Three Factors Every Climate Tech Investor Should Consider

Psychology, technical moat, & techno-economics

This article originally appeared in Forbes on December 27th, 2021. Click here to view the original article.

Let’s be real, climate change can be overwhelming and scary. Governments bickering, corporate complicity, what seems like a never-ending visual of displaced polar bears. It is understandable how normal people can have fear, anger, or frustration boil up inside of them. But humans are at their best when solving problems, and it is my strong belief that we will rise to the occasion with new technologies that will allow us to take massive climate action. My job as a venture capitalist, as well as my role as a parent, requires that I be an optimist! I fund entrepreneurs solving some of humanity’s greatest challenges, and I believe that climate change is one of the greatest challenges facing us.

In November, I had the opportunity to speak on a panel at the SOSV Climate Tech Summit. The robust discussion centered on how climate tech companies can get the funding they need to get from seed stage to the public markets. At the growth stage, a lot of capital has flowed into this market. In the first half of 2021, almost $64 billion flowed into cleantech companies, according to data (subscription required) from Cleantech Group.

However, at the early stage, climate tech is still relatively underinvested in comparison to the sheer number of ideas out there. This is likely because climate tech companies face a number of challenges that other founders don’t have to address. At Prime Movers Lab, my team and I address this risk through a thorough due diligence process that focuses on three key factors that can provide a framework for any investor interested in climate tech. They include a founder’s psychology and experience, the company’s technical moat and the techno-economic model.

A Founder’s Psychology And Experience

Founders must be deeply in touch with their north star in order to be successful. Prime Movers Lab has invested in four different companies that originated in Idealab, which was founded by Bill Gross.

Bill is arguably one of the most successful and enduring startup founders, having taken eight companies to billion-dollar exits. He is a serial entrepreneur and expert at navigating the highs and lows of deep tech startups, and his advice is you must know your north star. You need to know “why” you are doing this and know the problem you are trying to solve.

A strong “why” is part of what you should look for in an entrepreneur. A strong why must be coupled with the ability to parse inordinate amounts of feedback, make adjustments along the way and tell a compelling business story. Setbacks happen. Experienced entrepreneurs lean into those moments, not away from them. Resilience is key. Psychology is a really important aspect because, paraphrasing Ben Horowitz, “doing hard things, well, it’s hard.”

The Company’s Technical Moat

In addition to a founder’s psychology and experience, the technical moat and the techno-economic model really cannot be decoupled. If you are speaking with an investor who asks about one and not the other — well, that should be a red flag. It is true that climate tech companies often take longer than a SaaS or consumer app company to “turn on” revenue, but once the core technical risk is retired, the moat they have built is extremely valuable.

The Techno-Economic Model

Along with the technical moat, the techno-economics must work. “Greeniums” (people willing to pay a bit more for a product or service associated with a social good/or lack of social harm) may work in some early go-to-markets with small customer bases. But over the long run, the new technologies should be able to hit price parity with status-quo options. Startups cannot assume that consumers will pay a surcharge en masse for cleaner solutions.

Climate change is one existential threat to humanity. But focusing on solutions is what motivates me as a climate tech venture capitalist. I believe we are in the golden age of founders starting climate tech companies. I’m excited about these new technologies, and I want to help bring these startups to market.

Prime Movers Lab invests in breakthrough scientific startups founded by Prime Movers, the inventors who transform billions of lives. We invest in companies reinventing energy, transportation, infrastructure, manufacturing, human augmentation, and agriculture.

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