Can Davos inspire investment to scale climate innovators?

As leaders ascend the Swiss mountains to Davos to discuss the many issues of global urgency, we must hope the fragile alpine ecosystem inspires a new cooperation in support of the many promising early stage climate innovators.

These innovators have technology and approaches that have moved well beyond lab or proof of concept stage. These are companies in the commercial rollout phase - some profitable - but to achieve their full potential, they must now scale, a costly and complex process.

These companies run across all sectors of climate, from agriculture and food to energy, carbon capture and new approaches managing resources.

For all their high potential to protect the planet, however, many innovators face challenges that can only be addressed by bridging government, business and civil society.

This will be the topic of panel that I will co-host next week in Davos with the Global Agrifood Tech Alliance , Hub Culture and Handshake . More on that event shortly.

Funding has dried up

Take the current funding context. The rise of interest rates and global uncertainties have dried up venture investment worldwide, putting a generation of innovators at risk.

The value of venture capital funding rounds worldwide dropped 27% year over year to October with deal volume falling 23.8%, the level in four years, according to S&P Global Market Intelligence data.

In the world’s most dynamic venture market, the United States, the third quarter of 2023 experienced the lowest overall venture deal value in six years and the lowest deal count in roughly three, according to data from Pitchbook and the US National Venture Capital Association.

This environment has pushed many highly viable climate tech companies into survival mode when the planet needs their solutions to scale more than ever.

Engagement between the public and private sector could help on the financial front in the way governments have long supported infrastructure finance: Reducing perceived technical and operational risks or providing long term offtake guarantees.

Regulatory reform can provide certainty to investors

Since some climate tech innovators introduce technologies that require regulatory review by governments, both sides should learn to adopt a more collaborative approach. In enforcing the approvals and testing process, governments must ensure there are sufficient resources available for timely and relevant oversight. The collapse of the EU’s recent plans to cut pesticide use , and provide a simpler regulatory framework for greener technologies is, unfortunately, exactly the sort of failure that will undermine investment.

Looking beyond the travails of individual companies, governments have the power to create new markets through upgrading the climate standards for their own procurement.

The hard work does not fall to governments alone.

Investors themselves need to reframe their approach to climate tech, adapting to the sector’s longer timeframes and higher risks. This challenge to investors may be mitigated if the sector adopts a more systematic approach to investment stages and roles such as exists in biotech.

Climate tech can learn from biotech

Biotech investors, who face expensive research, high risk and often binary scientific outcomes followed by heavy regulation, have created staged funding models that mirror the progress of a molecule from lab to market. This provides a clear pathway for investors, reducing uncertainties and encouraging investment in early-stage projects that might otherwise struggle to secure funds.

Biotech investors can, for instance, understand that a vaccine may have a 6% chance of making it to market once it enters Phase I human trials. This is possible because of a clear regulatory framework, with publicly available data to compare different types of vaccine, disease and staging of the clinical process.

There are efforts to codify and formalise the sector, such as Climate Brick , a series of climate tech scaling and fundraising frameworks for climate tech ventures backed by the investors EQT and Contrarian Ventures .

"Climate Brick is the missing manual for climate tech founders and the whole ecosystem," said Rokas Peciulaitis , founder and managing partner of Contrarian Ventures. "This is a blueprint to help founders unlock scale, for policymakers to ground decisions in data and investors to partner in leading the change."

Another key element to the biotech ecosystem is engaging major players that recognize the need to support and acquire innovation, rather than try to invent everything themselves. Major players in some of the sectors with the greatest impact on climate, agriculture and food in particular, view innovators as enemies to be quashed, not potential collaborators.

As the innovators themselves arrive in Davos, they should remember to look beyond their technical or scientific prowess to also focus on their commercial viability and quantifying impact.?

That said, climate innovators cannot focus solely on the benefits they bring the planet, forgetting their actual customers.?

“Just saying ‘we are good for the planet’ is not a business plan, particularly with agri-food products people eat,” says Eric Archambeau , co-founder of Astanor Ventures . Ignoring the organoleptic experience, he added, was a mistake made by many first and second generation meat replacements.?

“Alternative proteins for fish, meat and dairy need a great smell, taste and texture.”

On the funding front, they must ensure financial literacy to understand what kind of capital to tap when and have their ears attuned if governments adopt a more proactive approach.

As they wander at high altitude between cocktails and canapes seeking that perfect investor, the innovators must ensure they differentiate themselves sufficiently for their story to stick.

The urgency and severity of climate issues require acceleration towards a collaborative approach if we hope to unlock and scale the many proven solutions that are ready to be built out.