The Ghost of Milton Friedman

Welcome back. Eid Mubarak to those who celebrate. Pour one out for all those grieving lost blue checks on the Birdsite. ChatIPCC launched an #AI to explain climate science in IPCC reports - but careful of hallucinations.

This weekend is #earthday2023 . In London, Extinction Rebellion (yes, they have a LinkedIn profile) said 60,000 people joined four days of demonstrations onto the streets to demand #climateaction . The new "family friendly" XR said it was working with London Marathon's organisers to avoid disrupting today's race as it winds through Westminster.

It's a new look for the group, which just a couple of months ago protested near the Bank of England .

Central bankers are not famous for being responsive to protests. But their decisions may have more of an influence on climate outcomes than most:

Milton Friedman is Back

There is a spectre haunting #climatetech * - the spectre of #interestrates .

Post-COVID stimulus/reopening/supply chain bottlenecks, post-Ukraine invasion, inflation was going to rise. And for the first time since the 2008 financial crisis, interest rates were going to follow. #SVB found itself spectacularly caught on the wrong side of a bet against that sequence of events and that bet - not helped by that press release - led to the #svbcollapse .

As we in the UK (admittedly in the "find out" phase of Brexit FAFO ) were reminded this week , inflation is like kudzu - once it's established it's very painful to get rid of. So it justifies extreme measures. Since the acolytes of Milton Friedman won this argument in the 1970s, central banks' main mission is to kill inflation before it destroys an economy - and if it hurts, you know the treatment is working .

But since 2008 we had a 14-year hiatus from that cycle, and borrowing was historically cheap. What happened during that 14 year period?

• Wind and solar went from alternative investments with a "green premium" to being the cheapest form of energy ever
• 2015's Paris Agreement through COP26 in Glasgow, which identified a real - if narrow - path to escaping climate catastrophe
• Climate Tech emerged as a smarter, better-capitalised successor to Cleantech 1.0

What if it's over?

The latest issue of Bloomberg Green sets it out:

What did the era of ultralow interest rates leave behind for the climate?...enough for a climate legacy [?] It better be, because there’s only two 14-year intervals to go before the 2050 net-zero deadline.

"It better be."

Did the hairs on the back of your neck just go up? Even a little?

Chart of the Week

How about now?

Pioneers

Bit dark for the intro to an issue of the mag celebrating BloombergNEF 's latest round of #BNEFPioneers - 12 climate tech startups to watch. We wrote about them and their lead investors earlier this week. Getting named to that list is like winning a climatetech Oscar, but unlike the Oscars these companies might make a massive difference for the future: clean #hydrogen acceleration, #cdr , #netzero #agtech , promising ways to avoid the #hardtoabate trap for steel and cement, and #batterymetals recycling.

Clean Energy Ventures and National Science Foundation (NSF) -backed Nth Cycle may prove particularly interesting for the last category, because its innovative business model front-loads fee for services and enables the recycler to own the valuable minerals that come out the other side of the process.

So will it be impossible for the next generation of Pioneers to attract the capital necessary to scale, now that the era of ultralow interest rates is over?

Congruent Says No

Congruent Ventures , which started out in 2017, changed that narrative on Wednesday when it announced it had closed a new $300m fund for "continuity" - to follow their money on earlier investments. That's more than all of the funds Congruent had previously raised. We all love a plot twist.

[Cheers to eagle-eyed colleague Cameron Finlay who spotted this story before I did]

But this doesn't exorcise the ghost of Friedman. The world is still different. Co-founder Joshua Posamentier told Julian Spector at Canary Media Inc. :

“A lot of capital decided this was the hot, interesting place to be and piled in...We’re seeing the shakeout now.”

The reporting pointed to later-stage Series B to C investments that Congruent said it was in: #geothermal player Fervo Energy , smart electrical panel manufacturer SPAN , AMP , and alternative protein creator meati? .

Despite the focus on later-stage investments, Congruent also this week participated in another $7m seed round for climate #fintech Evergrow .

Also last week, it was reported that Congruent took part in a $20m Series A with Ebb Carbon that closed in March. Ebb Carbon aims to remove atmospheric carbon by deacidifying the oceans using electrochemistry, increasing the amount of CO2 that the oceans can absorb. It plugs in particularly well, the company says, to desalination plants. The company won't say how much it costs to remove CO2 but says they're on track to get costs of carbon removal "well under" $100/ton.

The always well-sourced Tasmin Lockwood not only got the funding story of the ex-Tesla, Google X and Solar City founders, but their (redacted) pitch deck.

Pitchbook's Rosie Bradbury reported that Congruent's move follows S2G Ventures closing a $300m "opportunity fund" for climate and #healthtech .

Closer to home here in the UK, plenty of evidence that London-based VCs such as firstminute capital and Balderton Capital still see huge upside hunting for climate tech opportunities, as Will Wells ' well-attended event last week showed:

And in Ireland/UK news, Rosheen McGuckian 's NTR plc and Legal & General Investment Management (LGIM) (where John Bromley is MD of Clean Energy Strategy & Investments) announced that they'd closed a €390m L&G NTR Clean Power (Europe) Fund. The new fund had already been at work, acquiring three Spanish solar projects from BayWa r.e. EMEA earlier this year.

VC Agonistes

Venture firms don't have a magic money tree, and as their LPs get more risk averse or liquidity constrained, VCs can struggle to raise funds. That in turn affects startup valuations. Smaller funds like Latvia's New Nordic Ventures warned of this as early as January. In February, CNBC warned of "zombie VCs " making a comeback in 2023.

By this week, we started to see articles about the mental health toll this takes on the people working in venture. Sam Shead 's LinkedIn editorial piece on VC burnout was one of the most viral stories on this platform this week. It links to a well-reported Miriam Partington story in Sifted filled with anecdotes of people struggling.

Sutton's Law

So even in a world of higher interest rates, even with some LPs pulling back - #climatetech investments may continue to prove resilient, as evidenced by the S2G and Congruent funds closing. They're just likely to be more choosy about portcos - and ticket sizes are likely to be less frothy. And maybe looking for alternative sources of funds.

Another phenom, this one called out by Tessa Clarke in another Sifted piece, pointed to FT reporting that with Western liquidity ebbing, funds including Andreeson Horowitz and Tiger Global were off to the Arabian Gulf seeking sovereign wealth funds and ultra-HNWIs to come in as LPs. The colour in the FT piece is superb:

“The Four Seasons in Riyadh is basically Palo Alto,” said a partner at one large Silicon Valley venture fund.

Clarke's view is that this is a "wakeup call " for founders, who should be doing due diligence on where their VC gets its cash.

The counter view is that, like when 1930s era bank robber Willie Sutton was asked why he robbed banks, he famously replied, "because that's where the money is."

Gulf petrodollars funding investments in things other than oil and gas is far from new, of course. While the $45 billion Saudi investment in SoftBank Investment Advisers had a... mixed record, the idea that money in newly replenished Gulf coffers would find its way into tech is the least surprising thing you'll hear this year.

In fact, as Yahya Anouti at 普华永道 noted last month , according to his estimate $6 billion has been invested in climate tech in MENA since 2013, $1.6 Bn in H1 2022 alone.

If you've spent time in the Gulf, you know that while it's definitely complicated, people there have as much if not more incentive to invest in tech for climate mitigation and adaptation as anyone. Not least because global average temp increases mean even bigger ones for the region, as Qatar Environment & Energy Research Institute - QEERI 's Mohammed Ayoub ** told Steven Mufson of the Washington Post in 2019:

System-Level Investing

VCs actually committed to climate tech could do a lot worse than bringing climate scientists onto the team. Lindsey Higgins, PhD of impact investors Pale blue dot gave a superb interview on David Hunt 's Leaders in Cleantech #podcast this week, with plenty of examples of how the involvement of someone with her expertise changes the framework for evaluating investment opportunities:

The Takeaways for Climate Techs

• business model matters
• be prepared for questions about how interest rates are affecting your supply chain and business model
• signal to investors, media, and analysts that you're keeping it lean
• know your funders and what matters to them

Funding this Week

• Bristol-based automated wind turbine inspection firm Perceptual Robotics , led by Konstantinos Karachalios and backed by Metavallon VC and Brookstreet Equity Partners LLP , raised a ￡2.7m venture round.
• Faster battery charging Gaussion , helmed by Tom Heenan , raised a ￡2.9m seed round from UCL Technology Fund and BGF Ventures.
• Insect-farming #agtech innovator Flybox? secured ￡1m in grant funding from Innovate UK and the EU.
• Grid diagnositcs leader Reactive Technologies Limited , led by Mark Borrett and with investors including Breakthrough Energy Ventures said it received a ￡780k grant from the Australian Renewable Energy Agency (ARENA) . Reactive is a past #bnefpioneer winner.

Covering Climate Now

Covering Climate Now is an excellent source for journalists and communicators working on climate topics. This week it pointed to the Guardian's Damian Carrington 's newsletter and the "map of climate optimism", ranking solutions for the most "bang for buck":

CCC simplified it further to the most cost-efficient climate solutions, in order: wind and solar; stopping deforestation; energy savings; cutting methane emissions; and #biochar .

Their newsletter is free. Subscribe .

InnovationZero

Next month's Innovation Zero climate tech conference in London has attracted some of this newsletter's favourite innovators as speakers, exhibitors, and sponsors - UK battery storage breakout Zenobē , methane-to-graphene-and-H2 player Levidian , Space Forge , Treeconomy , UNDO , and many others. Tickets are free for the 2-day event on 24/25 May.

Wartime Interest Rates

If climate change is as grave threat to humanity as a global war, and interest rates are a key indicator of whether climate tech investment can scale to the needed levels to reach #netzero , you'd think people might look at some of the history. Turns out, in WW2, the US Federal Reserve and Treasury came to a wartime agreement to cap interest rates on government debt. The UK did something similar . Milton Friedman would prefer you don't read too much into it .

Thanks

If you've read this far we guess you found something valuable. Thanks for sharing some of your time. It's the least renewable resource you have. If you think others might find it useful, do share in your feed.?

Have a tip? Want to chat about better living through narrative? Hit me up in the aul' DMs.?

* I did just repurpose a Marx quote - I'm hoping the RPMs Friedman is doing in his grave as a result can be harnessed for renewable power. [patent pending]

**Any views expressed in this newsletter are personal and are not the opinions of any employer or client of the author. I tend to avoid directly writing about clients but if I do that will always be disclosed. Qatar Foundation is a former client.