in this presentation does not purport to be complete and no obligation to update or otherwise revise such information is being assumed.