Software won't solve the climate crisis: a huge investment in technology is needed
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In 2011, Marc Andreessen wrote that “Software is eating the world.”, predicting that software companies would disrupt almost every industry. His prophetic projection has held true for the past decade. Software has had a widespread impact, ushering in great efficiency in business, transforming healthcare, and introducing countless conveniences to our daily lives.
However, while software has brought undeniable benefits, it is not a panacea for society’s biggest challenges, including the biggest of all: the current climate crisis. Software alone will never solve the myriad of problems that contribute to the dire state of our planet. Hardware solutions and engineering-driven innovations in the deep tech space will enable some of the biggest climate action.
The most exciting aspect of today’s deep-tech climate innovations is that they are no longer science fiction or research experiments. Many of the most earth-changing climate solutions are close to commercialization. Here’s a look at how the deep tech ecosystem can rise to the occasion to solve our biggest collective challenge.
Advancing Deep Weather Technology
It is not easy to overstate the crucial importance of deep technology in accelerating solutions for global decarbonization and renewable energy. Much of the clean energy and carbon capture technology coming to market now are hardware products with deep technological innovations. We are seeing companies develop new ways of lithium extract of pickles to power electric vehicles, converting fast carbon very slow Coal with ocean buoys, and even injecting captured CO2 within concrete to store it permanently there.
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Perhaps not surprisingly for a fund that focuses on deep technology, one of our company’s first investments in the market focused on hardware in the form of high technology. lithium ion batteries developed by SunMobility. These swappable batteries enable “pay as you go” EV power that could make e-vehicles financially viable for the first time in markets like India.
Looking at these technological advances, there is no doubt that to overcome the many challenges that threaten our planet, both the public and private sectors must seek climate solutions that include both atoms Y bits. But the question remains, exactly what role can the venture capital community play in seeding deep-tech climate change disruption?
Go from a shallow mindset to a deep mindset
As Andreeson’s software prediction has developed in almost every corner of the business world, investments in software have far outstripped the capital committed within Silicon Valley and beyond the hardware innovations that initially gave it its name. to the mecca of technology.
Similarly, in climate technology, many of the early investments we saw in this latest wave of climate innovation were focused on software or platform-based climate technology startups that provide services ranging from climate risk ratings to carbon accounting. But if investors are serious about reducing emissions, they should also invest in some of the novel technologies mentioned above. That is not to say that measuring and analyzing climate risks using the latest software advances is not essential for climate adaptation and resilience. But on the other hand, there are some software innovations, like APIs that promote carbon offsetting of consumer products, that aren’t going to have a significant climate impact.
This is why we need a dedicated approach to solving deep problems in physics and chemistry related to technology that will allow us to remove carbon from the atmosphere or reduce emissions. If not, there is no hope for climate change mitigation. Beyond going deeper, we must also go deeper to solve the big and complex climate challenges.
For example, sectors such as mobility and transport have attracted 46% of heated technology investment, but they only represent 16% of global emissions. By contrast, areas such as the built environment sector, which accounts for roughly 17% of global emissions, has received just 5% of funding. These areas are ripe for deep technological disruption, and the venture capital community needs to broaden its view of climate-investable areas.
Dispelling deep tech myths
We also need to tackle some deep tech myths along the way. The first is that you can’t build great companies on deep tech. Based on the last decade, many believe that unicorns and 10X exits can only be found in software. To help illustrate how this is simply untrue, the team at MFV Partners recently compiled a list of deep tech companies that have exceeded $1 billion in valuation and found around 120 recent deep tech unicorns with a combined value of $463 billion. That’s right, nearly half a trillion dollars’ worth of deep tech has already been created.
Another myth is that deep tech companies are very capital intensive and take forever to grow into great assets. To help bust this myth, our team analyzed recent deep tech unicorns to understand how much money it took to arrive at the unicorn’s valuation. the results it reinforced what we knew from experience: that the capital and time requirements of deep tech startups are on par with those of other sectors. In fact, the midsize deep-tech unicorn required $115 million of capital and 5.2 years to get there.
The deep tech sector has seen impressive growth in recent years, with world investment in space has quadrupled in recent years, from $15 billion in 2016 to $60 billion in 2020. But with today’s big and complex challenges, there are likely many upsides to deep tech to address the problem most pressing of society, regardless of whether the economy is booming or slowing.
Preparing for slightly longer but more impressive takeoffs
Scaling any startup is a challenge. These challenges are heightened in the climate tech sector, and specifically for those focused on deep tech solutions. We saw this with Cleantech 1.0, where one of the biggest issues was that venture capitalists couldn’t scale hard tech as cheaply and quickly as they could with software.
Hardware solutions require significant investments in team building, manufacturing capabilities, inventory, and distribution. As a result, many climate deep tech companies require a higher capital investment up front and over a longer horizon than their software-based counterparts. And while investors need to think long-term about leads, they don’t need a very long-term view about exits. Some of the most impactful climate companies of our generation will have successful exits in the next five years.
This is an important point to deal with current market headwinds and concerns about a potential recession. Investors often quickly shy away from capital-intensive startups during recessions. That certainly happened when the first cleantech bubble burst and those who didn’t leave the space completely shifted their focus from things like solar power to capital-light software startups in the sector. This would be a worrying short-term view to adopt when addressing a climate crisis that needs immediate attention as our planet’s clock ticks down.
Whether or not you agree with the model that suggests total climate catastrophe in the next 10 years, the fact is that there is no time to waste when it comes to implementing deep tech solutions that have real impact and can reverse or mitigate the problems that threaten the world. climates With that in mind, founders and investors need to focus on solutions that can be commercialized in the short term and have a significant impact sooner rather than later.
Karthee Madasamy is founder and managing partner of MFV Partners.
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