Climate Finance | April 4, 2022

Overlooked innovators with key climate solutions are a sweet spot for early-stage funds

Amy Cortese
ImpactAlpha Editor

Amy Cortese

ImpactAlpha, April 4 – Today’s stark new report from the Intergovernmental Panel on Climate Change calls for both/and to avert a worst-case climate scenario: both an urgent shift away from fossil fuels by 2030 and the rapid scale-up of technology to remove carbon from the atmosphere.  

The overwhelming scientific, if not political, consensus represented by the third part of the IPCC’s landmark assessment buttresses investors who have been pouring money into both clean energy and emerging technology to remove greenhouse gasses from the atmosphere. 

The number of climate tech venture funds has doubled to 177 in the last two years, according to the latest tally by Climate Tech VC. The biggest categories: early-stage and seed funds with $100 million to $499 million to invest. 

Source: Climate Tech VC

“Some of these early stage companies that we see could make a radical change,” says Peet Denny of Climate VC, a UK-based climate fund that launched last week to fill a gap for very early stage funding in the region. An initial £10 million will support “climate change innovators that might have been overlooked by other investors.” 

Small funds like Climate VC may not get the headlines that $7 billion funds like TPG Rise Climate or Brookfield’s Global Transition Fund generate, but they play an important role in seeding promising ventures at the earliest stages and building a pipeline for later-stage investors.

Because such ventures are risky, “nobody’s willing to be that first check through the door,” Denny tells ImpactAlpha.

Overlooked innovators

The firm’s first investments include Global OTEC (short for ocean thermal energy conversion), which is building floating power plants that generate baseload energy by leveraging the temperature difference between surface sea water and deep water. The company is in talks to sign power purchase agreements with island nations that rely on diesel imports for energy.  

Tierra Foods, another early investment, works with local communities in Central America to develop and sustainably produce for export new ingredients from native plants.  

The U.K. is home to a vibrant climate tech scene, buoyed by a network of universities, accelerators and incubators, says Denny, a tech entrepreneur-turned-investor. The “impact-first” fund will back 100 to 120 early-stage U.K.-based climate start-ups over three years, with checks of £25 to £350 pounds or more. The goal is to remove 1 billion tons of CO2 and other greenhouse gasses over a decade.

Small funds, big impact

Denny is raising the fund on a rolling basis, initially from high net worth individuals who can take advantage of UK tax incentives for early stage investment. 

For startups looking for seed and other early-stage funding, small checks can go a long way. 

Regeneration VC launched last week with a $45 million climate tech fund to invest in sustainable consumer products and materials. Among its investors and advisors: Leonardo DiCaprio and circular economy guru William McDonough. 

Earthshot Ventures, spun out of Hawaii-based Elemental accelerator last fall, raised $60 million to invest in diverse-led, early-stage startups tackling clean energy, transport, agriculture and industry.