Heatwaves, fires, floods, and storms – events like these have become more and more common, transforming climate change from a far-off possibility into a real threat. Like any crisis, there is a business opportunity in solving it. In this post, we will discuss the evolution of the ClimaTech sector, the business opportunity we see in it, and how we can do well by doing good.
Many remember the CleanTech wave, which was primarily focused on sustainability and reducing pollution, mainly through new energy solutions. We like to refer to the new wave of companies we see today as “ClimaTech”, because this new wave displays a much broader approach that addresses the urgent need for solutions that tackle, or help us adapt, to climate change.
It’s no longer specifically about “clean” or “polluted” air, but about being able to keep living and conducting business in our changing planet.
We are now at a unique point in which all stakeholders are aligned when it comes to climate:
- Governments are pushing strongly toward a responsible solution, with over 60% of countries committed to Net Zero by 2050. 63% of Fortune 500 companies are also committed to reaching Net Zero by 2050, with pioneers like Microsoft already reaching significant milestones in order to get there by 2030.
- Businesses are now required to set, publish and comply with their ESG practices. The business threat that corporations are facing means that climate is no longer viewed as a matter only concerning social corporate responsibility but is moving into the spotlight, similar to how CISOs came to prominence two decades ago.
- Consumers are also taking it seriously: climate impact is affecting their choice of what to buy, how to commute and where to work.
With all these moving parts coming together and feeding into each other, it’s clear that it’s time for technology to enter the picture.
Now is the time for tech to take Net Zero from vision to reality
The ClimaTech Landscape
With this in mind, we spent the last months deep-diving into the ecosystem, gaining a better understanding of the different segments and solutions, and we came up with the following landscape:
Today, it’s clear that in order to take on climate change we need to first reduce carbon emissions. Numerous use cases are already making waves, like solar, green cement, electric vehicles, and alternative proteins.
Since total reduction of carbon isn’t possible (and wouldn’t be enough anyway), another strong vertical, where we see many emerging technologies, is carbon removal.
Once these technologies – in both carbon reduction and removal – come to maturity, the ecosystem will need to come up with creative solutions in order to bring them to mass-market adoption. Innovative business models will enable companies the means to distribute, manage and scale their products. For example, once solar has reached a certain level of maturity, an entire ecosystem is developed in order to make it possible to scale: robotic cleaning, financing solutions, performance optimization and so on.
The next layer in this ecosystem is data and intelligence. Without measuring, monitoring, and reporting their emissions, businesses, governments and individuals cannot understand the impact of their efforts. Likewise, when trying to reach Net Zero, they all need the data component to truly see where they stand when it comes to both risks and progress.
From Impact to VC – Investment Criteria
Looking at the above landscape, we were impressed with the ample opportunities, but asked ourselves:
Considering our Fund’s strategy, what it would take for us to invest in ClimaTech?
Here’s how we’ve developed our investment considerations for this space:
- Science and tech maturity – Climate being a physical problem that involves deep science means that some solutions will necessitate long development cycles until the science is ready to deploy. As a VC, we focus on areas where the underlying science is already proven, and we evaluate the tech readiness to make sure it is feasible to distribute in the near future.
- Well-defined buyer and go-to-market – While ClimaTech is an emerging sector, it’s not enough to want to impact climate positively. Founders need to have a viable business model in mind, and there must be a relevant decision-maker with a budget and financial motivation to use their solution.
- Capital requirements – We must deeply examine the cost structure. Capital-intensive solutions usually mean higher risk: they require a longer time to reach scalability and necessitate a significant amount of funding before commercialization, which means that even a few inaccurate working assumptions can lead to failure.
Israel: The Next ClimaTech Frontier
At Viola, we believe that Israel has just what it takes to build ClimaTech outliers and lead this category globally. We’ve seen this repeatedly in domains such as Cyber and Fintech. It starts with a prolific academic community, multidisciplinary expertise, and strong AI and data engineering capabilities. Paired with the IDF as a great source of talent and many second-time entrepreneurs coming to this space, wanting to make an impact, Israel’s supportive ecosystem, governmental funding, and legacy players make the country a potent hub for ClimaTech.
The Alternative Proteins vertical is a great use case. In just 3 years, Israel has become a powerful force in this category – the answer to the 15% of carbon emissions that come from animal-based food. Israel is now second only to the US in funding Alternative Protein companies, producing significant category leaders.
Like Bill Gates, we believe that “ClimaTech will produce 8 to 10 Teslas, a Google, an Amazon, and a Microsoft.”
If you are working on something interesting in this space that fits our investment considerations, we would love to hear from you: at email@example.com or at firstname.lastname@example.org.
Make sure to follow our next blog posts on opportunities in ClimaTech.