Warm Planet, Cool Deals
The climate tech slump and what it means for nature
🪸 We’re Superorganism, the first VC for startups that benefit biodiversity. Each month we publish thoughts from the frontline, company updates, and a round-up of new happenings in the nature tech world.
Here in the Northern hemisphere this summer, the climate crisis has never been more apparent.
July saw the highest daily temperature ever recorded, which was immediately broken the next day. Unusual temperatures contributed to an earliest-recorded Category 5 hurricane in the Caribbean, flooding in Switzerland and Italy, fires in the American west, and an Olympic heat wave. Not to be outdone, the Antarctic recorded temperatures 50 degrees F above average. There’s now a 95% probability that 2024 will be the hottest year in recorded human history.
Yet while our atmosphere and oceans have gotten hotter, investment spending into climate startups has cooled. Our friends at Sightline’s CTVC highlighted how for the past several quarters, investment amounts have lowered, while time to raise next rounds has lengthened. Anecdotally in our work, we’ve been seeing similar trends, and nature tech startups haven’t been immune.
From solar panels to EVs to alternative meats, technology development has been one of the bright spots in the battle against climate change, and could be in the fight against extinction. With fewer successful rounds, slower company growth, and fewer exits, the case for more capital to go into such solutions in the future could get worse.
And so this month, we wanted to illuminate what’s going on. Is the climate tech pullback a cold, or is it a flu? And either way, what can be done?
Diagnosing the problem
First, it’s important to look at the macro trends in venture capital broadly: what’s happening in climate tech is far from unique. Nearly across the board, venture rounds are taking longer to close, and round sizes have shrunk.
In so-called “peak venture” of 2021, low interest rates led to a frenzy of investment activity, as investors sought riskier bets that could yield outsized returns. That year, bubbly multiples and the popularization of SPACs helped fuel one of the most acquisitive and IPO-rich environments in history.
But as rates started to climb, VCs grew warier of aggressive valuations in new investments, and they preserved capital to keep existing investments alive through an uncertain market environment. Meanwhile, the exit bonanza that had fueled peak venture came to a near-complete halt, with few acquisitions and next to no IPOs.
This has resulted in an industry-wide liquidity crisis. Without exits, VCs aren’t providing their existing LPs with returns, which would otherwise be recycled back into the VC category. Investors in funds (limited partners, or LPs) are slowing investment into VC due to not having enough free cash flow, being over-indexed in venture (the denominator effect), or because they’d prefer to keep their holdings in liquid assets they can sell anytime. This has resulted in the fewest new funds created in a decade.
Those funds that have been able to raise are, in turn, deploying carefully. They’re holding onto dry powder (investable money) for existing portfolio companies that may need it, while raising the bar for new investments. Fewer VCs means less competition for deals, so VCs with funds to invest have more leverage in negotiating, and less reason to make decisions quickly. And make no mistake: funds are currently sitting on record-high levels of dry powder.
These dynamics have played out especially for technologies and businesses that can take longer times to mature. And climate tech, as a category that grew in lockstep with peak venture, is experiencing these pains firsthand, with some startups also exposed to recent drawback in the voluntary carbon market.
What about nature tech?
We view nature tech as the suite of companies and technologies that protect, restore, or reduce the loss drivers for biodiversity (ecosystems and species), across geographies and industries. While the category is taking off in a tough early-stage macro environment, we see some lessons and contrasts with the most recent climate tech wave that give us cautious optimism:
Starting out strong. Nature tech didn’t start during peak VC, meaning the category has relatively few “growth spurts”, aka well-known companies with valuations significantly ahead of revenues. The risk with having several of these in a category is that if revenue fails to materialize, they can cast doubt on a whole segment. One benefit to these conditions is that newer companies are having to prioritize revenue early.
Seasoned talent. The climate tech boom brought in a wave of new founders, and helped provide the first climate roles for many looking to transition their careers into a more impactful direction. Many of the founders we meet are now translating those lessons and challenges into building for nature, and it’s not their first rodeo.
Diversity of approaches. Nature tech encompasses many industries, business models, and technologies. This diversity means that nature tech as a whole can be more resilient to trends that might affect one sector or technology, and that founders can find VCs with a diverse array of focus areas, from ag to biotech to SaaS.
Truly transformational technologies. Nature tech may have missed peak VC, but it hasn’t missed peak AI, peak space, or peak biotech. The opportunity to leverage these cutting edge technologies to reinvent our world remains vast.
Advice for founders
Enough big picture – if you’re a founder, what can you do? While we’ve seen fast-moving, oversubscribed rounds (again, there is plenty of dry powder waiting to be invested), we’ve also seen slow raises, down rounds, and occasionally shutdowns. Against this backdrop, here’s advice we’ve been giving our own founders:
Great businesses can’t be ignored. Focus on the pure business value of what you’re producing, avoid green premiums, and avoid side quests. Focus on making something better / cheaper / more efficient / etc. for a core customer, that benefits nature or avoids harms as a natural consequence. If you can scale out of revenue, you don’t need to ask VCs for permission to exist.
Look for existing budgets. From biocredits to insetting, new pathways for revenue may offer intriguing possibilities, but nothing speaks louder than existing budgets. Find problems that industries are already paying to solve, solve them better, and avoid betting your future on new customer spend or regulatory changes that have yet to arrive.
Time is the enemy, manage accordingly. Stay focused on your burn, runway, and revenue to survive into many possible futures. Consider the full multiverse of what happens if revenue doesn’t materialize, if a raise doesn’t come together, or if costs expand, and have contingency plans.
And for those fundraising, or about to fundraise:
You’re playing on hard mode. Raises will take longer, the metrics bar will be higher, time between raises has extended, and your VC top-of-funnel needs to be much larger than 2 years ago. You’re playing on hard mode, so gear up.
It’s never too early to start working backwards. Knowing the metrics bar is higher, work backwards from the story you want to tell when you start raising the next round. Set these goals early and hyper-focus on them. Everything else is a distraction.
Play the player, not the game. Never start a fundraise cold. Communicate your progress and build relationships and trust with investors early. In a challenging environment, let them see you navigate challenges over time. Find a story that resonates with many types of investors, not just VCs that are focused on biodiversity (there aren’t many of us… yet). Deals are still happening, and VCs still have dry powder to deploy, if you can move them from fear to FOMO.
Consider all your funding options. Grants, prizes, or SBIRs can extend your runway. If you have large capex requirements, consider project finance or venture debt, especially if you can raise this alongside an equity raise to de-risk both.
Take care of yourself. More founders need to hear this, and more investors need to say it. We believe in hard work but not self-immolation. Be kind to yourself, build your support system, and don’t burn out. We need you.
Final thoughts
When the cleantech bubble 1.0 burst, the prevailing wisdom in Silicon Valley was that you can’t make money chasing environmental causes. From 2008 to 2017, the startups VCs would tell you about that were “making the world a better place” were most frequently in social media or the sharing economy. In that same span, humans increased total atmospheric CO2 by 5%, and the planet warmed .4 degrees C. VCs may have stopped caring about climate change, but the climate didn’t stop changing.
The critics of cleantech investing weren’t all wrong. During that bubble, capital was misallocated. Valuations were over-hyped. Needed policy failed to materialize. Deep tech timelines didn’t match venture time horizons. And a global recession seemed to be a death-knell. But the lesson shouldn’t have been to walk away, it should have been to do better.
Do better is exactly what companies like Tesla, SunRun, and Opower did; they were stubborn survivors for a reason. No matter whether what climate tech is experiencing now is a small setback, or the beginning of a tougher reset, the same will absolutely hold true of businesses today. And however much the VC ecosystem may be temporarily hit, the long-term trends remain strong: green stocks have outperformed all but tech stocks over the past decade.
This is why we’re still actively deploying at Superorganism. Market dynamics be damned, we believe generational nature tech businesses are being forged now. Starting one? Drop us a line.
Notes From The Field
Updates from our portfolio companies, and from us at Superorganism
🪵 Cambium Carbon was featured on NBC during Macy’s Fireworks special.
🐍 Inversa unveiled its new website, launched a collaboration with Chris Ploof Designs, and was interviewed in Sourcing Journal.
🦦 Sway, in a milestone for any elementary school bookworm, was featured in Scholastic magazine.
Want to join a Superorganism company? Check out our Jobs Board, with 48 active jobs currently available. Start your nature tech career today!
Ecosystem News
🤝 Friends of the fund
Brainforest is taking applications for its next Nature Solutions accelerator program. Apply by August 23.
Conservation X Labs announced their Extinction Solutions Index (ESI), a framework to measure solution efficiency to address biodiversity loss | BES
A weak $11.3bn start to 2024 | Sightline Climate
USP finally approves synthetic alternatives to horseshoe crab blood! | Revive & Restore
💵 Nature and Climate Finance
After 18 months, TNFD releases additional sector guidance for forestry, food and ag, aquaculture, and more | TNFD
Is now the right time to pursue biodiversity credits for nature's sake? | Nature x Climate
Why EU’s New Rules to Protect Rainforests are Angering Trade Partners | Bloomberg
How Google, Meta, Salesforce and other companies are joining forces to fund climate action | Trellis
🌲 Nature and Climate
How Good are Re-Planted Mangroves at Storing Carbon? A New Study Puts a Number on It | Inside Climate
Cost-effectiveness of natural forest regeneration and plantations for climate mitigation | Nature
BP-owned company is selling carbon credits on trees that aren’t in danger | Guardian
🐺 Conservation and Rewilding
Socio-economic and environmental trade-offs in Amazonian protected areas and Indigenous territories revealed by assessing competing land uses | Nature
Loss of India’s vultures may have led to deaths of half a million people | Science
The Return of the Tiger to Kazakhstan | DKNews
Przewalski’s horses return to Central Kazakhstan after nearly 200-year absence | UNEP
Four new cheetah cubs born in Saudi Arabia after 40 years of extinction | BBC
The race to save the ‘holy grail’ of amphibians from extinction | Nat Geo
🦀 Deep Seas
Aquatic deoxygenation as a planetary boundary and key regulator of Earth system stability | Nature
Dark oxygen made by deep sea 'batteries' | BBC
Scientists, deep-sea miner spar over ‘dark oxygen’ discovery | Politico
The Future of Deep Sea Mining Hinges on a Contentious Election | Bloomberg
Fishing the Ocean’s Twilight Zone Could Unleash Climate Chaos | NYT
👩🏽⚖️ Policy
How a livestock industry lobbying campaign is turning Europe against lab-grown meat | Unearthed
Biden administration announces $4.3 billion in climate grants | Reuters
Plastics Pollution Has Become a ‘Crisis,’ Biden Administration Acknowledges | Inside Climate
Trump’s Environmental Impact Endures, at Home and Around the World | Inside Climate
What a second Trump presidency would mean for climate investing | Climate Money
What America Owes the Planet | Atlantic
☀️ Summer Reading - Science Edition
This summer we’ve been enjoying Zoë Schlanger’s The Light Eaters. Some more beach fare:
The sperm whale 'phonetic alphabet' revealed by AI | BBC
New AI language model for meerkats released | ImportAI
How Denisovans thrived on top of the world: mysterious ancient humans’ survival secrets revealed | Nature
Giant clams may hold the answers to making solar energy more efficient | Yale
Meet the Flower Designer Who Built a Laboratory In His Home | Asimov
Ants found to intentionally amputate legs to prevent infection | Current Biology
Mammals Grew Slower In the Jurassic Than Today | AMNH
Iron-coated Komodo dragon teeth | Nature
Theory says complex life on Earth may be much older than thought | BBC
'Very Annoyed' Seagulls Are Waging War on NYC's Beach Drones | Gizmodo
Sharks off Brazil coast test positive for cocaine | BBC
Evolution of the Italian pasta ripiena: the first steps toward a scientific classification | Discover Food
Thank You!
Thanks for reading and for supporting Superorganism, and a special thank you to everyone who went above and beyond this month with introductions, diligence, advice, and help to founders:
Lucy Almond, Caleb Bell, Harriette Brainard, Kevin Brennan, Karla Brollier, Teal Brown Zimring, Paul Bunje, Nick Butcher, Grace Chang, Aarav Chavda, Tom Chi, Patti Chu, Cheryl Dalrymple, Alex Dehgan, Camila Ferraz, Pascal Finette, Jack Fritzinger, Sarah Garland, Nazlican Gosku, Jake Hanft, Matthew Hayek, Sally Hill, Taylor Holshouser, Zach Knight, Dave Koslow, David Lang, Dave Lee, David Meyers, Adam Milgrom, Lisa Miller, Sarah Mok, Steve Molino, Karla Mora, Ben Novak, Tom O'Keefe, Rajiv Pattni, Amy Perlmutter, Ryan Phelan, Sophie Purdom, Tory Read, Erika Reinhardt, Sam Ruben, Milo Runkle, Diego Saez-Gil, Nick Schroer, Jordan Soriot, Christine Spang, Jen Stebbing, Milena Stojceska, Benedict Tan, Phil Taylor, Daniel Wanjira, Kaja Wasik, Helena Wasserman, Brandon Welch, Lyn Werbach, and Noah Wilson-Rich