Despite the economic downturn and many startups finding themselves at risk, some industries are seeing continued momentum in internal investment, one of which is climate technology. In 2021 alone, about $40 billion has been invested in more than 600 deals, a trend that appears to be continuing into 2022, with a lot of money being poured into startups tackling the climate crisis.
At the same time, we’ve seen the emergence of a slew of new funds dedicated to the cause, new climate-focused companies that are well positioned to thrive against the backdrop of downsizing and layoffs elsewhere in the startup world.
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The latest such fund to emerge is Climentum Capital, which today announced the completion of its €150 million first fund, which aims to help curb carbon dioxide emissions and accelerate Europe’s green transition.
TechCrunch caught up with founding partner Yoann Berno to find out what Climentum is trying to achieve and how it differentiates itself from incumbents in the space.
The driving force behind Climentum’s investment philosophy is Europe’s new Sustainable Financial Disclosure Regulation (SFDR), which came into effect last year. SFDR aims to increase transparency in the sustainable investing space and make financial firms more accountable for the specific claims they make around sustainability certificates, in part to prevent greenwashing. Specifically, Climentum is focused on being an “Article 9 fund,” meaning it has sustainable investing and carbon reduction as its core investment goals. And in the process, it gives the fund’s backers access to all the relevant data they need to report on their own ESG (environmental, social and governance) goals.
Climentum operates in three Nordic core centers in Denmark (Copenhagen), Sweden (Stockholm) and Germany (Berlin) and is supported by numerous Nordic pension funds and European conglomerates. This includes the venture capital arm of chemicals giant BASF, which sees Climentum as a conduit to its own climate-focused goals.
“We have the backing of BASF, which sees us as a strategic investment to get closer to their decarbonization goals and a source of intelligence to guide their corporate strategy for the next decade,” Berno continued.
Berno was also eager to highlight that two of Climentum’s five founding general partners are women (one of which has yet to be officially announced), which he sees as a positive distinction in an industry dominated by men.
“We have 40 per cent women, which is the best in the industry – (it) is still not at full parity, but we will continue to push our gender equality agenda,” Berno said.
At present, Climentum has only received about half of its first funding target of 150 million euros, but it hopes to complete the full funding by the end of the year. In the long term, it hopes to make about 25 investments in Europe ranging from post-seed to Series A, with individual investments ranging from 1 million euros to 5 million euros. It is understood that Climentum’s six core focus categories in reducing carbon dioxide are: next-generation renewable energy; food and agriculture; industry and manufacturing; buildings and architecture; transportation and mobility; waste and materials.
Climentum said it was close to completing three investments, which are now in the due diligence phase, focused on material recycling, alternative protein production and insect farming.
So far so good. But in a field awash with climate-focused investors and a seemingly insatiable appetite for startups promising to help fix the planet, Climentum faces a tough hurdle in how the team can reap the financial benefits of its collective investment. Essentially, it has to overcome two strict hurdles as part of its “dual carry” investment model.
“The first hurdle is financial, with a competing return target of tripling over the life of the fund,” Berno said. “The second (hurdle) is the (climate) impact hurdle, with an ambitious CO2 Emission reduction targets, which will be measured at the portfolio level at the end of the fund.”
In other words, Climentum measures success not purely by how much they get back for their backers, but by how much climate impact their investments have.
It’s also important not to overlook the strategic locations Climentum is focusing on. The company is going not only to places where policies and attitudes towards green technology are the strongest elsewhere in the world, but also to places that already have a significant climate-focused tech startup community.
“Sweden, Germany and Denmark are among the top five countries in the world where environmental regulations and public mandates are accelerating the green transition,” explains Berno, “[and] the capitals of these three countries are among the most active entrepreneurial hubs in Europe, climate technology The number of startups is disproportionate.”
It’s also worth noting that Climentum’s timing of the fund’s launch looks good from every angle. Energy markets are under increasing pressure due to the war in Ukraine, with many countries trying to reduce their reliance on Russian gas, which bodes well for “alternative” energy sources and technologies that promise to help countries reduce their energy consumption. In addition to this, supply chain issues are causing shortages of foods such as protein, which puts new startups focused on insect farming, such as insect farming, in a good position.
In addition, the broader recession has put investors such as Climentun in a strong position, including the terms they may now be able to strike with startups.
“The current economic slowdown has halted the excitement in the venture capital market, in addition to causing a significant reduction in the valuations and deployments of startups,” Berno said. “As investors, we are the liquidity provider in this market, This market desperately needs more liquidity to continue to fund fast-moving innovation.”
When everything is being thrown into a giant melting pot, it seems very obvious that now is a great and unprecedented time for climate tech startups to thrive. Consumers and businesses alike have needs, and governments are developing policies so that a society-wide green concept is not just a “good thing” – any business that wants to play a role in today’s world needs to take its climate responsibility seriously.
“Climate technology companies with real solutions to some of the world’s biggest problems already have pent-up demand from consumers, businesses and governments,” Berno said. “This phenomenon justifies some of the high valuations that Value will be amplified by acquisition demand from companies eager to meet their 2030 emissions targets.”