A nonprofit organization with Pacific Northwest ties has spun out its first venture capital fund totaling $60 million for investing in climate tech companies. The sector is working to strip the carbon emissions out of transportation, energy production, agriculture and construction.
Elemental Excelerator recently announced its Earthshot Ventures fund, whose participants include local notables Microsoft and Seattle Sounders owners Peter Tomozawa and Mark Agne.
Elemental has been supporting climate tech startups through its accelerator since 2009, investing $43 million in entrepreneurs in the space. The new fund is traditional venture capital and will target companies seeking seed to Series B funding.
So why VC and why now? It’s all about opportunity and impact.
Tackling climate change “is a really urgent challenge,” said Dawn Lippert, CEO and founder of Elemental. “So dollars deployed and things done today have more value to us than things done far in the future.”
It’s a view that’s shared among investors and climate-concerned people worldwide, and dollars are flowing. Climate tech companies raised nearly as much in the first six months of this year as they did for all of 2020, according to PitchBook. That includes entrepreneurs in Washington, Oregon and British Columbia, who have landed more than $2 billion in venture capital equity since founding their companies. Well over half of that was raised since the start of 2020.
Elemental, which is based in Honolulu and Palo Alto, has invested in Northwest climate tech companies Evrnu, a clothing recycler, and reforestation startup DroneSeed.
The surge of enthusiasm for the climate tech sector — which includes innovations in solar power and batteries, electrified transportation, energy efficiency, low-carbon construction and planet friendly agriculture and food sources — makes perfect sense to Lippert. The field has changed dramatically as scientists warn that Herculean efforts are needed to stave off the worst climate impacts.
Lippert, who grew up in Seattle and neighboring North Bend, now lives in Hawaii, where we recently reached her for this interview. Answers have been edited for clarity and length:
GeekWire: What’s stoking the demand for climate tech?
Lippert: “It’s what’s happening in the markets. Microsoft has joined a thousand friends in net zero commitments and that’s really a different kind of market dynamic in terms of companies that are going to be buying decarbonization technologies and really committing dollars from their bottom lines to carbonize. That is an incredibly important market signal that’s driving investment.
The second [driver] is policy. We’re seeing alignment on local, state, federal and international levels on policy, both pledges in terms of here’s what we’re pledging to do as government, then also making moves into real investments through the infrastructure bill and lots of cities implementing energy efficiency and lots of investments on the ground as well.”
GW: What role is funding playing?
Lippert: “One of the things that is really powerful to unlock scale for companies is having a mature financing pipeline from research and development on the government side, to seed funding all the way through to project finance and debt, and private equity and IPO markets as well.
So we’re seeing a much healthier pipeline in the last even 24 months of all those kinds of colors of money and all that financing being lined up for these kinds of companies to enable them to scale.”
GW: But even with these forces pushing in the right direction, many investors were burned when green startups fizzled a decade ago. How do you reassure them that this time is different?
Lippert: “We talk to our LPs (limited partners) and perspective investors quite a lot about how the profile of the entrepreneur and the founding team has changed. What we saw quite a bit in 2009, 2010, in that time frame, was entrepreneurs who had really significant technical expertise, but didn’t have the same deep expertise scaling companies. They might be coming from a research background where they had a lot of enthusiasm around the technology, but were learning the business and scale-up side.
What we’re seeing now because there’s been such a wave of successful technology companies that many of the people who built those companies to scale see climate as the next chapter of their life and their life’s mission.
Many of them who were in their 20s when they started companies are in their 30s. They have kids, they understand that this is really important for the future. We’re actually seeing that kind of talent marry up with energy market talent and that is a much more compelling founding team.
It’s that alchemy that we just weren’t seeing as much 10 years ago, and this is very common now. The best people in company building want to be in climate and that’s super exciting.”
GW: What’s exciting about the new technologies you’re seeing?
Lippert: “I think the most interesting companies are in these are strange combinations of existing calcified systems and technologies, with some new technology: a company that’s applying machine learning to material science for a battery breakthrough. So taking something that’s been used in other industries before and applying it to one of our really challenging climate problems.”
GW: Can you think of other innovation surprises?
Lippert: “I have been amazed by the amount innovation coming, for example, around wildfires. The projection was that California was supposed to reduce its [carbon] emissions by 10-to-15% of as a result of COVID. But then because of the fires, they were actually up, maybe as much as 20%, in their emissions.
You think about how your various gains are being offset by issues elsewhere, and that is not lost on entrepreneurs and they’re moving into this space quickly to see what can be done to address that.”
GW: Where do challenges remain in making the use of climate tech widespread?
Lippert: “An example is, we invest in an electric bus company at Elemental or an electric airplane company. That technology is better than we have now, it’s cheaper, it’s safer, it’s quieter and works better. That is one important piece of the puzzle. And the other piece of the puzzle, what we’ve been doing at Elemental over the last 10 years, is actually deploying that in communities.
What that takes is, how do you procure this as a city agency? And there’s enormous innovation that’s needed around procurement and education around city agencies, support for the city officials who are buying buses. They’re going to do something different than they’ve done the last 30, 50 years in terms of what they’re buying. So there’s that whole side of innovation that’s required to deploy things.
And the same thing would be true for electric airplanes. What we saw when we invested in our hybrid electric airplane company was that there’s an equal amount of innovation that’s needed from the deployment partners as from the company itself innovating.”
GW: Combating climate change is super daunting. What gives you hope?
Lippert: “What I experience on a day-to-day basis is people overcoming incredible odds with just a huge amount of grit and perseverance to make something they believe in come true.
The other thing that’s interesting now is we’re seeing so much momentum in different areas of the economy. It’s kind of back to this idea that everyone has a part to play in these solutions. And we think about it, at Elemental, in terms of what we call your sphere of influence. How do you understand your sphere of influence? Whether it’s your family, your neighborhood, certain decisions being made at your company or your workplace, your role as a voter and as a member of civic society.
There are so many different ways that people can influence what’s happening around them, and that is a cause for enormous optimism as well.
Because the more people see what’s happening in climate, want to lean in, to create a livable planet for their kids, and their grandkids, and their future, these spheres of influence continue to grow and overlap and become really irreversible in the momentum that they create in our society.”
We’ll explore how climate tech entrepreneurs and innovations are battling the climate crisis with an expert panel discussion at the GeekWire Summit on Oct. 4-5. Find details and tickets here.
