JP Moscarella couldn’t have asked for a better way to make his investment case, unfortunately.
A sweltering heat wave greeted the co-founder of CoolPact Capital, a new fund focused on emerging cooling technologies, when he landed in London for last month’s Climate Action Week. CoolPact is focused on India, where some cities regularly see temperatures above 40 degrees Celsius (104 degrees Fahrenheit), and sometimes 50 degrees (122 degrees F).
But London was the right place at the right time to pitch what may be the only dedicated fund for cooling tech as a climate adaptation opportunity.
“What is the first thing anyone does when it’s hot?” Moscarella says. “It’s ‘Let’s find a cool place’.”
India makes sense as a petri dish for new cooling technologies and business models, says Moscarella, a 35-year climate finance and clean tech veteran who launched CoolPact with partners Joyita Mukherjee and Alan Miller. In a market of 1.5 billion people, less than 10% of households have air conditioning. The country also has local manufacturers, a strong innovation ecosystem and favorable policy; more than 140 cities and districts in India have Heat Action Plans.
“It’s hot as hell there, and the extreme heat has very significant impacts on workers outdoors, the economy, and many supply chains as a result,” Moscarella tells ImpactAlpha.
Now, the cooling conversation is becoming more heated in the Global North, which is both responsible for the climate crisis and has most of the capital needed to solve it. London announced its own heat action plan, Heat Ready London, during the heat wave, which led to at least 10,000 excess deaths across Europe. In the US this week, temperatures in some areas were 20 to 30 degrees F higher than normal, with extreme heat warnings declared from the Midwest to the Northeast.
Sustainable cooling
CoolPact is betting that there’s enough supply (tech innovation) and demand (cooling customers) to support cooling as a standalone investment strategy. Moscarella and Miller, long-standing climate advocates, finance experts and angel co-investors, started thinking about a collaboration on cooling solutions about three years ago. Miller in 2020 had co-authored a paper for the World Bank, “The cold road to Paris,” about sustainable cooling in emerging markets.
What stood out was cooling’s energy demand. “The demand, the megawatts required, especially in frontier markets, outstrips installed renewable energy generation,” he says. That was the case before the AI demand surge, he adds. “There’s this huge opportunity set.”
Moscarella and Miller joined up with Mukherjee and pitched the idea for a fund to the Global Innovation Lab for Climate Finance, an incubator for new climate investment tools and vehicles. Their model for a blended-finance impact fund was accepted to the 2024 cohort and secured a grant from the UK Department of Energy Security and Net Zero.
Last year, the partners did a deep-dive on India’s tech startup scene and identified more than 100 companies working on solutions for residential, commercial and industrial cooling, energy efficiency in refrigeration, agriculture and medical cold chains, “heat resilience” wearables, and more.
The partners are looking at big corporate suppliers as potential strategic acquirers as portfolio companies prove scalable solutions appropriate for the masses.
Corporations, along with investors, have been pumping money into cooling technologies, but primarily as a means to manage the heat, water and energy consumption of buildings and data centers.
Mitsubishi Heavy Industries is talking with Nvidia about providing cooling and energy management for the chipmaker’s data centers. Last year, Schneider Electric won a nearly $2 billion cooling contract with Switch Data Centers for data centers in North America.
In March, Ecolab agreed to acquire CoolIt, a maker of liquid cooling systems, in a nearly $4.8 billion deal, largely because of CoolIt’s applications for data centers (see, “With shared ownership, $4.8 billion sale of CoolIT gives workers a cut of AI-driven gains”). A month later, Carrier Global Corp.’s venture group upped its investment in ZutaCore, a developer of waterless liquid cooling technology, also for data centers.
Heat pumps have attracted cleantech investors such as Clean Energy Ventures, which has backed Evari, and Lowercarbon Capital and MCJ Collective, which have invested in Quilt. Octopus Energy is backing Kensa, while Aligned Climate Capital invested in Nyle Systems.
With the exception of heat pumps, cooling solutions for home, building, logistics and urban applications haven’t generated the same investor enthusiasm.
CoolPact is focusing on startups that have proven technologies, are bringing in some revenue already, and where its capital can support acceleration. Establishing new refrigeration and cooling technologies requires lab space, manufacturing space, and the physical assembly and movement of products.
“It’s capital intensive,” says Moscarella. “We’re not making full technology bets. The reason we’re doing equity is to build up their balance sheet with capital, so they can go out and raise debt for their projects.”
CoolPact so far has a pipeline of 15 or so companies it wants to invest in. The team is looking for the next Ecozen, for example, a manufacturer of solar refrigerators and irrigation pumps that launched in 2013 to help smallholder farmers curb food loss, cut dependence on diesel generators and pumps, and weather climate change. Ecozen products have reached more than 100,000 farmers; its $25 million Series C equity round in 2023 gave early impact investors Omnivore and IFA a partial exit.
Novel cooling
Few impact fund managers have CoolPact’s dedicated lens, but other managers are increasingly adding novel cooling startups to their portfolios.
One of Prime Coalition’s first investments, for example, was in Rebound Technologies, which designs cooling units that don’t rely on vapor compression, an energy intensive method of cooling. Prime’s early-stage, catalytic Prime Impact Fund invested in Gradient, a maker of window-based heat pumps that uses more energy efficient and climate friendly coolants.
Breakthrough Energy Ventures has backed Blue Frontier, which developed a salt-based liquid desiccant to dehumidify air, greatly reducing the need for traditional refrigerants.
Prime’s larger impact fund, Azolla Ventures, notched an exit from portfolio company Heaten, a maker of high-temperature heat pumps for industrial use.
Clean Energy Ventures and Energy Impact Partners invested in Transaera, which makes a cooling system that recycles heat for dehumidification. The company claims its technology can double cooling systems’ energy efficiency. Harvard spin-out Trellis Air is developing a new type of dehumidifying membrane technology.
Fifth Wall and Earth Venture Capital have backed Mojave, which makes energy efficient AC units that also focuses on cooling through dehumidification.
New to the cooling tech scene: EnergySolaris in Moldova designed solar-powered building cooling systems intended for hot climates. Qurie this year spun out of a research institution in Germany with seed funding for its “electrocaloric refrigeration system” that doesn’t require refrigerants or noisy compressors.
Growth gap
CoolPact is looking to plug an early-growth capital gap, fitting in between India’s robust startup accelerator ecosystem and growth-stage private equity or strategic corporate buyers.
“We identified the famous ‘missing middle’,” Moscarella says: Investors who can write equity checks of $1 million and $10 million. The partners are eyeing $100 million for their first fund.
Moscarella acknowledges that adaptation finance is challenging because of a lack of obvious pathways to profitability. Climate investors have so far largely focused on climate mitigation – renewable energy, electric vehicles, other solutions for a low-carbon economic transition – rather than how to adapt to life on a warming planet.
CoolPact is focusing on the most obvious revenue stream: energy cost savings for cooling improvements and upgrades.
Given its novel thesis, CoolPact opted not to innovate on the standard 10-year, “two and 20” VC fund structure. A first-loss layer of up to 20% is intended to catalyze investments from commercial investors and strategic corporate investors, namely large international cooling companies.
“The structure of the industry is very competitive and siloed, so partnerships are hard,” he says. In the 30 years that he has raised funds for climate projects, “I haven’t before found an environment that’s so inhospitable to new ideas.”
It is fundraising through an entity in India, in partnership with local fund manager Tamil Nadu Investment Fund Management Company, and one in Canada, which makes it easier to secure international LPs. Catalytic impact investors have been the most engaged. Corporate investors have been the most conservative.
“The returns will be pretty commercial,” he estimates. “This could be very attractive, because the baseline is so low.”
