AI share in the global VC funding keeps increasing, around $20B In February, more than a fifth of all venture funding in February went to AI companies, with $4.7 billion invested in the sector. That was up significantly from the $2.2 billion invested in AI companies in January 2024 and the $2.1 billion invested in February 2023, according to Crunchbase. GPU cloud, humanoid robots, and enterprise AI search got the bigger rounds that stand out.
The deal value in AI startups ends Q4’24 with $22.3 billion across 1,665 deals. Powering these startups are AI-specific datacenters, whose specialized infrastructure and operations are designed to meet the rigors of AI workloads. Some startups in this space are challenging Microsoft, Google, and AWS (The Q4 2023 AI & ML report from Pitchbook). Also, Pitchbook reports that startups in the infrastructure SaaS market are ready to capitalize on the sea change that AI is bringing. The sector saw an uptick in VC funding in Q4 2023—reaching $2.2 billion compared to Q3’s $1.9 billion. Dharmesh Thakker of Battery Ventures predicted the software spend of around $600 billion will increase twofold to threefold over the next five to seven years as AI delivers productivity gains and leads to GDP growth. Let’s borrow the drawing depicted by Elad Gil – the wave of AI product and application building is coming, after the current infrastructure building wave. All are speculations. The current AI wave is seen as a paradigm shift similar to mobile or the internet. Steve Sloane of Menlo Ventures gave a much longer review of tech waves and lessons (here). Because generative AI is riding on the readiness of software, digital transformation, data, and computing infrastructure already built previously, it has achieved an unprecedented adoption rate. But, that doesn’t equal the revenue generation rate. The most important model of AI is the business model. Menlo Ventures also surveyed more than 450 enterprise executives across the U.S. and Europe and summarized a report – The State of Generative AI in the Enterprise.
Half of the enterprises we polled implemented some form of AI, whether into customer-facing products or for internal automation, prior to 2023. Enterprise investment in generative AI—which we estimate to be $2.5 billion this year—is surprisingly small compared to the enterprise budgets for traditional AI ($70 billion) and cloud software ($400 billion). Enterprises already used AI before. Enterprise execs cite “unproven return on investment” as the most significant barrier to the adoption of generative AI. The median enterprise we surveyed spends more on AI for product and engineering (4.7% of all enterprise tech spend) than on all other departments combined (3.5%). 3 predictions from the report are:
Despite the hype, enterprise adoption of generative AI will be measured, like early cloud adoption (took years).
The market will continue to favor incumbents who embed AI into existing products.
Powerful context-aware, data-rich workflows will be the key to unlocking enterprise generative AI adoption.
We agree with what Anthony Schiavo of Lux Research wrote in The AI revolution will look like a failure. It’s unlikely that the AI use cases generating hype right now will be the ones that drive a lot of revenue. However, LLMs’ ability to make interfacing with digital systems easy for nonexperts might have a meaningful impact on improving the adoption rate. These digital systems could be software, codes, and all physical systems, for example, factory floors, robots, oil field operational systems, defense systems, etc. And, it could enable collaboration between industry experts and those systems. Where will the most value accrue throughout the AI landscape?
Application companies might grow revenues quickly but often struggle with retention, product differentiation, and gross margins from lessons learned previously unless there are moats of adoption such as industry expertise and relationships. All the AI hype and hopes fuel the demands for AI infrastructure – software and hardware. Infrastructure providers are likely the biggest winners in this market so far and in the short term, capturing the majority of dollars flowing through the AI stack.
AI data centers are “picks-and-shovels” for all the above developments, desired explorations with generative AI, and even struggling efforts to find AI business models – all aren’t possible without AI servers. Big funding from VCs or tech titans going into the software infrastructure of generative AI stack in the past year only increased the devastated demand for AI servers and GPUs – hardware is more a bottleneck than software now. Nvidia and Supermicro are enjoying explosive revenue growth and have been breaking records for their stock market caps for quite some time (Supermicro stock goes up over 3X this year, 20X in 2 years, and Nvidia goes up over 2X this year, 4X in 2 years). But both depend on TSMC’s advanced node chip manufacturing and packaging technology. Only 2 months into 2024, TSMC’s revenue has grown around 10% despite the iPhone demand declining, TSMC market cap has grown 50% this year and became the 9th largest enterprise worldwide.
Taiwan has been manufacturing and shipping 90% of global computing servers even before the AI hype. Recently the Taiwan government needs to expand the capacity and area of air cargo operations to support the strong demand for global AI server shipments. TSMC has to keep building the most advanced fabs across Taiwan cities 24/7 (yes, the construction goes 24/7). There are tightly connected ecosystems for semiconductor and hardware manufacturing, that collaborate and respond to demands fast on the small island. Large companies invest in frontier innovations and build technology moats, their small key suppliers can grow fast riding on the wave with high capital efficiency and labor efficiency. These investment opportunities aren’t understood by or accessible to most US or global VCs. If you like to learn more, sign up here.
Thinking of eras — Cisco and HP in the 80’s, Apple and Microsoft in the 90’s, Amazon and Google in the early 2000s, and Facebook and Tesla in the 2010s. In the case of the dot-com bubble, Google and e-commerce allow people faster access to information and goods. Now generative AI is bringing us the next wave, what companies will become the representations of this era, and what opportunities are left for startups?
Anand at CB Insights notes: “The number of deals to AI startups backed by US big tech companies & their strategic venture arms jumped 50% year-over-year. This is the next big super trend, much like the internet and mobile phones, and big tech is committed to not just not missing it but to driving it. They are all in on genAI.” James Mawson of Global Corporate Venturing reminds us: Silicon Valley is the center of the AI world now – but for how long? Abu Dhabi has set up a new technology investment company, MGX, looking to invest up to $100bn in AI infrastructure (data centers and connectivity), semiconductors and core technology and applications such as AI models, software, data, life sciences, and robotics.
In the 2024 Tech Trend published by CBInsights, the first to watch is GPU shortage (it has been for most of 2023). Nvidia hit a $1T market cap in Q2’23, its rise signals the next platform shift. The new term “Magnificent 7” big tech giants, was created by Bank of America analyst Michael Hartnett in 2023.
Startups link up with big tech to access their AI chips and compute power and also look outside of big tech for cheaper cloud computing. Startups building software to help AI models run efficiently on available hardware gain traction, the GPU shortage also opens the door for experimenting with novel processor approaches. Big tech is the biggest buyer, hoarding H100s in the thousands, but Nvidia’s biggest customers are also pushing their own chips. And Sam Altman, OpenAI CEO, might raise trillions of dollars for a new semiconductor fab to manufacture advanced AI chips (not to promote him here, but to show the crucial position of semiconductors in AI wars).
As reported by CBInsights, in 2023, AI startups raised $42.5B across 2,500 equity rounds., although down 10% year-over-year (YoY), it fell far less than broader venture funding (-42% in 2023). Generative AI attracted 48% of all AI funding. The US saw AI funding jump 14% YoY in 2023, fueled by mega rounds. AI deals got bigger in 2023, with the average deal size climbing 21% YoY to $23.4M, and the median deal size also held steady YoY at $4.4M (the second-highest level on record). M&A exits rebounded in 2023 to 317, a record high. The acceleration in M&A points to a wave of consolidation, as incumbents look to quickly bring AI capabilities on board. Google was the most active investor in AI in Q4’23, backing 9 AI startups. It was followed by KB Securities, Nvidia, and Plug and Play Ventures with 8 companies apiece, and then Lightspeed Venture Partners with 7.
In the US, big tech companies’ R&D investment outpaces that of overall US venture funding by a wide margin. This underscores the scale these companies play in driving tech innovation. Tech giants are throwing their weight behind promising AI startups, offering computing power and funds for development, especially in the realm of generative AI. (source)
Not only big tech giants, companies are rushing to build AI data centers, and mentions of AI data centers skyrocket on earning calls.
On another advanced computing front, Quantum computing funding surged to a record high in 2023, bucking the broader venture downturn for 2 years in a row. Neutral atom quantum computers are having a breakout moment, hinting at accelerated timelines for commercialization. More enterprises are running pilots with quantum startups. Interest in the intersection between quantum computing and AI is heating up as quantum advances can enable more powerful AI models down the road.
In this AI era, access to power is a differentiator. The number one operating cost of data centers is power! Generative AI makes the data center demand from megawatt to gigawatt scale. That adds extra stress to grids or is even prohibitive without some change. And, regulations will require disclosure of carbon emissions, sustainability is more than a buzzword. There is evidence that LPs are aware of the scale of data center opportunities, and its power hunger issue (also water). Using a combination of grid-sourced power and a portfolio of other renewables, small modular nuclear reactors, wind turbines, and batteries are all possibilities. (more)
The other differentiator is semiconductor capability, this topic might take a series of posts, including advanced packaging techniques, advanced semiconductor manufacturing nodes, new circuit architectures, new materials, photonics, and more. The White House on Feb. 9, 2024, announced the U.S. government’s plan to spend $11 billion on semiconductor-related research and development and said it was launching the $5 billion National Semiconductor Technology Center. NSTC will establish an investment fund to help emerging semiconductor companies advance technologies toward commercialization. (source) Will this matter to the international semiconductor sovereignty race that started quite a while ago and now AI is added to the race?
The investor panel recording on the water innovations (Jan.26, 2024). Thanks to all the panelists for the great conversation and the chat record is here.
A suggestion from Paul Burgon, Exit Ventures – (he has a background in running the North American division of a public European water tech company and also being on their board)
My observations: I agree with your investment opportunities points. One clarification I would add: startups should not focus on customers in the municipal water sector, it is a complete mismatch. Municipal water operators are extremely risk averse and they won’t be interested in a startup’s new technology until it has seen years of use and testing, unless the municipality is almost desperate. They are very rarely desperate. So, startups should focus on industrial water testing and reclamation rather than municipal. The industrial segment will be much more open to trying newer technologies with a strong ROI and so startups can be much more successful in the industrial segment.
Context: In this downturn, VC investment amount in water tech is growing strong, since it’s underinvested in past years.
Total funding to water industry categories in 2023 was higher than in 2021. And this year is also off to a strong start. The annual investment since 2019 to companies in the water, water purification, and water transportation categories is charted below.
Saudi Arabia ordered state-owned Aramco (ARMCO) to maintain its oil production capacity, marking a major reversal from the energy giant’s plan to boost capacity. The Maximum Sustainable Capacity of the world’s largest crude producer will be maintained at 12M bbl/day, instead of a planned capacity expansion to 13M bbl/day by 2027.
The European Union pumped out 8% less carbon dioxide from the fossil fuels it burned in 2023 than it did in 2022, the Guardian reported, pushing these emissions down to their lowest level in 60 years. Yet, over this period, the economy has tripled – showing that climate change can be combated without foregoing economic growth. More than half of the drop in emissions came from the use of cleaner electricity, the report found. The EU built record levels of solar panels and wind turbines in 2023, according to industry data, and was able to make more electricity from dams and nuclear power plants. Analysts say emissions overall are still falling too slowly.
Clean Energy Technology Investment to reach nearly US$ $800 billion in 2024 (up 10% to 20% from 2023) and $1 trillion by 2030. Solar will be the largest share of the additional spend and account for some 55% of the total investment. Onshore wind will be the second largest segment. The fastest-growing areas for new investments will be battery energy storage and electrolysis. CCUS and Hydrogen are both getting policy tailwinds.
The average capex of clean energy technologies to decline by another 15%-20% by 2030. The combination of oversupply and falling raw material prices is rapidly driving down the costs of solar and batteries.
Clean energy technology manufacturers are making decarbonization core to both products & and strategies. Two keys are 1) the use of low-carbon electricity, 2) a progressive reduction in materials consumption, and the use of lower carbon footprint materials.
Oversupply is driving solar and storage manufacturers into a price war – compressing margins and jeopardizing localization efforts. Smaller manufacturers are likely to face negative gross margins.
Expect record-high offshore wind capacity auctions in 2024 despite rising capital costs. More than 60 GW of new capacity is set to be auctioned in at least 17 different markets, enough to cover Poland’s total power demand.
Western wind turbine giants face growing competition from the East. China’s recently announced turbine production surpasses that of Western counterparts by at least 30% in rated capacity, while the price gap has grown to nearly 70% between both groups. Expect the technology arms race and pricing pressure to continue.
Expect higher global interest for low-carbon hydrogen as feedstock for ammonia, synthetic methane, and synthetic liquids. Aided by subsidies and driven by mandates, investment in hydrogen as a feedstock is now flowing.
2024 will be a milestone year for technology-based carbon dioxide removal (CDR). The EU is expected to adopt a carbon removal certification framework in 2024. A significant increase in projects can be expected in 2024, especially those aiming to capture biogenic and/or atmospheric CO2.
Efforts to alleviate grid congestion and permitting constraints, a global phenomenon, will continue to streamline renewable power development. Global markets are expected to focus on two key means: 1) Higher investment in transmission and distribution (T&D) and storage. The biggest factor behind grid-connection bottlenecks is that T&D investment lags generation capacity investment. 2) Facilitation of development of other renewable technologies (e.g., offshore, geothermal), which have suffered from cost hikes and challenges in big interconnection and permitting.
Transmission system operators (TSOs) will be required to assess flexibility needs from 2025, which will drive additional large-scale energy storage procurements.
We are meant to be in a golden era of investing in climate technology, but lots of investors have yet to reap the benefits. For example, the Invesco Solar ETF (TAN) is down more than 40% in the last year, with one of its largest holdings down 75% during the same period. SolarEdge’s revenue plummeted off a cliff in Q3 2023, and EnerSys (the market-leading battery provider) has also been losing businesses and firing workers in recent years and putting IRA central to its future growth. Hydrogen ETFs have lost 22% to 57% on a one-year timeline or lost 53% to 80% on a three-year timeline. Is it about timing, about company selection, or about missing something from the whole picture? Why? (Share your thoughts: Partner@WiseOcean.Tech)
AI and Climate
Sam Altman, OpenAI CEO, is engaged in discussions with key Middle Eastern investors and the Taiwanese chip giant TSMC to launch a new chip venture to design and build semiconductors for accelerating AI workloads as well as solving its power hunger. This initiative, aimed at reducing OpenAI’s dependence on Nvidia, involves collaboration with influential figures like Sheikh Tahnoon bin Zayed al-Nahyan of the UAE. Sheikh Tahnoon, a key figure in this negotiation, oversees substantial investment funds and entities in Abu Dhabi and is involved with G42, which collaborates with Microsoft and OpenAI. (One of the references)
AI is currently supercharging the development of data centers. DigitalBridge pointed out: “With the speed of adoption of Generative AI being the fastest on record. We believe the Generative AI opportunity will be at least as big as the cloud market today over the next 5-10 years… Access to digital infra in size, at the lowest total cost, is a key success factor. The new specialized AI chips and GPUs consume 2-3x the power of prior generations. There is going to be higher power density on a per rack basis with each rack filled with power-hungry GPUs drawing 40 or more Kw compared to traditional data center racks drawing 10kw or less.”
The number one operating cost of data centers is power! Generative AI makes the data center demand from megawatt to gigawatt scale. That adds extra stress to grids or is even prohibitive without some change. And, regulations will require disclosure of carbon emissions, sustainability is more than a buzzword. There is evidence that LPs are aware of the scale of data center opportunities, and its power hunger issue (also water). Using a combination of grid-sourced power and a portfolio of other renewables, small modular nuclear reactors, and even LNG and batteries are all possibilities. (more)
Quoted from Robeco: “To illustrate, Nvidia’s currently supplied A100 AI chip has a constant power consumption of roughly 400W per chip, whereas the power intake of its latest microchip, the H100, nearly doubles that – consuming 700W, similar to a microwave. If a full hyperscaler data center with an average of one million servers replaced its current CPU servers with these types of GPUs, the power needed would increase 4-5 times (1500MW) – equivalent to a nuclear power station! Current data centers are ill-equipped and in need of a revamp, upgrades will benefit the smart energy themes.” (more)
We might review AI chip innovations with sustainability impact later.
Here below we select first-order signals from the 2023 annual report created by Net Zero Insights – a data and research platform for Climate Tech.
ClimateTech Year 2023 Review
In 2023, the two-year funding boom concluded with a significant 30% YoY drop. Despite a challenging year, the funding landscape holds promise with growth surpassing 2018 (2.76X) and 2020 (2X). Funding slows globally, except for Asia (+19% YOY). Europe is more resilient than North America.
Net Zero Insights uses a product innovation framework: “Breakthrough” innovation entails extensive research and development, characterized by long-term efforts and innovations in the proof-of-concept phase. “Adoption” concentrates on implementing and deploying established solutions, with a focus on improving metrics like cost or efficiency. While “physical” and “digital” represent what the company builds.
80% of all venture funding raised in the last 5 years across equity, debt, and grants went to adoption. Of this, 70% went to physical solutions, with most of it being non-dilutive. Note: Breakthrough solutions in the US secure over twice the funding compared to Europe. ($4.7B vs $2.5B)
The path to a net-zero economy demands readily deployable physical solutions and later-stage investors and lenders seem increasingly prepared to support it. First-of-a-Kind (FOAK) projects gained prominence last year but still pose challenges in definition and present funding complexities. In 2023, funding flowed towards adoption-focused innovations and later stages, indicating the increasing maturity of the market.
Circular economy, water, and industry are the only challenge areas to see positive YOY growth.
Energy attracts the largest investor base, while interest in industry and water is on the rise.
Overall, energy and transport are the most mature sub-sectors with the most funding and investors in the past 5 years. Circular economy, water, and industry are active emerging sub-sectors with obvious growth in seed and early-stage investments.
Companies headquartered in the US, China, and UK raised the most funding in 2023.
The top 10 most funded cities show a signal about the strength of cities.
In 2023, acquisitions reached a historic high (250 deals), predominantly in the energy, transport, and food & agriculture sectors while IPOs and SPACs returned to pre-pandemic levels. Acquisitions are gaining movement with corporate buyers.
Corporations exhibit resilience and sustained activity in Climate Tech M&A in the downturn. Corporate investments are concentrated in energy, food and agriculture, and transport, despite a slight decrease in funding in some of these sectors. Energy, industrials, and IT emerge as the predominant sectors among corporate acquirers, showcasing their strategic focus and interest in climate tech organizations.
Venture investors have a clear preference on digital types of solutions, funding them regardless of breakthrough or innovation.
Non-equity investors are not only intensifying their funding efforts but are also gaining prominence, particularly in later-stage deals.
Governmental funding is assuming an ever-growing significance in shaping current climate tech dynamics, particularly fostering breakthrough innovations.
Look at the number of investors, most investors favor adoption in energy and transport, with a busier-than-expected scene in physical breakthroughs.
The above is just extracting a part of the annual climate tech report, dive in for deeper insights in the report here from Net Zero Insights.
Are Water Innovations On Your Radar?
Water innovation startups may be underinvested, as water remains one of the most undervalued and underinvested resources in agrifood innovation, despite its intrinsic role in the food system. However, there are signs that this trend is changing, with more than 18 ocean-focused funds being launched in the last 18 months. Public investments are also on the rise, such as the Inflation Reduction Act in the US and initiatives from the World Bank. The Valuing Water Finance Initiative aims to convince the world’s largest corporates to treat water as a valuable resource, representing 64 institutional investors with a total of $9.8 trillion in assets under management. (source)
The investor panel recording on the agri-food topic (Jan.19, 2024), and here is Transcription by Swell.ai.
Thanks to all the panelists for the great conversation and the Chat record is here.
Our special guest Thomas Mastrobuoni, CIO of Big Idea Ventures (BIV), shared sincerely about the agri-food tech ventures from his experience with BIV and Tyson Ventures. BIV has invested in more than 110 food tech startups. Before BIV, Thomas worked with Tyson Ventures for about 3 years, launching and running their corporate venture capital group. It was the first CVC group for Tyson with a $150 million mandate from the company to invest across both enabling technologies, but also disruptive technologies, which led to investments not only in things like rapid pathogen detection and direct-to-consumer platforms but in alternative proteins as well, both on the plant-based side and on the cultivated or cell-based side.
Their latest fund is a new model, according to Thomas (lightly edited for clarity):
We call it the Generation Food Rural Partners Fund, or GFRP. This fund is very different than the new protein fund strategy. This fund works for solving problems in the supply chain for food and agriculture companies. So we will talk to the Nestle’s, we’ll talk to Unilever, all the way down to a small stakeholder farmer, here in the States and in Europe. And we’ve built basically a data lake of problems that these folks are trying to solve, whether it’s around single-use plastics, scaffolding for cultivated proteins, replacement for petroleum-based adhesives. We map the universe of problems as well as we can. And then we work back to a pool of university-developed research and IP. And the goal is to start around 20 to 40, depending on how big the fund gets, but 20 to 40 new companies based on baskets of university IP, so not one patent, but multiple patents, coupled with experienced management teams to build companies to solve some of these problems that these companies are trying to face, which are the reasons why none of them are going to hit their GHG reduction goals in time.
This fund is also a licensed RBIC fund. RBIC stands for Rural Business Investment Company. It’s a license issued by the USDA, very similar to SBIC funds. It’s a license that allows banks to invest in our fund. Any other LP can invest in our fund. Typically banks cannot invest in private funds due to the Volcker rule, but SBIC licenses and RBIC licenses are exemptions to that. So we launched our fund with 10 farm credit banks.
So if you’re a farmer in the US, you bank at farm credit, your mortgage is with them, your tractor leases are with them, etc. They have a mandate to drive economic growth and development in rural communities. And they do that with us by committing LP capital to our fund. And we spin up new companies, as I said, to solve these supply chain problems. And we put our new companies and the living wage jobs we create in rural communities to drive that economic growth and development. Our areas of focus are food, protein, and agriculture. We’re purposely broad.
Tom shared their summary on interest areas in demand from talking with corporate partners and LPs – read the breakdown here.
Below is our writing about the context of the agri-food system.
The Agri-Food Industry can become net-positive
About a third of human-caused GHG emissions originate from the world’s agri-food systems (source), it accounts for 25% of global CO2 emissions (source), and 41% of global methane emissions (source). This scale has driven significant investments in decarbonization along the value chain. Declaration on Sustainable Agriculture, Resilient Food Systems, and Climate Actions was announced on 1 December at COP28 and was endorsed by 134 heads of state and government. Unlike some other hard-to-abate sectors, the food industry can play an important role in the net-zero transformation since it has the opportunity to become net-positive, by achieving net zero and acting as a carbon sink for other sectors.
On the other hand, agriculture is the sector most affected by climate change according to the UN Food and Agriculture Organization. Over the last 3 decades, agriculture losses accounted for an average of 23% of the total impact of disasters across all sectors. Climate change is accelerating land degradation and making it harder for food systems to adapt, posing significant threats to food producers. This can include both workers and working conditions impacted by extreme weather. Regarding agriculture, only five countries have benefited from climate change, while 21% of overall global agriculture productivity has been lost (source). Investing in climate adaptation and resilience for our agri-food system could be a massive opportunity.
Implementing these decarbonization levers will require significant financial investment and change management across the food ecosystem. Except for food loss and waste reduction, there are no quick wins. From the Deloitte report, this chart depicts the economic viability and ease of realization of those levers, those levers falling in high economic viability and high ease of realization are more likely to make bigger impacts in the shorter term.
Emission reduction for farming or inputs can greatly reduce both CO2 and methane emissions. Rice and livestock are the main emitters of methane in agriculture. There are opportunities to drive on-farm decarbonization or reduce applications of inputs (fertilizers, pesticides, etc.) and capture business value. Decarbonizing those inputs matters too. And, new bio methods are emerging to reduce enteric emissions in livestock such as methane vaccines, etc.
Precision farming and digital transformation can make food production more sustainable. Digital management software, data analytics and AI, sensing technologies, robotics, electrified equipment, carbon monitoring, digital marketplaces, etc. can support data-driven decision-making in farming and demand forecasting, reduce labor needs, level up operational efficiency (faster response or automation, higher crop yield, better animal health), reduce chemical inputs, and water use, and reduce waste.
Switching to renewable energy sources to power food production and distribution can lower emissions. The food sector could also produce energy from waste using devices like bioreactors. Anaerobic digestion can turn organic matter into electricity, heat, or renewable natural gas or fuels.
Carbon sequestration can remove carbon from the atmosphere. For example, changing the way of treating soil can contribute greatly to emission reductions. Increasing the organic matter – and therefore the carbon stored – in soils can be done in a variety of ways, such as applying compost, biochar, or organic fertilizer. Some methods can make sure carbon stays in the soil. Agroforestry, which combines agriculture with the carbon storage capabilities of forests, is another promising option.
From McKinsey’s report: The agricultural transition: Building a sustainable future (June 2023): a wide variety of emissions sources are associated with agriculture; however, three major sources combined account for nearly 74 percent of the total, making them excellent targets for action – land use change, enteric fermentation, energy use in agriculture. (image below)
Agriculture alone is estimated to account for approximately 80 percent of global land-use change, which profoundly impacts carbon release and negatively affects biodiversity and ecosystems. Agricultural land covers half of all habitable land and is responsible for 70 percent of freshwater withdrawals. In addition, food systems are the primary driver of biodiversity loss around the world. Restoration and conservation are the most effective levers for abating land-use emissions, in addition to others including integrated farming systems such as Silvopasture, agroforestry and agrovoltaics. Carbon and nature markets today are supporting farmers in adopting nature-based solutions such as cover cropping and no-till farming, for which they can generate and sell carbon credits. The Inflation Reduction Act in the United States includes $5 billion specifically for climate-smart forestry and wildlife protections.
Shifting what we eat to alternative proteins is a powerful lever for at least 2 reasons. First, no methane emissions from livestock. These methane emissions increase atmospheric temperature approximately 80 times more than CO2 on a 20-year outlook, but methane has a shorter atmospheric lifetime than other GHGs, making it an effective target for reducing global temperatures quickly. Adopting alternative proteins, including classic plant-based products and precision-fermented and cellular products can avoid a substantial amount of emissions, and they have much smaller physical footprints (comparison as below, dietary shifts away from animal proteins could save nearly 640 million hectares of land, McKinsey pointed out) and consequently limit future land conversion while creating opportunities for sequestration.
Public funding for alternative proteins increased significantly, with governments worldwide more than doubling their investments in 2022 alone. As a result, all-time public support for the alternative protein ecosystem has likely surpassed $1 billion. In 2023 Upside Foods getting regulatory approval to sell their cultivated chicken in the US is a breakthrough. Policies can support consumer adoption of alternative proteins. This report from Good Food Institute tracks the investment, support, and regulation enacted across the globe. The shift to alternatives needs to be led by wealthier nations, they can afford such solutions. Developing nations could focus on enhancing animal productivity.
Food supply chain decarbonization includes smart packaging and supply chain efficiency measures that can reduce raw material consumption and the distance food needs to travel. Using bioplastics packaging or recycled packages can reduce emissions, Coca-Cola and 8 bottling partners created a fund focusing on this (source).
Novel Farming Systems, as the AgFunder-defined, include indoor crop farming systems such as vertical farms and greenhouses, insect ag, aquaculture, and algae production. There are very interesting big deals that happened in the Agriculture and Food sector in 2023.
From farm to fork, some innovations are happening closer to the fork side, such as digital food management, food waste reduction, traceability technologies, food safety solutions, 3D food printers, consumer engagement, etc.
Any innovations in the value chain need to make unit economics work. Most foods are commodities and farmers usually have thin margins, new offerings can’t transfer costs to the customers or downstream partners. And, startups can not play heavy Capex games, and might need to partner with big companies with a lot of cash, could offer offtake agreements or even operational agreements where they’re going to run the factory.
CTVC reported: that in 2023, the total funding in climate tech is $32B, a 30% drop YOY, while CAGR remains high since 2020 at 23%. Transportation and Energy investment declined but remained on top. Food & Land Use fell dramatically, down -55%, and was replaced by Industry in the big three. But, according to Pitchbook’s reporting, AgTech is the only sector with a median valuation held up +10% YOY, even better than the AI/ML sector. Is this a good time for investors to participate in the long-term trend? What are the solid trends and opportunities in this downturn stress test? What startups are moving the needle for the industry forward?
This Friday (Jan. 19, 2024), we’ve invited Tom Mastrobuoni, the Chief Investment Officer at Big Idea Ventures (BIV) to join our chat. Big Idea Ventures, with offices in New York, Paris, and Singapore, is the world’s most active investor in FoodTech and AgTech and has invested in 110 companies across 25 countries. The company has contributed to the development of the growing alternative protein industry since its inception. BIV is backed by a network of strategic partners including AAK, Avril, Bühler, Givaudan, Temasek Holdings, and Tyson Ventures, and is partnering with governments around the world working on food security and new food ecosystems. Take a look at their 2024 outlook: The Way Forward for Agri-FoodTech in 2024.
To join our chat on the ClimateTech Investor Panel, sign up here if you’ve not done so. Introducing yourself is welcome.
Note: Our panels/meetings aren’t for startups to pitch, but startups are welcome to share industry insights, and investors are welcome to introduce outstanding startups or funds. The goal is to discover trends and great startups or funds.
Green Building Startup Investments at Record High in 2023
Global investment in clean energy had been on track to reach an all-time high in 2023 – $1.8T – according to IEA, $500 billion more than in 2022. And one of the agreements from COP28 is a commitment to triple the world’s capacity of wind, solar, and other renewable energy by 2030, concurrent with a doubling of the pace of energy efficiency gains. Although VC investments in climate tech decreased almost 40% YoY like the general trend, VC funding into green buildings had the best year ever in 2023 according to a report published by 2150 and Dealroom in 2023 November – Funding for green building startups is already at record high levels with $5.3B in 2023, projected to grow over 3x in respect to 2020, as below.
Chart from Urban Tech 2023 by 2150 and Dealroom (data as of 2023 November)
Policies
Policies worldwide are accelerating the transition to more sustainable cities with focus on building energy efficiency, heating and cooling.
The building sector is responsible for over 1/3 of total greenhouse gas emissions in Europe. Residential heating, in particular, accounts for the largest share of GHG emissions in buildings. The EU has now revised its Energy Performance of Buildings Directive (EPBD) and the Energy Efficiency Directive (EED) to transform the EU’s building stock as a main decarbonization lever. There are 4 key measures: (1) Energy Performance Certificates (EPCS), (2) Minimum Energy Performance Standards (MEPS), (3) Zero emissions buildings (ZEBS) – All buildings will have to receive a label D by 2033 and A by 2050. (4) Low Carbon District Heating – phase out fossil fuel heating by 2040.
In the United States, California passed a first-in-the-nation embodied carbon code for commercial buildings and schools (that RMI helped shape). New York became the first state to legislatively require all new buildings to be electric. In 25 US states, governors committed to installing 20 million heat pumps by 2030. Washington State passed building codes that will require new homes to provide energy-efficient heating and cooling. And Massachusetts passed a first-in-the-nation ruling that puts the state on a faster path to electrify heating.
New York City:
In New York City, Local Law 97 (LL97) imposes carbon caps and reductions on buildings larger than 25k square feet. Affordable Housing Buildings that include affordable and rent-regulated housing are not exempt from the requirements of Local Law 97, but they may be treated differently. Many components of the bill will be phased in gradually beginning in 2024. Carbon restrictions will be tightened during a series of compliance periods until 2049. By 2050, all buildings must meet zero-emissions standards.
Opportunities
Planet A Ventures pointed out these opportunities are noteworthy: (1) Digital tools for life-cycle energy audits of buildings, (2) Technologies and service providers for renovations, (3) Technologies for recycling and low-carbon materials, (4) Technologies for low-carbon heating.
In the Urban Tech report from 2150 and Dealroom, it’s highlighted that the biggest subcategories (in terms of funding) of Urban Tech unicorns are sustainable building construction and building energy efficiency companies. VC funding in both subcategories had kept growing in 2023 despite of the cooled VC investments. Overall there are 4 subcategories summarized in the report; enable, experience, build, and operate.
Enable: SaaS x construction startups have suffered a whopping 68% decline in VC funding despite the construction industry productivity challenges. VC funding for construction SaaS startups peaked in 2021.
Experience: Driven by real-world events, startups aiming to prevent and combat wildfires have raised over $100M in VC funding, on par with 2021 records, and grown 7x since 2018.
Build (planning, materials, construction, and processes): Sustainable building construction startups have raised a record $2.5B in 2023, far more than ever before, driven by materials innovation such as sustainable cement and green steel.
Source: Dealroom
Operate (sensors and platforms to monitor, manage, retrofit, and optimize buildings and energy efficiency): Building operation decarbonization startups had their best year with $2.6 already raised, on track for a record of over $3B, led by building energy management and residential solar. Heat pumps and energy retrofits have also shown strong growth.
Source: Dealroom
According to Oxford Climate Initiative’s report, the top 3 opportunities in the built environment are (1) Heating and cooling, (2) Energy efficiency, (3) Construction.
Image from the Oxford Climate Tech Initiaitve 2023 report
In 2023 September, a consortium of US states and territories representing more than half of the US economy announced a commitment to collectively reach 20 million residential electric heat pump installations by 2030. At least 40 percent of benefits flow to disadvantaged communities. (more on RMI) In 2023 November, the U.S. Department of Energy (DOE) announced a historic $169 million for nine projects to accelerate electric heat pump manufacturing at 15 sites across the US. The selected projects are the first awards from DOE’s authorization, invoked by President Biden using emergency authority on the basis of climate change, to utilize the Defense Production Act (DPA) to increase domestic production of five key clean energy technologies, including electric heat pumps.
Heat recovery/reuse is another opportunity. Some cities have built underground networks that can reuse heat from facilities like industries, data centers, and wastewater treatment centers to heat other buildings and tap water. These cross-sector heat recovery systems, are called heat networks. (read more) Furthermore, cooling is expected to be a significant contributor to energy use in the future, foreseen to triple in demand globally by 2050. Through COP28 over 60 countries signed up to a so-called ‘cooling pledge’ with commitments to reduce the climate impact of the cooling sector, which could also provide “universal access to life-saving cooling, take the pressure off energy grids and save trillions of dollars by 2050.” At the same time, conventional cooling, such as air conditioning, is a major driver of climate change, responsible for over seven percent of global greenhouse gas emissions. (more on UNEP-led ‘Cool Coalition’)
Any tech that helps with the coordination of dynamic energy flows and the efficiency of buildings is needed. A new market and exciting opportunity for real estate and construction is playing in the energy sector! While the energy transition discussion often focuses on the utility-scale transition, the spotlight is growing on the critical role of a lower-cost, lower risk approach which puts buildings and the building sector front and center.
Consumer Energy Resources is an area of untapped opportunity that will continue its growth trajectory in coming years, encouraged by high grid prices. The ongoing high uptake of solar and batteries should see the capital costs of these technologies continue to decline. With that will also come a higher uptake of enabling technologies like smart meters, and smart devices that help with efficiency.
All of this represents an exciting opportunity for the building and construction sector to use its skills, services, and assets. Our industry, across all tiers, will increasingly be required to enable this ongoing customer-led transition. Where once the distribution companies held out against the two-way flows of electricity and the advent of “Prosumers” – those of us who generate more than we need – governments and electricity industry captains now have a sense of the opportunity that comes with being at the heart of this transition, and they need our help. More importantly, the time isn’t coming, it’s here.
We also reached out to Canada’s largest climate tech seed fund – Active Impact Investment. One of their theses is “Adapting and monitoring the built environment to efficiently use energy and other resources without sacrificing services.” One investable whitespace they highlight:
As the demand for clean energy grows, we see exciting investment opportunities in software and sensors to support the transition: a 60GW virtual power plant (VPP) could meet future resource needs at a net cost $15-35B lower than the cost of new generation. VPPs connect multiple energy generation and consumption assets in real-time to shape the electricity load—saving energy costs by 40-60% while increasing grid resilience.
We continue to see opportunities in energy retrofits and automation systems, which can save 10-40% in energy costs and are expected to be a $273B market by 2032. We also see investable whitespace in companies that create efficient extraction techniques and reuse systems for precious metals–which will require $250-$350B in capital expenditure by 2030 to support the growing demand for renewables, energy storage, and EVs.
As Active Impact Investment pointed out: “39% of global emissions come from construction & the built environment, 30% of the energy used by buildings is wasted. Between 2015 and 2020, power outages had increased 60% due to grid unreliability.” There are big opportunities behind decarbonization and sustainability of our built environment.
On Jan. 12, 2024, our ClimateTech Investor Panelwill invite/welcome investors, industry experts, and entrepreneurs to have a discussion on this topic. We’ve invited Zohaib Dar, Consultant of EY specializing in energy transition and digital transformation of built environments with first-hand experience with corporate venture and innovation programs, and Jessie Chuang the coordinator of Global League, to moderate the discussion. Everyone can introduce themselves, we love to see a more interactive networking and exchange event. (Learn more about Global League)
Questions to discuss:
What are investors looking for (investable whitespace)? Which sub-sectors of the built environment have the most promising potential or are underinvested? What sub-sectors are too crowded?
How do investors identify and evaluate investments?
How about policies and incentives that encourage or mandate the adoption of low-carbon technologies and practices, such as carbon taxes, subsidies, standards, and credits?
What are the risk factors of investing in this built or urban tech space? How could we help de-risk them?
Introductions of promising innovations and startups (by investors or advisors)
Happy New Year, have a successful year of 2024 ahead! Start with a big picture for 2024.
Biggest Trends Behind Biggest Deals in 2023
Two biggest trends – generative AI and climate tech — dominated the 10 biggest CVC deals in 2023 (from Global Corporate Venturing), the implications of these deals are in parentheses.
OpenAI, backed by Microsoft (AI is creating a new era)
GTA Semiconductor, China, backed by domestic investors (China chipmakers have big ambitions, although lagging far behind globally)
H2 Green Steels, backed by Hitachi Energy and Schaeffler (Big industrial processes are the next big growth area in cleantech)
Leapmotor, China, backed by Stellantis (China continues to create big EV startups)
Inflection AI, backed by Microsoft, Reid Hoffman, Bill Gates, Eric Schmidt, and Nvidia (Personal AI is going to be the most transformational tool of our lifetimes, that’s their bet)
Anthropic, backed by Amazon (Big tech companies are ready to make huge commitments to stake a position in the AI race)
Northvolt, backed by Volkswagen (securing batteries is crucial for automakers, other battery developers pulled in big money from carmakers – Verkor with Renault, China’s Libode New Material with GAC, Our Next Energy with BMW)
EnergyRe, backed by Novo Holdings (diversified investors have been attracted to climate tech, and energy transformation will speed up)
Redwood Materials, backed by Caterpillar Venture Capital and Microsoft’s Climate Innovation Fund (battery material recycling in the US is big)
Stack AV, backed by Softbank (betting big in the autonomous trucking startup risen from the ashes of Argo AI, Softbank’s still at the table)
Global ClimateTech Funding Held Up Well in 2023
Quoted from Crunchbase: “While 2023 has been a down year for startup investment in most industries, cleantech and sustainability-focused categories have held up comparatively well. Per Crunchbase data, global investors have poured approximately $13.9 billion this year into companies working on everything from battery recycling to water-conserving crops. That puts 2023 on track to come in roughly even with last year. The busiest cleantech investors were even more active in 2023, there is no sign they’ll pull back in 2024.”
Battery startups have the biggest investments, and companies to watch have an overlap with the previous top 10 CVC deals. Carbon removal and climate software have steady strong interests as well. From Pitchbook’s Q3 2023 Clean Energy Report, the grid infrastructure segment received the highest VC funding in Q3 2023, with 41.5% of the total deal value for the quarter. The biggest opportunity for energy transition lies in the biggest challenge – the infrastructure. We cover the new model of the Virtual Power Plant in this panel with Thomas and Bob.
Previously China led the world in energy transition investments, Europe as a whole is also ahead of the US, and now the US is catching up – “the IRA will pour around $1.2T into this space in 10 years, it’s not a cap, it’s a projection!” (Juan shared)
A big difference between the cleantech 1.0 era and now is that the capital stack for climate tech has been developed rapidly and much more mature in the past 5-7 years. The briefing for our panel with Paul and Karen on “ClimateTech Investor Panel – Capitalization and Financing” is a must-read. There is a massive flood of public funding or loans into the climate space, and investors with deep pockets for growth and physical assets are starting to raise and deploy investment vehicles earmarked for climate (Paul elaborated with examples). Furthermore, climate tech companies have gained a new exit path – private equity is emerging as a new opportunity for liquidity outside of traditional strategic acquirers – quoted from Kevin Stevens, Energize Capital. He noted: “This trend is set to continue in 2024. The one nuance is a newly added emphasis on profitability alongside growth as servicing debt costs remain high.”
Defence Tech is the Sector Winner of all in 2023
In this chart (below) from Pitchbook looking at sectors in terms of deal value, counts, and median valuation, we might notice AgTech’s median valuation jumped 10% YOY, AI/ML’s median valuation increased by 5% YOY, climate tech’s valuation also held up better than others, but Defence tech has the minimum decrease in deal value and counts. National security became a concern amid the technological arms race with China and wars in Ukraine and Israel.
The success of companies such as Anduril and Palantir showed investors that a more significant portion of the Pentagon’s growing budget could be captured by VC-backed startups rather than traditional defense contractors such as Lockheed Martin and Raytheon. US President Joe Biden has just signed the $841bn Defense Spending Bill for FY24, with an added focus on research and prototyping in areas such as missile defenses, hypersonics, space domain, etc.
US-based companies in the category collected nearly $100 billion in VC funding from 2021 to now, a figure that’s about 40% higher than what was invested in the seven prior years combined, according to PitchBook data. (Go deeper: 2023 Vertical Snapshot: Defense Tech) And New York Times has identified at least two dozen venture capital, government contractor financing or private equity firms that are run by or have hired former Pentagon officials or retired military officers, with most of the hires having taken place in the last five years.
A Profound Reset of the VC Industry
Quoted from the CEO of Techstars: “What the VC industry is currently going through is not cyclical, but a profound and unprecedented reset.Nothing in the data, or anecdotally in my own conversations with LPs, VCs, our corporate partners and Techstars portfolio companies suggests that a rapid V-shaped bounce-back is on the horizon…. rather than a prelude to a recovery, 2024 will be much more of the same. Her predictions for the VC industry in 2024: (Read the whole letter here)
1 – U.S. family offices will increasingly invest directly in startups. 😎
2 – There will be fewer VCs and unicorns. 😉
3 – Regulatory complexity will become a thing for VCs. 🤔
4 – The best accelerators will become more pertinent. 🤗
5 – Alternative venture models will come to the fore.” 😶
Lots of data indicated that small funds have better performance than large funds, but smaller funds will struggle more to raise funding in this climate. And, the unit economics of small/micro VCs is challenging to cover all aspects needed. New models might be emerging.
Global League
This is Jessie Chuang with Global League – a vetted network for professional or accredited investors to identify the most impactful ventures for impact investing.
We’ll resume ClimateTech Investor Panels in January 2024, and look forward to highlights on top investment opportunities. Recommendations on speakers – investors, experts, or startups – are welcome. Here are January’s topics:
Sustainability of Built Environment (Jan 12)
Sustainability of Food Supply Chain (Jan 19)
Sustainability of Water and Ocean Tech (Jan 26)
Green buildings startups are buckling the trend with $5.3B raised in 2023, on track for their best year ever and marking a threefold increase from 2020. (from Urban Tech report by 2150 x Dealroom) We will cover this in the next newsletter.
As diversified clean energy sources are being built, how to orchestrate different and distributed energy sources? The biggest challenge in the energy transition could be the infrastructure supporting the transition of electrifying everything. This topic is prioritized in our panel planning before we dive into other sub-sectors, related topics include VPP (Virtual Power Plant), V2X (EV battery as an energy storage/source), DER (Distributed Energy Resources), grid optimization, etc. We found recent news speaks the same priority. From Pitchbook’s Q3 2023 Clean Energy Report, the grid infrastructure segment received the highest VC funding in Q3 2023, with 41.5% of total deal value for the quarter. Insight Partners also identified “Grid decarbonization and optimization” as the very top opportunity among the 4 promising areas of climate tech investments (the writing is here).
For the whole picture, new infrastructure establishments also include other elements beyond grids – data, governance, community, financing, portfolio building and integration. Texas, the epic center of climate tech innovations, is an interesting example to discuss. Not only does Texas have its own system and governance, but everything is bigger in Texas, including its electricity use, which is increasing at historic rates in a sign of what is to come for much of the U.S. The country’s largest electricity producer and user saw sales growing at five times the national rate for the past decade! (according to Wall Street Journal) The solar and wind energy scales in Texas are both number one in the nation, and Texas has started to pilot ADER with the Tesla Powerwall. We invite a founding member of CleanTX, Thomas Ortman, an energy industry executive and technologist, to share his insights on a clean and optimized grid. The scope is beyond Texas.
To look at this topic from an investor’s lens, we invite Bob Bridge, the founder of SWAN Impact Network and co-founder of the Semilla Climate fund. He said — There are a diverse set of players contributing to the energy transition: federal and state governments, grid operators and regulators, established multi-national and national system vendors, installation and service companies, manufacturing companies, technology startup companies, universities, and more. Each player plays a different role. Where are the most interesting opportunities for startup companies and their investors?
Speaker
Bob Bridge, Founder of SWAN Impact Network and Co-founder of the Semilla Climate Fund – Bob has extensive experience in founding and taking early-stage technology start-up companies to successful exits, having been in startups that returned $430M to investors, and previously raised $60M for the companies that he founded. He had served as a VP and General Manager of a division of a public company.
Thomas Ortman, President of Nous Energy and Founding Partner of CleanTX Foundation – Thomas has forty years in the engineering design and build sector with electro-mechanical engineering design expertise in electronics, clean technology & semiconductor products, and capital equipment experience. He founded Concurrent Design, Inc. which led to a merger with Voltabox of Texas, Inc., and he turned into CTO of Voltabox of Texas.
Host: Jessie Chuang – Jessie is a deep tech startup advisor and investor, and the managing partner ofGlobal League – a vetted network for accredited/professional investors to collaborate on deal evaluation and syndication, to identify and help the most impactful ventures. Her previous experience includes semiconductor frontier R&D management and global consulting on digital transformation and AI.
About CleanTX Foundation – CleanTX is an economic development and professional association for CleanTech and renewable energy businesses. Its mission is to modernize the power grid to advance renewable integration through industry collaboration and strategic alliances through chapters throughout Texas. Its vision is to achieve 50% renewable energy integration in ERCOT by 2030.
About SWAN Impact Network – SWAN is a 501(c)(3) non-profit with a network of angel investors focused on investing in companies that aim to deliver measurable social or environmental impact, and who also have solid plans for financial success.
About ClimateTech Investor Panels – This is for accredited private equity angel investors, venture capitalists, and corporate/institutional investors to share insights and investment opportunities and catalyze collaboration to help ClimateTech startups.
I spent a lot of years in hard tech (a lot in startups and semiconductors). I always have a deep concern about our environment and people being cared for, so I created SWAN Impact Network, an angel network of 85 members, we’ve invested about 14 million in startups, a bulk of which is in climate tech. So we also put together a climate tech fund. We are very selective, and we are well-connected in the Texas climate tech community, also we have a lot of support for companies founded by underserved people.
About market opportunities, what we don’t like are – battery chemistries (too many of them, it might take 15 years for them to realize an impact), direct carbon capture technology (is interesting but not for seed companies), marketplaces for greener consumption, and companies relying on government subsidies or a low-interest rate. What do we like? We like industrial or commercial applications, for example, reducing carbon emissions at the sources, increasing energy efficiency in buildings or factories, more cost-effective ways to treat water, and treating pollution. We prefer companies that don’t require a lot of Capex by users.
ERCOT in Texas allows new energy generation to come out (to users) even if there is no transmission capacity to move that electricity around – a unique situation in Texas. Companies can forecast usages, and optimize grid operations with renewables are interesting. Batteries are important, but it’s very difficult to bring a new battery with new chemistry into scale (not our interest). One of our portfolio companies installs solar panels integrated with batteries, which are doing very well and will integrate into VPP in the future.
Thomas
I spent my entire career in technology development, and new product development, including a lot of semiconductors which led us to a lot of solar and wind energy, some microgrids, and ultimately into batteries, then my company attracted interest and acquisition by the European enterprise Voltabox. I have been very active in the CleanTX Foundation for several years to promote clean energies, I also was asked to serve as EIR in Austin Technology Incubator to help startups.
What are the general megatrends of this energy transition? Humans spent 140 years to build the biggest system (of energy grids) in history, and now we are revamping it to add a lot of technologies. A lot of opportunities are about efficiency because the current grid is very inefficient. We (at Texas) designed the ERCOT grid to be able to satisfy the peak loads.
About energy storage, the largest storage medium on grids now is hydroelectric power. We also have compressed air energy storage, flywheel technology with kinetic energy storage, gravity energy storage, and superconducting magnetic energy storage (storing electricity), …… there are a lot of options.
VPP (Virtual power plants), DER (Distributed Energy Resources) and V2X are closer to reality than most people realize, worth a rigorous study for investment potential. The timing of them becoming mainstream is now! In ERCOT, we have 2 ADER piloting now which is the same thing as VPP, 8 ADERs have been authorized, in total they have megawatts of power generation on demand which are also emergency backups for any blips in the grid. This is a great opportunity that all of us can participate in, it will happen very quickly. Texas and California are very proactive in this, California also has ADER piloting. After one year through 4 seasons, it’s possible the mess participation and consumption can be opened to all. 3 years from now, people will be well aware of it, and it will become common in 5 years.
The biggest pain point in Texas is transmission, current transmission lines are fully subscribed, no more capacity for serving ever-growing peaks. So, batteries are crucial. A number screamed at me – in 2023 April, California had 700k megawatt-hours of renewable energies wasted (curtailed). Tesla has sold more than 4 million vehicles, each has a 65 kilowatts battery. If you aggregate those and make them available to the grid, that’s a greater capacity than the generation from the whole nuclear fleets in the entire U.S. The concern about extra cycles of discharging-recharging caused by participating in V2X/VPP is going away now.
Food for thought: (maybe opportunities exit)
Can we use those wasted renewable energies to produce green Hydrogen?
Current production and recycling of batteries are not very green, how can we leverage renewables?
How to motivate building owners, house owners, developers or communities to invest and participate in VPP, DER, etc.? (Economics calculation and finance engineering)
Watch the interesting conversation, questions, and answers in detail here. Thanks for the great questions, Tim, Chris, Paul and John!
Supplementary Information
VPPs are aggregations of DERs that can balance electrical loads6 and provide utility-scale and utility-grade grid services like a traditional power plant.
DOE’s Pathways to Commercial Liftoff provides public and private sector capital allocators with a perspective as to how and when various technologies could reach full-scale commercial adoption. Check out the report about VPP. Some images from the report are used below to explain basic concepts.
What’s PACE? — The property assessed clean energy (PACE) model is an innovative mechanism for financing energy efficiency and renewable energy improvements on private property.
What’s Net Zero Energy Home? — A DOE Zero Energy Ready Home is a high-performance home that is so energy efficient that a renewable energy system could offset most or all the home’s annual energy use. Each DOE Zero Energy Ready Home meets rigorous efficiency and performance criteria found in the DOE Zero Energy Ready Home National Program Requirements.
We believe that renewable energy will only displace fossil fuels if it’s price competitive with no subsidies. For example, both onshore wind and solar energy can compete with coal, but not offshore wind. Offshore is notably more expensive than onshore which is why it’s only a small fraction of total wind energy deployed. Orsted is the global leader in offshore wind, and it has been greatly impacted by the high-interest rate now. Cost is one of the top factors that decide if a new technology or product will survive. But in climate tech, the whole context is much more complicated than usual cost numbers. That’s why we need techno-economics analysis.
Questions to discuss in this panel:
ClimateTech Adoption must make economic sense, variables including Capex, Opex, regulation penalty, government incentives, downstream markets or off-taker agreements, even carbon credits, etc., how do investors evaluate if a ClimateTech startup has attractive economic?
How to validate the cost of a new ClimateTech such as carbon capture and hydrogen storage? (technology due diligence)
How can ClimateTech startups sell to large enterprises and shorten the sales cycle?
Case studies of techno-economics analysis with climate tech startups.
Moderator
Hani Elshahawi, Managing Director of NoviDigiTech – Hani is a thought leader in the energy industry, he has more than three decades of experience (18 years in Shell) in global operations, innovation, technology management, business consulting, and the full cycle of innovation from cradle to grave and from concept to commercialization in the energy industry with roles spanning technology, engineering, marketing, business, technology, and management. Before Shell, he had worked in another leading energy enterprise Schlumberger for 12+ years.
Speaker
Amy Henry, CEO of Eunike Ventures – Amy is the CEO/Co-Founder of Eunike Ventures and Lambda Catalzer, angel investor, TiE Houston board member, principal of TiE ATX LLC (Angels of Texas), and co-founder of Texas Innovation & Entrepreneurship Foundation. Amy was named by the Houston Chronicle in 2019, “Women Who Take the Lead in Building Houston’s Tech Ecosystem” (related to the launch of Eunike Ventures). Eunike was listed in 2022 as the ‘Top 6 Accelerators/Incubators Investing in Houston’ and the ‘Top 11 Best and Most Active Accelerators in Houston. Eunike Ventures, Inc., headquartered in Houston, Texas USA is a first-of-its-kind global energy venture builder /hybrid energy technology accelerator that works with innovative, technology companies through commercialization, across the entire Energy value chain. Eunike serves a unique gap in the global innovation system by bringing together energy companies, expert talent, and best-of-breed startups.
Sujatha Kumar, CEO of Dsider – Sujatha is an entrepreneur and senior technology executive, and is the Founder and CEO of Dsider. With a background in senior management roles at multiple technology companies in the energy sector, she notably led one of them to a successful sale to Honeywell. Sujatha and her team possess extensive experience in energy and industrial markets, focusing on mid to large enterprises.
About ClimateTech Investor Panels – This is for accredited private equity angel investors, venture capitalists, and corporate/institutional investors to share insights and investment opportunities and catalyze collaboration to help ClimateTech startups.
Hani: Although cost parity is crucial for the adoption of new climate tech, the reality is much more complex. Enterprise adopters are managing a systemic change, and new tech providers need to integrate their solutions into whole systems. Techno-economic analysis needs to build assumptions, sensitivity analysis, a process model, and history matching to validate simulations with real data. Enterprises look at the lifetime value of a new investment. When I evaluate climate tech startups for investments, I need to see they have already integrated themselves into their ecosystem and clients’ systems, not just presenting a single-point solution. And if their cost structure is higher than alternatives, even mature companies might struggle when some challenges emerge (for example, high interest rate), the recent Orsted cost crisis is an example.
Sujatha: Both large enterprises and startups need to build value stream mapping, system modeling, scenario analysis, risk analysis, and transition planning for a holistic analysis and simulation before new climate tech adoptions. There is so much data involved – operational, financial, and carbon abatement data and metrics need to be integrated, also domain knowledge is needed to assist with decision-making. We help both sides to make economic sense for net zero decisions and have supported the most disruptive climate tech startups.
Amy: How startups can best engage large corporations and shorten the time to commercialization and cash generation? Many climate tech startups offer innovations in materials or chemical reactions out of labs, and there is a big gap between a proof-of-concept or prototype and a pilot. They need to be able to design a pilot to convince large enterprises and investors. To prove the business use case is economically sustainable, data and simulation are important. They will need industry veterans with experience in integrating products and services as well as with the relationships with adopters to help facilitate technology trials with process safety in mind and minimal disruption to ongoing operations. The capabilities of handling large capital projects and integration planning are required. So for investors evaluating climate tech startups, looking for qualified and experienced talents in the team or partnerships, and for due diligence, you need industry experts to get involved.
Jessie’s note:
ClimateTech might be hyped now, but the reality is complicated. This session only gives a peek into what is needed in building and evaluating climate tech ventures. On top of innovation funnels, there are too many startups that have some new breakthroughs in the labs, they need lots more resources, talents, partnerships, and ecosystem adoption readiness, besides funding, to succeed.
To get to deployment, a technology must be completely de-risked, and ecosystem economics established so that every player in the value chain has a viable economic model. This means that managing a technology portfolio solely through the well-understood and widely used Technology Readiness Levels (TRL) stage gates is not enough.
Often, commercialization fails not because of the technology’s fundamentals, but because ecosystem economics have not been addressed or critical ecosystem players have not come on board. The economic and business model requirements for deployment, as well as a technology’s societal license-to-operate, can and should shape the technical problem definition and development of solutions at all stages of the RDD&D (research, development, demonstration, and deployment) continuum.
To describe adoption risks, the Office of Technology Transitions (OTT) has developed the Adoption Readiness Level (ARL) framework to complement TRL, and provided an assessment tool on the U.S. Department of Energy’s (DOE) website. It’s a very thorough picture of new technology adoption.
Also, another great resource from DOE is the Liftoff Reports. DOE’s Pathways to Commercial Liftoff reports provide public and private sector capital allocators with a perspective as to how and when various technologies could reach full-scale commercial adoption– including a common analytical fact base and critical signposts for investment decisions. The first Liftoff Reports are focused on advanced nuclear, carbon management, clean hydrogen, and long duration energy storage, Virtual Power Plant, Industrial Decarbonization.
Recommended resources:
Activate: Techonomics: Establishing best practices in early-stage technology modeling
Department of Energy: Techno-economic, Energy & Carbon Heuristic Tool for Early-Stage Technologies
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The current AI wave is seen as a paradigm shift similar to mobile or the internet. Steve Sloane of Menlo Ventures gave a much longer review of tech waves and lessons (here). Because generative AI is riding on the readiness of software, digital transformation, data, and computing infrastructure already built previously, it has achieved an unprecedented adoption rate. But, that doesn’t equal the revenue generation rate. The most important model of AI is the business model. Menlo Ventures also surveyed more than 450 enterprise executives across the U.S. and Europe and summarized a report – The State of Generative AI in the Enterprise.
