The Climate Startup Playbook
A guide for founders turning theory into action as they build a better world for everyone
Ideally, we’d view climate change like an alien invasion.
We would put aside national interests and direct a modest multiple of current defense budgets to the problem. Young people would be drafted into “Climate Cores” to carry out large scale transformations like retrofits and reforestation. We already have most of the technologies we need to decarbonize the economy. And agencies like ARPA-E would direct research funding to solve the remaining problems just as we’ve done with space, solar, computing, the Internet and GPS. Then, we’d ride the multigenerational benefits of new technologies.
Unfortunately, this approach to fighting climate chaos is likely to remain the stuff of science fiction. Wartime mobilization will require substantially more economic loss and suffering, especially in the wealthiest nations. So today, most climate action is driven by customers who buy emerging technologies, helped along by government policies and informed by climate scientists.
The customer-led transition is messy and unpredictable. But it’s also a unique opportunity for startup founders.
Relatively young companies have been able to convince large percentages of the world’s population to change their behavior. Apple, Tencent and Google have shipped over 1 billion devices and have multiple products with over 1 billion users. The first generation of climate companies is less than two decades old and accelerating in growth (and impact). Tesla has shipped nearly 3 million vehicles and is growing exponentially. The 2 and 3 wheel electric fleet is much more impressive, with 300 million already electric vehicles. Survey after survey suggests that most buyers of these electric vehicles simply believe they’re buying a better vehicle.
Since 2013, Third Sphere has partnered with hundreds of startups addressing climate change. One of the most surprising things we’ve learned is that the best climate investments don’t look like “climate companies”. They just look like great, fast-growing companies with customers who love them. But if you do a little digging you’ll find that, for each dollar of revenue, these companies generate one or more planetary benefits such as avoided greenhouse gas (GHG) emissions or improved resilience. The opportunity to build a massively successful company while working on climate isn’t intuitive, so we wanted to explain what we’ve observed, in the hope that it will inspire more founders to build fast-growing, planetary positive companies.
In most cases, we’ve served as startups’ first investor. This means we partner with teams and get to work, usually, before there are customers and help navigate early product development, manufacturing, marketing, and customer discovery. As we’ve watched teams transform ideas into profitable, high-impact organizations, we’ve been able to observe the challenges and patterns unique to climate startups.
Early on, before it’s possible to obtain the data necessary to prove their theses, founders must address investor concerns about issues like scalability, growth, and the potential for meaningful climate impact. These concerns are reasonable. However, innovative founders in the climate space must also frequently confront objections — commonly accepted, but sometimes misplaced:
“You’ll need government subsidies.”
“Sales cycles are really tough in [fill in a critical sector].”
“Hardware is hard.”
“Is the market ready? Why now?”
Despite such real impediments to funding, our startup founders have proven that it’s possible to build fast-growing companies that achieve meaningful impact. To date, the teams we’ve backed from before they had customers have avoided over 30 million metric tons of CO2e (equivalent) and created over $5 billion in enterprise value for investors. (As a comparison, for the year 2021 Tesla avoided 8.4 million metric tons of CO2e.)
Introducing the Climate Startup Playbook
This playbook will cover topics we’ve found to be uniquely challenging for climate-focused founders, from choosing a climate challenge to funding hardware businesses. We’ll begin with an exploration of climate issues in urgent need of solutions. We emphasize this phase in detail because the choice of where and how to aim your impact is unlike any other startup endeavor we’ve seen.
Like all tech-enabled startups, there must be potential for rapid growth, but the best approaches to rapid planetary impact are often counterintuitive. For example, scientists are clear about the benefits from reduced deforestation and we know this must include reducing land use for raising cattle. But to replace cattle, how do we go about convincing large groups of people to rapidly change their diets?
Science offers clues about pathways, but customers remain the deciders about what will be adopted. And some of the biggest opportunities are linked to existing already-at-scale manufacturing that’s able to get lab prototypes ramped up to hundreds of millions of units.
Startups will never be easy. But, by sharing our thinking on the riskiest stages of conception, early fundraising, and growth, this guide will enhance your chances of building a successful business that can help achieve our common goal of avoiding the worst climate outcomes for life on earth, while transforming global systems to do so much more for people and the planet.
