Inside the climate tech financing ladder: part II - the disruptors
In the second instalment of this series, we focus on climate tech start-ups disrupting incumbent, sometimes hard-to-abate industries
There is no standardised, agreed upon definition of the phrase – ‘hard-to-abate’. Nor is there a list of eligible occupations. What is agreed upon, is the underlying logic: that decarbonisation is more challenging, expensive and complicated in some industries than others.
In industries such as cement, steel, chemicals or logistics, there is a challenge up for grabs – disrupt technological legacies, demonstrate product market fit, convince financiers, scale up operations and protect the bottom line.
In the second instalment of our new series, based on an investor survey conducted by Net Zero Investor, we focus on climate tech startups that investors reckon are up to the task – the disruptors.
In search of climate alpha
Our survey findings show that investors are looking into companies and entrepreneurs having a go at harder to solve challenges, using a wider range of tools from advanced materials engineering and carbon capture to AI platforms and renewables.
Barton Blakeley in Hertfordshire claims it has the ability to convert carbon emissions into silica – a material with applications in paints, plastics and pharmaceuticals. Munro EV, based in Scotland, is taking electric vehicles offroad – something mining and construction companies could find use for. In Surrey, Sunswap is decarbonising cold chain logistics with their transport refrigeration units.
Carbon Re, another nominee, is using AI to reduce emissions in cement, steel and glass industries. “The UK has the potential to be a leader in both AI excellence and sustainability – but only if we have the courage to stay focused on what’s truly at stake”, said co-founder and COO Buffy Price.
Price was recently at 10 Downing Street, attending a reception celebrating the UK’s AI ecosystem.
“Today we are focused on the pyro process stage of cement production - the most energy and economically intensive – servicing customers from around the world, from Czechia and Türkiye to Brazil and Pakistan”, Price told Net Zero Investor.
On their part, investors have good reason to pay close attention to those who find the fit. The harder it is to challenge the status quo in these industries, the more scope there is for value creation.
“Our thesis is straightforward - we believe that supply chain inefficiencies are the next frontier of climate alpha”, says Nic Gorini, managing partner of Spin Ventures, a VC company. Gorini’s climate-tech hypothesis is about circularity and his list of investment criteria includes “enterprise ready-tech with live pilots”.
Climbing the ladder
Proof of concept has helped companies attract investor confidence. The next step for the disruptors is to convert that confidence into scalable business models.
It took 30 successful trials for Sunswap to demonstrate product market fit. Then, a £ 17.3m series B fund raise helped the company pursue in-house production.
“Building our own manufacturing facility has always been core to Sunswap’s plans,” said Michael Lowe, Sunswap’s chief executive. “The recent fundraising success and growing customer interest in Endurance [Sunswap’s product] has accelerated our timeline”, he added.
Investors in the latest round included BGF, Shell Ventures, Move Energy, Barclays and the Clean Growth Fund (CGF).
“With this further investment Sunswap is poised to accelerate the decarbonisation of cold chain logistics and rapidly transition the industry away from highly polluting legacy technology”, said CGF investment director Stephen Price.
Carbon Re and Sunswap have a financier in common - the CGF. Carbon Re is also backed by UCL Technology Fund and Cabridge Enterprise Ventures. The choice of investors, the company says, helped build its multidisciplinary team and finance early product applications.
Now, the next step for Carbon Re is to finance scale. The company intends to expand its reach beyond cement into the wider industrial manufacturing market. By Carbon Re’s estimates, that is a $1.5tn opportunity.
“Access to finance and building a scalable product have been the biggest headwinds we have faced at Carbon Re”, Price adds. In the coming weeks, the company will begin its Series A round.
The disruptors and the matchmakers are stewards of vastly different climate technologies but they are at strikingly similar points of their financing journey. Each have demonstrated, to a reasonable degree to their investors, that their product has a fit. Now, they are looking to scale their operations and bring financiers along for the journey.
In so doing, these companies are climbing up the financing ladder and moving their technologies incrementally closer to institutional territory.
Inside the climate-tech financing ladder: part I - the matchmakers
