The Sustainability Play
Entering the New Year
As we slowly open the gates into 2023, we at Metagrove are reflecting on where we have been and introspecting on how we move forward in the new year. From the point of view of venture investments, the developments in this past year in the area of climate tech on a global scale have really stood out.
The middle part of 2022 was among the warmest respective months ever recorded. In fact, the last 8 years have been the hottest ever recorded. As is evident in the graph below (Figure 1), data from the EPA shows the concentration of CO2 in the atmosphere has skyrocketed in recent decades. Many parts of the world experienced climate-change-induced natural disasters, at alarmingly high frequency and ferociousness, which resulted in the loss of lives and properties.
Figure 1
For Australia, the government has set an ambitious target for us to achieve an 82% target for renewables contributing to the electricity grid by 2030 — that’s in a mere 84 months to reduce our global greenhouse gas emissions by half if we were to avert irreversible damage to the climate of this planet, which still is our only home.
There’s a lot of work to do. But while these targets are audacious, it certainly presents an opportunity for an explosion of innovation and growth across this sector that we’re excited about.
The Current Moment
The good news is that with growing awareness of this challenge's unprecedented scale, a number of factors make this new movement to invest in early-stage climate technologies different from the clean-tech 1.0, which is widely regarded as an expensive failure.
In the US, the Inflation Reduction Act (IRA) that was passed by the US Congress and signed into law by President Biden in August 2022 authorizes $391 billion in spending specifically on energy and climate change, as per the Congressional Budget Office (CBO). The state of California also approved a rule requiring 100% of new car sales in the state to be zero-emission vehicles by 2035.
Beyond sustainable transportation, similar tailwinds make early-stage investments very promising in sectors such as renewable energy production and storage, carbon capture and storage, energy efficiency, agriculture, and forestry.
The infographic below (Figure 2) from CTVC shows these various segments under the broad climate-tech umbrella.
Figure 2
Given how expansive this area is, major investments and announcements across various sectors took place around the world, over the past year.
In early December, researchers at Lawrence Livermore National Laboratory achieved a fusion breakthrough that can usher in an era of unlimited clean energy. Meanwhile in August, Avalanche Energy, a small-scale nuclear fusion startup raised a series A round led by Lowercarbon Capital, while Dandelion, a geothermal energy startup also raised a growth round in September, from Bill Gates’ Breakthrough Energy Ventures and Google Ventures, among others.
In Europe, Northvolt, a sustainable lithium-ion battery maker startup, raised $1.1 billion in a convertible note deal, from Goldman Sachs, Volkswagen and others.
As per a report from Climate Salad, climate startups in Australia and New Zealand raised approximately $1.4 billion in 2022! Some notable rounds that were announced towards the end of 2022 include series A of Pathzero and FairSupply, and Series B of 5B and OpenSolar.
And finally, as per the latest (2021) The State of Climate Finance in India report from Unitus Capital, climate-tech funding grew 4X to $7.15 billion and is expected to continue this rapid rise in the coming years.
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Where To From Here
While venture capital investments in most sectors shrank due to macroeconomic conditions over the year (2022), capital has continued to pour into climate-tech sectors.
CTVC’s, total AUM in the climate sector is expected to more than double from $30B in 2021 to over $64B in 2022. With market corrections and rounds of layoffs among large technology entities in the US, we at Metagrove predict that the coming months will be transformational for early-stage entrepreneurship in the impactful sector of climate tech.
As the pace of technology continues to increase with continual innovations across machine learning, advanced manufacturing, robotics, the Internet of Things, 5G, and much more; here are some key use cases/areas that will start to take shape in the foreseeable future:
Solar and Wind power solutions are becoming increasingly cost-competitive with fossil fuels at economies of scale in conjunction with smart grid technology — using advanced sensors and software to improve efficiency, reliability, and security.
Carbon Capture and Storage (CCS) — capturing CO2 from power plants and industrial sources and storing them underground, comprising of capture facilities and software to monitor and control the process.
Electric Vehicles (EVs) continue to grow in demand and popularity as battery technology improves and charging infrastructure expands, especially via mobile apps and network systems to make the charging process more convenient and efficient.
Building Energy Management Systems (BEMS) and energy-efficient appliances (still plenty of optimizations to be made) to monitor, control and optimize the consumption within buildings, which can help reduce energy costs and improve efficiency.
Advanced materials — lightweight composites
Green infrastructure — green roofs, walls, urban forestry, vertical farming, etc., can help mitigate the urban heat island effect, reduce air pollution and provide ecosystem services.
At the end of the day, we’re very bullish on the scalability of the innovative technology trends and hence are very closely engaging with this ecosystem to identify exceptional founders in this sector.
What about Metagrove?
Sustainability has been and will continue to be an important sector within our mandate. As we grow our portfolio and community, we’re seeking to understand the opportunities, but also the interplay between hardware and software within this space and where we can play a role.
The climate space is unlike any other sector in the sense that it requires a co-mingling of hardware and software. For this reason, we’re excited about working with exceptional founders who are able to identify solutions that address and solve niche problems that have the ability to create large impacts across the climate verticals.
If you’re working on something exciting in the sustainability space, feel free to reach out and connect — we’d love to hear from you!
Metagrove Ventures is an early-stage investment venture capital fund, focused on supporting founders and companies who are building the future of industry by creating inflection points in the market.
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