The state of the private market and climate tech

Welcome back to Impact in your Inbox. Our monthly newsletter on all things impact, private equity and climate tech — by Liza Rubinstein, Co-founder and Head of Impact at Carbon Equity. Let’s get to it!

The state of the private market and climate tech

Key takeaways:

  • Private markets are less affected by public sentiment than the stock market, which represents an advantage when compared to the kind of volatility that public market investors face, especially during times of uncertainty.
  • Historical returns show that, over the long term, Private Equity (PE), and more specifically Venture Capital (VC), has been able to consistently offer higher returns compared to the public market.
  • Investing over the full market cycle (including during uncertain times) is important to diversify and minimize risk, as private market returns are dependent on the economic conditions of the year a company exits rather than the year(s) the capital is committed.
  • In times of rising interest rates and uncertain outlooks, it becomes harder to build a positive business case for projects that require a lot of capital (i.e. infrastructure needs, pilot plants, etc).
  • The amount of dry powder currently available in climate tech currently stands at over $20B. This means that substantial capital has already been committed to be invested in climate tech.
  • The combination of lots of dry powder and valuations cooling down can be a good way for Private Equity and Venture Capital funds to enter good companies at reasonable prices, which has positive implications for returns.

Get the full insights here

What is growth equity’s role in the climate transition?

My co-founder, Jacqueline van den Ende, recently sat down with the super knowledgeable, Kevin Bone, Partner at Lightrock. I really enjoyed listening to his perspective on:

💡 What are the key trends in decarbonizing industries and some category leaders?

🌍 How do you (Lightrock) measure impact?

📈 What are you seeing in terms of valuations?

🕵️‍♀️ There's market turmoil... how will this impact you as an investor?

Watch the full session

📚 Interesting reads (and one game)

The world's forgotten greenhouse gas

In short: Greenhouse gases aren’t just carbon dioxide (CO2). This article explores nitrous oxide (N2O), or laughing gas, which is about 300 times as potent as CO2 at heating the atmosphere.

Plant-based meat by far the best climate investment, report finds

In short: According to Boston Consulting Group (BCG), investing in plant-based alternatives is the best bang for your buck in terms of impact. The metric BCG used (GHG reductions per dollar invested) is something we are pushing for too.

Emergency on Planet Earth

In short: Looking for more ways to reason with your non-climate-focused friends? This guide from Extinction Rebellion is your backup for what’s happening, why and what we can do.

Private Equity Should Take the Lead in Sustainability

In short: Dive into why the industry has been slow to realize the importance of ESG but also why it's well-positioned to take the lead in sustainability, with its $6.3 trillion in assets under management. 👀

A decade after the bubble burst, 5 climate tech investors explain why they’re all in (Paywall)

In short: “There is now a strong sense of urgency around climate risks. Climate tech is getting commitments from LPs, governments, family offices, asset management firms and corporates, with many new VC funds coming to the market."

The Climate Game: Can you reach net zero by 2050?

In short: Do you have what it takes to save the planet from the worst effects of climate change?


💡 3 awesome innovations

Source: a sustainable water technology company that uses the power of the sun to extract an endless volume of clean, reliable drinking water, which recently completed a $130M Series D.

Sunfire: the leading producer of industrial electrolyzers for hydrogen and e-fuels, which recently received new funding from Amazon’s Climate Pledge Fund. (You can invest in Sunfire through our Decarbonization Fund I or Climate Tech Growth Fund)

Regrow: an agri-tech platform that measures the climate impact of better irrigation, nutrient and soil health management, which recently raised a $38M Series B.

🔬 Show me the data

Source: Climate Tech VC

Information overload coming from Climate Tech VC. Let us simplify it.

This chart highlights the sectors within climate tech that venture capital funding has gone to over the past two years.

On the horizontal axis is the sectors (the wider it is, the more funding that sector has gotten). The vertical axis shows the percentage of the funding a specific technology received within that sector (the higher, the more funding).

As you can see, the funding is not evenly spread — for good reason! Some technologies are relatively mature (i.e. solar and wind energy) while other technologies just aren’t proven ready for commercialization yet (i.e. low-carbon aviation).

However, I also think this chart shows that investment money is following what is currently hot in the market — rather than where it can have the most GHG reduction potential.

For example, transportation, which is responsible for 15% of global GHG emissions, received almost 40% of the climate VC funding over the past two years. While industry, a notoriously hard-to-abate sector and responsible for 24% of global emissions, received only ~8% of the funding.

The short story of the data: we need to be critical that venture capital funding is being channeled to the tech with the highest emissions reduction potential.