By Victoria Beasley, Partner at Gigascale Capital
In the rapidly evolving realm of climate tech, all aspects under the hard tech umbrella — hardware, deep tech, and science-driven innovation — are now gaining prominence. This shift is not just a passing trend; it signifies a commitment to address the significant challenges of climate change that demand tangible, physical solutions for reducing emissions and improving the environment. While the vast scale of the climate challenge may obscure the progress within various fragmented sectors, these hard tech-driven advancements are poised to reshape global industries.
At the recent COP28 conference, over one hundred countries pledged to triple renewable energy capacity by 2030. This stands in stark contrast to COP24, where countries agreed to assess progress on the Paris Agreement every two years but made no significant commitments. In just four years, amid an accelerating energy transition, the global consensus is to expand successful initiatives.
On the investment front, where I am actively involved, there has been a notable increase in climate tech startups securing funding. In 2023, 633 climate tech startups raised funds, up from 586 in 2022. Globally, institutional assets under management (AUM) for climate tech exceeded $10 trillion. Significant investments were made in solar installations, with the U.S. experiencing a 35% year-over-year growth. These positive trends indicate a shift towards sustainable and innovative solutions.
While the challenges in the climate sector may appear daunting, there are abundant opportunities for progress if one knows where to look. Innovations in fields like manufacturing, computing, and robotics are empowering entrepreneurs to develop novel climate solutions. These companies are agile, dynamic, and less risky than traditional hard tech assumptions, with faster innovation cycles. Biotech is revolutionizing agriculture, robotics are expediting solar installations, and automation is streamlining processes.
By leveraging technology to innovate new approaches, these companies are overcoming cost barriers and eliminating the “green premium” associated with clean options. The era where hard tech demonstrates the economic benefits of replacing polluting fossil fuels is upon us, with trends that will shape the climate tech landscape in the foreseeable future.
Founders tackling seemingly niche issues will drive significant impact
In the realm of climate, the sheer numbers and complexities can be overwhelming. Successful founders focus on understanding the core issues by continuously asking “why” to unravel the root cause of problems, often stemming from human factors rather than physical limitations.
For instance, regarding heat pumps, challenges may arise from a lack of understanding, concerns about maintenance, absence of incentives knowledge, or incorrect system sizing.
Technical backgrounds are pivotal for emerging founders
Some of the most groundbreaking solutions originate from experts in chemistry, physics, and biology. This trend necessitates investors to enhance their technical proficiency to identify and support Ph.D.s and postdocs transitioning from academia to entrepreneurship. The emergence of startups led by former researchers, scientists, and engineers emphasizes the growing technical influence in the climate tech arena.
First-time technical founders are now required to develop communication skills to articulate their innovations to drive adoption. It is imperative for entrepreneurs to effectively convey their vision and commercialization strategy to investors, emphasizing their ability to break down complex problems into manageable solutions.
Top talent is gravitating towards climate tech
Individuals with diverse backgrounds, from finance to marketing, are increasingly drawn to climate tech for its purpose-driven mission. The rise in green talent across various industries signifies a collective effort to combat climate change, reflecting the transformative potential of climate tech companies in attracting exceptional talent.
As climate tech firms expand, they require a spectrum of roles to bring innovative products to market and scale operations. The surge in green talent in the workforce signals a positive trajectory for the climate tech sector.
Startups benefiting from experienced investors
Amidst current challenges in the venture capital landscape, climate tech founders can derive valuable insights from investors with hands-on commercial experience. The unique challenges faced in the climate tech industry demand pragmatic advice and operational expertise to navigate complexities and achieve sustainable growth.
With a growing pool of technical founders in climate tech, the need for experienced investors with hard tech commercialization backgrounds becomes increasingly vital. Companies stand to gain from mentorship and guidance in developing management skills, managing capital resources, and refining scaling strategies.
Strengthening climate tech fundamentals
Despite a challenging funding landscape, the fundamentals of climate and hard tech remain robust. The increasing global climate tech market size signifies the resilience of the sector, supported by inflows of talent from diverse industries and a commitment to sustainable innovation.
As the climate tech sector continues to evolve, the emphasis on foundational systems and global market transformation underscores the compelling business case driving progress and innovation. The past decade has showcased the determination and resilience of entrepreneurs in addressing critical challenges, signaling significant progress and untapped opportunities in the climate tech landscape.