The Impact

The Future of ClimateTech Investing

To: The Impact Readers

🌀 Hurricane Ida was catastrophic… Knocking down nearly every single powerline in the state. Non-profits like the Footprint Project help rapidly restore power to community centers post-climate disasters.

So I went ahead and interviewed the founder as a way to shed light on how they are helping community centers across Louisianna get power back on while the utilities build the infrastructure back.

>>>Watch the interview here<<<
Oh, and if you are a startup founder or portfolio manager and ever wondered how to get funded by the top VCs in the space….well we’ve answered that question.

>>>Learn how to get funded here<<<

– Swarnav S Pujari

THE TL;DR đź’¨

🌳 Reforestation’s Crucial Role as a Carbon Sink

  • We want our forrests to work as carbon sinks
  • Understand the difference between natural reforestation and artificial reforestation
  • 61 countries are aiming to restore 350 hectacres of degraded land


💸 The Future of ClimateTech Investing

  • An increase in capital in ClimateTech will lead to competition to invest into startups
  • How investors should think about assessing risk for investment
  • How startups should position themselves to take advantage of trends in ClimateTech investing


🌀 The Footprint Project Is Rapidly Restoring Climate Disaster Locations With Clean Energy

  • Solar and storage generators can be effective replacements to help community centers get power back up after a climate diaster
  • Non-profit, Footprint Project, helps communties do this for free
  • This can help expidite the rate at which the community can build back greener

🌳 CARBON CAPTURE

Climate Tech VCs may be missing out on compelling and under-invested Food & Ag opportunities

By Stephanie Zulman • is a business operations and supply chain professional passionate about cultivating a career in carbon capture and exploring the evolving markets opportunities and innovative solutions stemming from it.

Reforestation is a crucial part of drawing down carbon. (Image: Envato Elements)
Reforestation is a crucial part of drawing down carbon. (Image: Envato Elements)

As a North Carolinian, I’ve grown up watching the forests and farmland around me make way for commercial and residential development. Watching my hometown grow is exciting. Still, it can be hard to balance conflicting feelings of wanting progress and profit with hating the ugly face of concrete replacing the acres of greenery that used to envelop so many familiar roads.

I’m comfortable with the fact that I too am a bit shaky on the line of hypocrisy when it comes to helping protect trees.

“It is what it is,” I whisper to myself as I defensively clutch my newest paperback book to my chest. I try to not let the guilt of my own participation in naughty practices like shunning an electronic screen for the smell, feel, and aesthetic of a printed book or silky lined page sway me from embracing the fact that promoting planting trees is still a better way to apologize to Mother Nature than a handwritten note.

This issue will explore the feel-good role of repopulating the Earth with her original terrestrial carbon storage tanks: trees.

It’s essential that we start aggressively tackling reforestation projects to help Earth’s interconnected ecosystems find a new balance, and so we don’t overheat the planet to the point of no return.

Reforestation has started to garner a larger portion of the general public’s attention. Its importance in habitat and wildlife conservation, its key role in supporting rural populations, and the growing need to reforest areas ravaged by wildfires are all strong motivators. Our forest ecosystems hold approximately 45% of all carbon stored on land. Companies are beginning to get more involved in reforestation efforts as government policies, consumer awareness, and the carbon market evolves. In other words, the advantages of restoring degraded land are increasingly being recognized as critical for both the scientific and economic benefits of environmental remediation.

If you’d like a bit more background on the trees of the worlds’ ingenious design that helps regulate our planet, I’d advise starting at the foundation: Understanding the Carbon Cycle. If you’d rather hear about why we should all start protecting our forests, I’d recommend reading a summary on Conservation’s Crucial Role. Don’t worry, this article won’t make you start guilt-tripping yourself every time you reach for a paper towel. That’ll be in a few weeks, so enjoy your clear conscience for now.

Basics on the Importance of Planting Trees

For everyone’s sake, it’s good to first go over a few key points before diving into the topic of reforestation. Trees are a type of biomass, which means that they’re a renewable organic material that’s kindly provided by the Earth to eat up carbon dioxide and provide oxygen. The vast forests that span(ned) the Earth are a key element to maintaining our ecosystems’ natural rhythm taking carbon out of the atmosphere and repurposing it for some other use. Trees are the original carbon capture tool, naturally engineered to perfection. Human efforts to replicate this magic are an ongoing effort…  

Ideally, we want our forests to be carbon sinks, which means that they suck up more carbon dioxide (through photosynthesis) than they give off. Nature’s ingenious design enables trees to help regulate the climate and support the health of the planet’s terrain, water, and air. Overall, the system works well and can take a bit of stress. Unfortunately, humanity’s recent pollution spree has put so many emissions into the sky that we’ve reached the point where drastic action has to be taken. Since, thanks to us, trees are both a huge source of anthropogenic emissions and a key pillar in keeping the carbon cycle in balance, it’s crucial that we both protect and restore them. However, it’s good to remember that while planting and preserving trees is vastly important, it’s no panacea to the larger problem of preventing cataclysmic climate change.

Afforestation, a term that sometimes gets lumped in with reforestation, is defined as planting trees in areas where no tree has rooted before. Often, this is done for commercial use. New forests are also planted by governments as “I’m sorry for taking all your natural habitat” gifts for displaced animals. Still, both reforestation and afforestation have important roles to play in organic carbon storage.

Afforestation also acts as a replacement to using natural forests for consumer products, saving carbon and creature’s homes. Reforestation has arguably a much prettier payoff when it comes to our main concern here–carbon capture. Science shows that new rainforests grown on degraded land, known as secondary forests, can store up to 11 times more carbon than old-growth rainforests, where tree growth has generally plateaued. Unfortunately, we must remember to remind ourselves that these benefits will take as long a time to be realized as it takes for those trees to mature.

A 2019 study published by an international research team in the Journal of Science estimated that if we planted over half a trillion trees on the 900 million hectares (2.2 billion acres) of Earth’s viable land, we could capture around 205 gigatons of carbon. This would reduce atmospheric carbon levels by a quarter and negate, based on our current emissions rate, two decades’ worth of human pollution. While this would serve as a welcome speed bump, both the pros and cons of this measure are best described by the Chinese proverb I’ve seen quoted often during my research: “The best time to start planting trees was twenty years ago. The second-best time is now.”

Classifying Reforestation: Tree Plantations, Newly Planted Forests, & Naturally Regenerating Forests

Reforestation efforts fall into two main categories: natural regeneration and artificial regeneration. Natural regeneration, the least complex of the two, is the birth of new seedlings and sprouts directly from the original source. As the name indicates, this doesn’t require direct human intervention and enables new tree growth with the use of native species that are inherently compatible with the region and its soil.

That being said, natural regeneration can also serve as a much more cost-effective way for rural property owners to use biomass, compared with creating a whole new artificial plantation for harvesting. Their task is as easy as lighting some candles, sprinkling rose petals in an alluring trail, and putting on some smooth R&B to create the right conditions for reproduction. Artificial regeneration is similarly pretty self-explanatory. Human hands choose, plant, and monitor the growth of new trees from seed to sapling to full maturity. With so many factors to control, this approach is much more complex and entails a greater level of planning and cost.

Currently

The Global Forest Resources Assessment, conducted in 2020, provides good insight into the present state of reforestation efforts and the growing need for more ambitious initiatives. Currently, 93% of Earth’s forests are naturally regenerated. The remaining 7% of forest growth, encompassing 290 million hectares, is replanted trees. This significantly smaller category has two main subsets: tree plantations (3%) and newly planted forests (4%).

Tree plantations serve a similar purpose to a sugarcane or banana plantation– they’re sowed in order to produce feedstocks fed into various supply chains. These intensively managed plantation forests generate both wood and non-wood forest products (NWFP) that are traded internationally as lumber, pulp, paper, biomass fuels, gums, resins, and latexes. NWFPs are essentially all other plant and animal products found in and around trees: tannins, foliage and fruits, extracts and oils, fibers and medicinal plants, gums, and resins. South America has the highest share of plantation forests, while Europe has the lowest.

Plantations, while not the solution to increasing our carbon sink, are a major source of subsistence for millions of rural and poor peoples and are firmly entrenched in our international markets. Construction, energy, and manufacturing rely heavily on materials harvested on plantations. Many of these substances, like resins and gums, are so essential and their applications so broad that they could fill full articles by themselves. For those interested in diving deeper into the production, trade, and consumption of forest products, the Food & Agriculture Organization of the UN (FAO) provides a wealth of data and analysis.

Newly planted forests come with their own benefits and challenges, as planting trees comes with its own nuances. The type and number of different tree species chosen, climate/geographic location, land characteristics, timing, and intentions of the planter are all significant. Some trees are like cats; if you periodically feed and maintain their environment they’ll be good to go. Many are like a doodle puppy; they need to be constantly watered and told how special they are if you want them to thrive. Imagine the amount of time, energy, and money you’d need to sink into a forest of doodles.

Also like a poorly trained, unsocialized dog, a badly planned reforestation effort can end up having counterintuitive effects. The consequences of neglect can be trees releasing more carbon dioxide and negatively impacting local biodiversity. Projects can wither and die as time and costs inflate. It shouldn’t be underestimated how much thought and effort is needed to go into successfully cultivating new forests. I’ll be singing accolades about one company in particular that’s tackling this challenge extremely intelligently in the next piece (Terraformation), where we’ll explore businesses currently in the tree planting game.

Global Reforestation Efforts & Impacts

So, what else is being done around the world to address this issue? We’ve all heard about the Paris Climate Agreement that not one of the world’s largest economies is on track to actually achieve. There are the EU’s Sustainable Development Goals (SDG) that have started making their way onto business websites as sustainability becomes a hotter topic.

Currently, 61 countries have united under the Bonn Challenge, launched in 2011, to restore 350 million hectares of degraded land by 2030. The good news is that their first goal of restoring 150 million hectares by 2020 was successfully surpassed. The most recent USA-specific data available from the Bonn Challenge’s barometer shows that from 2010 to 2018, the US invested ten billion dollars, created 55,000 jobs, and sequestered 5.2 million tons of COâ‚‚. This was done through the restoration of 16,959,000 hectares (41.9 million acres) of land. That amounts to the addition of approximately 21.2 billion trees in the US alone. While this positive metric shows that we are actively making progress in reforestation efforts, it still isn’t enough… In 2018 the US alone emitted 4.98 million kilotons (multiply a ton by 1,000) of carbon dioxide. Artificial reforestation requires both the huge time and capital investments needed to make reforestation happen and the positive economic benefits countries can enjoy.

Changing environments have massive, long-term repercussions. Climate change is already increasing the number of internal and external refugees countries must manage and protect. Historically, the reasons why people flee have never changed; people leave their homes when there’s no food, safety, or opportunity.

The Sahel, a destitute, degraded region located on the southern edge of the Sahara desert, has been battling droughts, famine, and falling crop yields from increasingly degraded soil for decades. These problems have been catalyzed by both the rural area’s high population growth rate and significant temperature changes from climate change—Africa’s Great Green Wall will serve as an important case study of the efficacy of a massive forestation initiative to provide a barrier against climate change.

The Great Green Wall was started a decade ago in Africa’s semiarid Sahel region as both a proactive and reactive measure to combat poverty, climate change, and mass migration. Ultimately, the vision is for this colossal restoration effort to stretch from Senegal to Djibouti. The initiative, currently about 15% underway, pushes to combat desertification and restore native plant life by cultivating a horizontal line of trees that will span the entire width of the continent. Running through 11 countries, (Burkina Faso, Chad, Djibouti, Eritrea, Ethiopia, Mali, Mauritania, Nigeria, Niger, Sudan, & Senegal), the hope is that the restoration of 100 million hectares of land across Africa will sequester 250 million tons of carbon and create 10 million jobs by 2030.

With the help of nonprofits, local communities, individuals, investors, and philanthropists to bring this restoration effort to its fruition, the Great Green Wall will be the largest natural structure on Earth. On the official website, it states that they intend to launch an online platform by the end of this year to help connect anyone who wants to get involved and coordinate bankable projects.

However, everything needs to make financial sense and reforestation efforts are no exception. In the next edition, we’ll dig deeper into various forms of bankable reforestation efforts.

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đź’¸ VC DEEP DIVE

The Future of ClimateTech Investing

By Daniel Kriozere • is a Business Analyst at Lawrence Livermore National Laboratory and aspiring investor & advisor to clean-tech startups.

How climatetech investing is changing. (Image: Unsplash)
How climatetech investing is changing. (Image: Unsplash)

Venture capital (VC) offers expensive capital for high-risk, high-reward investments to help innovative ideas go to market. However, VC investments in climate seem to be inherently riskier than traditional VC investments. This is because many of these startups have a high capital intensity for novel technologies with no historic precedent that can take several years to develop and exit. Climate investors today are more commonly financing businesses that are similar to traditional software/technology investments, or startups with notable investors on board.

However, even though risk profiles for climate technologies are higher, investors can’t charge as much for their capital. This means that return profiles might change with higher valuations/terms and lower returns. This is especially true in the case of hardware investing; however, the times are changing as more efficient, cheaper technologies are coming live with more investors recognizing the imperativeness of the problem at hand in climate change, finding new risk appetites and ways to financially and resourcefully support new startups.

Background

Sam Lessin’s post in The Information, “The End of Venture Capital as We Know It,” provides some context:

In the last several years, as software investing has gone from fringe to mainstream, enormous flows of global capital have been unlocked to finance software and the internet at increasingly competitive rates. What this means for investors who focus on Series A investment rounds and beyond is that the market should become more and more efficient while investing becomes less and less profitable. Greater predictability of and investor confidence in these early-stage investments will mean skyrocketing valuations as demand from investors grows. Every investor will see all the same deals and will have the same tools to evaluate their potential.

Though Lessin’s piece is focused on investing in software, I see the same kind of trends happening in the climate sector. Specifically, paying attention to how hot climate investments are today.

The Trend

There are many investors entering the climate space. Roughly 1,000 investment firms joined at least 1 climate tech deal from Q2’20 to Q2’21. The volume of investors in the climate market is going to lead to more investments happening earlier in a startup’s life.

Many first-time fund managers are entering the market, which means that smaller funds are investing in early-stage startups. This is going to start leading to later-stage funds starting to get into early-stage deals to secure investment in future rounds.

What does this mean for investors?

Investors will need to compete to give startups the cheapest capital (valuation and terms). Lessin mentions that “[funds] need to be as big as possible so that cash-on-cash returns are very high even if margins compress…if margins go down [investors] need to invest as much money as they possibly can in every deal. They need to make up for lower margins with higher volume.”

To support this transition, investors will need a new way to assess risk. Climate hardware startups don’t have the same metrics traditional software startups have, but there are other factors investors can reference (technology readiness level, customer traction, sales pipeline, etc).

Investors will also need to think about differentiation, specifically around portfolio company support. This can include team expertise, access to networks, and access to potential customers.

What does this mean for startups?

Startups stand to benefit from the changes in the investment landscape, as eventually, investors will compete to offer startups cheaper and cheaper money.

However, to compete for this capital, startups should focus on their technology risk and business model risk.

Technology risk entails science risk and engineering risk. Startups should focus on de-risking the science today, as well as thinking about risks when commercializing. With commercialization comes engineering risk – how can the startup scale their process to make sure the science works at scale?
Business model risk can be solved by achieving product-market-fit and validating the market. Finding key partners or first customers can make all the difference. Besides that, locking in letters of intent (LOI) or Memorandums of Understanding (MOU) can also de-risk the business, especially if this shows that an organization will become a customer when the startup hits a certain milestone. Anything the startup can do to build out the sales pipeline can only benefit them.

Outlook

Investors are waking up to the idea that the future of business is in climate, and no industry is excused from this crisis. That means capital will continue to flow into solutions that not only disrupt industries but all provide a positive climate and human benefit as well. Through this, we will continue to see new funds emerge in the next decade specifically geared towards investing in climate solutions, and more traditional funds and corporate venture arms evolving their investment theses and sector focus to include climate and ESG.

These funds will also begin to look different as well, ranging from traditional, large general funds to sector/issue-specific microfunds, where the partners are industry veterans looking to change the status quo. Corporate venture funds (CVCs) will also play a strategic role in testing and incorporating new technologies into the commercial environment. With deep pockets and a lot to gain from the emerging technology market, these entities will serve as tipping points for many novel products, materials, and processes as startups begin to scale.

Lastly, the world of ClimateTech investing is one that is mission-driven, where investors are looking to achieve a double bottom line of high returns with high impact. Public opinion and market trends will continue to shape the next generation of investment. As the climate crisis continues to hasten, investors will be taking bigger risks.

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⚡ DISTRIBUTED ENERGY RESOURCES

The Footprint Project Is Rapidly Restoring Climate Disaster Locations With Clean Energy

By Swarnav S Pujari • is the CEO at TouchLight and Appointed Chairman of the Yorktown Climate Smart Communities Task Force.

Solar + storage generators are a viable alternative to natural gas generators for backup power in the event of widespread outages. Especially when considering climate disasters like the one that happened in Louisianna after Hurricane Ida ran its course through the state.

Non-profits like the footprint project rapidly deploy small scale solar + storage generators to help communities get back online to power critical infrastructure post these climate disasters. In doing so it helps open up the ability and opportunity for these communities to build back greener.

This is all being done especially when supply chains across the globe are entirely backlogged – which also opens up discussion on how solar companies could learn from Footprint Projects approach to rapid deployment to ease supply chain limitations.

Standardizing the actual need for high efficiency appliances and what counts as "critical"

In our interview, WIll mentions exactly how the Footprint Project focuses on ensuring that community centers and homes with medical devices stay running. Given most of these homes don’t have the ability to have roof mounted solar systems – especially after a hurricane – they tend to see most homes do perfectly with a simple 1 or 2 panel system and a small 1 kWh battery pack to run a mini-fridge, some lights, wifi and charge cell phones or laptops.

In doing so it unlocks the ability for them to plan ahead and see exactly how many systems they can deploy in any given location to maximize the number of critical devices they can get online without needing a natural gas generator.

Which is why they also factor for the need to have to purchase high efficiency applicances from time to time to ensure they can make the most of the limited power they can generate from a 1 or 2 panel solar generator.

Standardization enables the ability to pre-fabricate and pre-stock

The Footprint project already does something of this nature by moving assets as those communities get power restored.

By realizing that most homes can make do with 1 or 2 panel systems they are able to pre plan and pre purchase the hardware they need from various suppliers to get it to the necessary state a week or more ahead of schedule.

We see this happening more commonly in residential solar installs where systems are pre-spec’d and not customized based on the home itself. While this results in a reduced potential sale value, it increases margin as stocking warehoues becomes significantly easier and it simplifies their purchase orders.

Outlook

The Footprint project is a fascinating non-profit that actually showcases an impressive approach to managing solar supply chains. It’ll be exciting to see how they end up leveraging these learnings from helping restore power in Louisianna to scale up their operations and get people online as soon as a natural disaster hits.

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Writers: Swarnav S Pujari, Daniel Kriozere

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