The green Paua is on!

Why we think that now is the right time to invest in Climate Tech

Charlotte Baumhauer
Inside SquareOne

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We have all heard statements like “Every company is a software company”, “Every company is a data company”, or “Every company will be a fintech company” before. Now, in 2022, there is no better way of rephrasing this statement than:“Every company will (and should) be a climate tech company”.

Climate change is showing catastrophic effects around the globe. Changed weather patterns are affecting agriculture, businesses, populations, and our nature (dehydrated birds are currently falling out of the sky in India!): our resource exploitation and throw-away behavior, together with fast-growing economies and demographics, is pushing us toward a no-return point. One of many ways to avoid this point of no-return is through technology, aka. Climate Tech.

Let’s quickly define Climate Tech: Climate Tech entails technology and innovation, which is being developed to avoid the effects of climate change by limiting the global temperature increase to 1.5 °C. This can be achieved by reducing global annual emissions from about ~50 Gt CO2e (CO2 equivalents) from 2019 to net zero by 2050 (half of this should be achieved by 2030).

So why do we (at Paua) want to double down on Climate Tech now?

In the past years, money flowing into Climate Tech was mostly considered to have a purely environmental impact, it was oriented to fuel long term projects and was driven by subsidies and loans. This is changing: we are now positioned to create scalable technology and profitable business models, leading to both a positive ecological impact AND the creation of global economical value.

We believe that, in Europe, we have the ideal conditions and prerequisites, that are driving this change within Climate Tech:

  • Political and regulatory pressure is creating a perfect storm 🏛️📜
  • A new generation of founders is entering the ecosystem 👧🧒
  • An experienced generation of founders is maturing the ecosystem 👴👵
  • Climate Technologies are reaching maturity and are starting to scale 🔬

Let’s dive into it:

  1. The political and regulatory pressure is finally on: The Paris Agreement, Joe Biden’s climate plan, the latest ICPP report and several regulations (e.g., pushing companies to track and report ESG data) are accelerating the change process. Most lately, the war in Ukraine has forced countries to initiate radical measures against Russia and has led to the realization that the EU is extremely reliant on Russian fossil fuels (the EU is importing around 40% of its gas from Russia). Hence, we are finally questioning these dependencies and accelerating initiatives in Germany and other European countries. In general, public pressure is most felt by the larger public corporates, who are pleading to cut emissions with zero carbon shipping initiatives (Ikea, Unilever, Amazon etc.), goals to stop deforestation and general carbon negative pledges. 21% of the largest 2000 public corporates already have net-zero targets. However, next to the large corporates, we see a huge opportunity for enterprises and SMEs in every industry to become climate players and tackle both the reduction of emission and capturing of carbon. We believe that the carbon footprint of every sector along the value chain needs to be challenged, from procurement to sales. Back to my statement from earlier: Every company, in every sector, along every value chain step, will be a climate tech company. 🏭
  2. A new generation of founders is entering the ecosystem: a young and dynamic group of first time founders has been confronted with the climate topic throughout their life. They are keen to tackle the largest challenge of their generation with new approaches and technology. Role models like Greta Thunberg and Luisa Neubauer have emerged, not only bringing millions of people to demonstrate each week, but also confronting politicians to raise awareness. For this group of founders, Climate plays a key role in the objectives and goals of their startups, whether it is at the core of their business model or embedded as part of their value proposition. To further fuel this founder group, we believe that there is an opportunity to create more awareness for sustainable and climate oriented entrepreneurship at universities as well as for students studying sustainability and environmental subjects. 🎓
  3. An experienced generation of founders is maturing the ecosystem: 2nd and 3rd time founders, with venture building and industry experience, are looking at climate topics. They want to start their next venture with a bigger impact purpose, without having to make compromises when it comes to opportunity. These founders have built scalable and profitable business models in other industries and now want to create economic value within Climate Tech. We recently invested in an All-Star team, Christian Vollmann, Marek Checinski, Christoph Zehe and Dr.-Ing. Ralph Kraehnert, who are building Carbon One. Previously, the team founded several startups (nebenan.de, eDarling) and worked in large corporates and research institutes. Another great example is Frederik Pfisterer, co-founder of Mambu in 2010, one of the latest fintech unicorns in Berlin, who is now building a new energy microgrid startup (Solarize). And for those of you, who also just watched WeCrashed: Adam Neumann lately resurfaced with a startup around crypto carbon credits. 🤯
  4. Breakthrough technologies are reaching maturity and are starting to scale 🔬: The 3 main steps to tackle carbon emissions as a company are: 1) Measure what is emitted, 2) Reduce emissions and 3) Capture and store what can’t be reduced (through offsetting). Software solutions are required to solve 1), and many startups have emerged in the last years to do this, from vertical specific approaches to end-to-end carbon tracking. After this initial wave, it is now time to switch gears in Climate Tech and start investing in 2) and 3). Why is that? Regarding the reduction of emissions (2), technology in some areas is reaching maturity (and costs are going down). For example: until now, renewable energy generation was too expensive and batteries weren’t powerful enough for vehicles. However, wind energy is now competitive in many areas, cost of solar energy has dropped by more than 80% in the last 10 years, and new battery technology is enabling the mass production of EVs. Finally, for carbon capturing (3), there is a need to start investing not only in software but also hardware and other innovative solutions now. Why is that? In very simplified terms, there is a differentiation between nature-based carbon removal (i.e., reforestation or soil sequestration) and technology-based carbon removal (i.e., direct air capture, enhanced weathering, geological storage). Regarding the latter one, there is time pressure to start investing asap: The cost of technological carbon removals ranges between $50 and $400 per ton of CO2 removed and to bring down this cost curve, we need to develop a significant amount of scalable technologies by 2030. 🚀

There are many other reasons why Climate Tech is a great space to now build a company and to invest in, this is only a selection of trends we believe in. I’m looking forward to hearing your thoughts on this and generally around Climate Tech.

Also, in case you are solving a complex climate tech problem, feel free to reach out: charlotte@pauaventures.com👋

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