Will Climate Tech Avoid The Crashes Experienced by Cleantech?
It's hard to avoid the term Climate Tech these days; billed as the next big thing by industry founders and venture capitalists alike, considering not only investment opportunities but significant positive environmental and social impacts. But those who lived through the hype of CleanTech have cause for concern considering the problems experienced by the hype surrounding this space only a few years back and subsequent flight of venture capital money from the space.
Many big names closed when CleanTech failed to hit the highs being touted by supporters and investors, along with vast sums of money lost in the process.
The Climate Tech market is rapidly maturing; so can it avoid the crashes experienced by CleanTech?
What is Climate Tech?
Climate Tech can be defined as technologies that are focused on reducing greenhouse gas emissions or addressing the impacts of global warming. Climate Tech applications can be grouped into three broad sector-agnostic groups—those that:
- Directly mitigate?or remove?emissions
- Help us to adapt?to the impacts of climate change
- Enhance our understanding of the climate.
The term Climate Tech is purposefully broad, to envelope the wide spectrum of technologies and innovations being used to address greenhouse gas emissions and the volume of industries in which they are being applied.
CleanTech Crash
CleanTech messaging worked well, with venture capitalists arriving in droves to back businesses and initiatives in the space.
The biggest problem was the Disconnect between traditional VC ( back then) logic and the realities of CleanTech startups. CleanTech carried deep technical risk, super long development timelines, and serious capital intensity associated with this class of investment. The paths to market are arduous, and value capture in those markets is challenging. Government reform was also non-existent.
As a result, CleanTech crashed and lessons needed to be learned, so that Climate Tech is able to have a chance at success.
Climate Tech vs CleanTech: Key Differences
Are we witnessing a rebrand (of CleanTech), or is Climate Tech different?
Climate Tech is certainly being used more and more, and when considered closely is the start of something different.
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CleanTech, which took on a lot of Green Techs philosophies, addresses humanity's impact on the environment; think of clean energy, clean air, water treatment, transportation, recycling, waste reduction, supply chain improvement, etc. Climate Tech is explicitly focused on the mitigation of greenhouse gas emissions, which is a major driver of climate change. Think of new technologies offering clean energy, reducing fossil fuel reliance, transportation, and the built environment, where improved energy efficiency and innovative building materials reduce building energy consumption.
The future for Climate Tech looks positive
The planet is facing some pretty devastating climate challenges. Emissions are interconnected with global economic growth and, while progress is being made, achieving the Paris Climate Accord goals of limiting a global temperature increase to 2°C will require both an extraordinary build-out of existing renewable resources and rapid invention and adoption of new technologies.
CleanTech was dominated by solar panel, battery, biofuel, and electric vehicle startups.
These startups needed to build factories, create large-scale manufacturing and production strategies, battle through years of basic science development, and iterate long hardware prototyping cycles, many before they knew for certain if they had a commercially viable product on their hands. These startups did not enjoy the typical benefits a software company does. A key shift is that software is now playing a major role, or underpinning Climate Tech startups.
Renewables are now price-competitive with fossil fuels, and there's been a fundamental shift with individuals, companies and governments alike taking climate change a lot more seriously today than they did a decade ago.
Startups and their projects are vital for success, as they are more likely to fund high-risk, high-impact technical projects as opposed to large incumbents with incentives to show quarter on quarter returns.
The investment community has evolved in response to the challenges experienced during the CleanTech period. Not only is investment returning to the space, but technical risk is now better understood, appreciated and managed. Technology development timelines are now acknowledged, with funds setup with this elongated requirement in mind. And Climate Tech is a capital intensive game, meaning investors are now understanding of the costs associated with technical experimentation and expensive routes to market needed for players in this game.
Governments are getting behind the industry, assisting through regulation reform, grants, policy change, Climate investment, and more.
Conclusion
As we know, an earlier generation of founders and investors attempted to tackle this problem/opportunity, unfortunately crashing along that journey. However there's plenty of solid reasons to believe that this time will be different.
Lessons have been learned, adjustments have been made by founders, governments, and investors alike, huge sums of money are now being dealt out worldwide in the fight against climate change, and demand and budgets for technologies that reduce carbon footprints are expected to surge.
It is a good time to be a Climate Tech startup.