No venture capitalist is in the business of maintaining the status quo. By nature, VCs are interested in transformational change. They look to invest in companies that might disrupt industries, create new business models, or fundamentally alter consumer behavior within a particular market. For VCs, change equals opportunity.
In the face of the current climate crisis, our industry has the opportunity to catalyze change that extends beyond a single industry or market — we can help ensure stability for the future of humanity. And as the problems associated with climate change become more frequent and severe, entrepreneurs are increasingly leading the charge to find solutions. This has led to explosive growth in the cleantech market, which BlackRock CEO Larry Fink has said will produce “the next 1,000 unicorns.”
This is not the first time cleantech companies have garnered that kind of enthusiasm among investors. In the early 2000s, startups offering a variety of green solutions attracted more than $25 billion in venture capital. A few years later, however, the majority of those companies had failed to return just their investments — punctuating one of the biggest boom-and-bust cycles in the history of tech investing. As a result, some of the firms that lost money in those days are understandably likely to approach the sector’s resurgence with caution. However, now is not the time for “once bitten, twice shy” skepticism.
Failure Is Not an Option
It’s impossible to overstate the importance of fighting climate change.
The issue was mostly a political talking point during the last cleantech investment cycle, and the younger Americans who are currently leading the battle to combat climate disaster had little influence or economic clout. But 2021 capped off another decade of data suggesting that the earth’s climate is on the brink of a critical tipping point, and that failure to alter our trajectory could pose an existential threat to humanity. Today, policymakers, corporate leaders, investors, and the general public are certainly taking climate change seriously.
The current presidential administration has established the most aggressive environmental agenda in American history, with the goal of achieving net-zero carbon emissions by 2050. President Biden’s $1 trillion bipartisan infrastructure deal includes an investment of more than $65 billion in clean energy transmission and allocates $7.5 billion to expand the country’s electric vehicle infrastructure, among a multitude of other initiatives. And Biden is not alone in this ambition. In addition to a growing body of state-level legislation aimed at greener policies, countries across the globe have committed more than $800 billion to “green stimulus” programs in 2020 alone. However, politics isn’t the only factor behind the current cleantech boom.
Although government intervention in the form of subsidies and other incentives was often needed to keep capital-intensive energy companies afloat in the early 2000s, the economics of renewable energy have improved dramatically in the years since, and many investors have become true believers.
Last year, shares of clean energy firms tracked by the WilderHill New Energy Global Innovation Index reached new records, and data from the Global Sustainable Investment Alliance suggests that roughly one-third of managed assets are currently invested with sustainability in mind. We’ve also seen the proliferation of large corporate and private funds dedicated to climate change investment, accompanying the surge in ethical investing among retail investors.
Invested in the Future
There is an ethical responsibility for VCs to consider any new venture markets objectively and without bias. At Ascend, our research has revealed that today’s cleantech market is filled with opportunities and ripe for rapid growth. This holds true whether we’re investing in gainful change (prevention), disaster preparedness (anticipation), or catastrophe response (mitigation). Our investment in Arbol, which helps companies actively manage mounting climate risks, falls into the former category. With its captive-parametric platform, Arbol presents a suite of technology and data tools to corporations wanting to take immediate action, giving them access to cleaned climate data, projections, and models.
We believe Arbol is well-positioned to succeed given its roster of talented and experienced leaders; impressive platform that combines advanced machine learning, artificial intelligence, and blockchain technology; and innovative approach to making climate risk assessment more transparent and efficient. Indeed, the future looks bright for companies throughout the cleantech space — and though we’re not backing all of them, we’re hopeful of their success. Our future depends on it.
Image by Karsten Würth