The decarbonization of the planet will be the next major disruption of the 21st century, according to SOSV managing general partner Sean O’Sullivan and Carmichael Roberts of Breakthrough Energy Ventures.
A disruption of such magnitude will bring about changes that will touch every industry and corner of daily life, and as a result, a complex web of challenges and resistance. It will also deliver unprecedented opportunity for entrepreneurs — and the investors backing them — who can turn their climate tech ideas into commercialized products and services, whether that’s plant-based foods, carbon capture, electric vehicles or battery recycling.
“The difficult thing here is that we have to change everything,” O’Sullivan said while on the TechCrunch Disrupt 2021 virtual stage. “Climate tech is not just one thing that needs to be changed. We have 100 areas, 1,000 different areas that need to be reinvented and industries that need to be reconstructed.”
This opportunity has helped climate tech become one of the hottest sectors to invest in. But that doesn’t mean success is guaranteed. Unlike other sectors, climate tech crosses into nearly every industry, including transportation, energy, agriculture, consumer goods, food and beverage, and packaging.
For investors, the initial challenge is vetting the startups, along with their technology and business plan, to determine if it’s really climate tech or just window dressing.
“It’s just a big and broad category that encompasses anything and everything that could lower overall carbon,” Robert noted.
Are people ready for climate tech?
Forces in entrenched industries can threaten progress even after climate tech startups successfully navigate fundraising and begin to scale. As O’Sullivan noted, people are inherently resistant to change.
However, both investors have seen more openness.
“If you listen to people today, they’re trying to figure out how to transition, blend, add. I see a lot more of ‘How do we embrace the transition?’ And even further, ‘How do we not fear it?’
Roberts said he sees this positive trend even in the agriculture and oil and gas industries. “Of course, there’s going to be some percentage of folks who are going to stiff-arm the whole thing. But by and large, I think the majority of people are starting to cooperate a lot more. And if you define ‘ready’ as not flat out resisting, I would say these sectors, overall, are starting to get ready.”
The role of investors
“The real job — if you want to look at the purpose and meaning of being a venture capitalist — is trying to cite the future early, and then asking, ‘Is this future inclusive of providing a better quality of life for humanity?’ And then spreading that around,” O’Sullivan.
But making such predictions can be tricky when it comes to climate tech, O’Sullivan said, because people might not be worried about something — say a climate disaster — that hasn’t happened yet. He believes the correct strategy is to focus on abundance, the quality of goods, and the overall lifespan and lifestyle of people along the way.
“We can do that as we reinvest and reinvent these industries,” O’Sullivan said. SOSV, which closed a $100 million fund earlier this year, focuses on seed-stage investing. The VC is also looking to help reinvent these industries through HAX, a startup development program for hard tech. The company in September said it plans to open a $50 million HAX facility in Newark, New Jersey, focused on growing industrial, healthcare and climate startups.
For Breakthrough Energy Ventures, its role involves investing only in companies that offer a product that will be able to remove no less than half-a-gigaton of carbon per year, Roberts said.
“To be able to do that, you have to build a pretty sizable company with a technology and a product offering that’s not confined to a limited geography,,” he said. “You need to be able to get that technology out and have it be pervasive on a global basis to remove that kind of carbon.”
The opportunities
O’Sullivan believes this disruption will create massive opportunity for startups, going as far to say there will be 500 to 1,000 unicorns created by such a complete reconstruction of industries.
To illustrate the opportunity, Roberts listed five sectors: Agriculture, transportation, buildings and building materials, electrification and advanced manufacturing sectors. How many companies do we think can be created and that produce so much value just within those five sectors? Roberts asked. The trick, he noted, is that any climate tech has to be a product people would like, even if it wasn’t doing good.
“I think the products have to be awesome, which then creates big businesses,” Roberts said.
Despite all of the activity in climate tech, some subsectors could use more innovation, the pair said. Roberts felt there’s a gap in climate tech services and products focused on oceans. “Amazingly, we’re doing more stuff in air, which I think is super important right now,” Roberts said. “But I think we’ve barely scratched the surface on oceans and big bodies of water.”
Meanwhile, O’Sullivan sees opportunities in scale, specifically the tools and technology that can help take these ideas to a commercial level. “Every 18 months, we’re seeing around a 10x increase in the total bio-manufacturing capabilities, and I think that’s going to probably continue for decades,” O’Sullivan said. “We’re talking about food, materials, and we’re even talking about biomass for actually sequestering carbon.”
“We’re really, really, really looking forward to a huge change coming through the scaling technologies,” he added. “Startups have a lot of roles to play in each each element. There’s a lot of different ways and reinvention needs to happen.”
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