Why One Climate Tech Investor Is Betting On Hardware

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By Victoria Beasley, Partner at Gigascale Capital

In the fast-evolving world of climate tech, everything under the hard tech umbrella — hardware, deep tech, and science-driven innovation — is now commanding attention. This isn’t a fleeting trend; it’s a shift to contend with the most formidable challenges of climate change that require tactile, physical answers and cornerstones for anyone serious about driving down emissions and cleaning up the atmosphere. Considering the daunting scale of the climate challenge from a broad perspective obscures the change happening across a set of fragmented sectors, yet these hard tech-driven shifts are poised to reshape global industries.

Consider November’s COP28 convening, where over one hundred countries committed to tripling renewable energy capacity by 2030. Compare that to COP24, when all countries agreed to assess progress on the Paris Agreement every two years, but no landmark commitments were made. In four years, amidst an accelerating energy transition, the global consensus is that we need to do more of what’s working. 

On the investment side, where I spend my time, I saw 633 climate tech startups raising funds in 2023, up from 586 in 2022. Globally, total institutional assets under management (AUM) for climate tech surpassed $10 trillion. The world spent $500 billion on installing solar. In the U.S. alone, solar capacity increased 35% year-over-year, heat pumps surpassed gas-powered furnace sales, and The Rhodium Group reports emissions dropped nearly 2% nationwide even as the economy grew.

While the issues we need to address in climate might seem insurmountable — the opportunities to address them are at our fingertips, and progress is happening if you know where to look. 

Innovations in fields like manufacturing, computing, and robotics are empowering entrepreneurs to create new climate solutions. The companies they’re building are faster, more dynamic, and less risky than typical assumptions of hard tech. The traditionally slow-paced development has given way to fast iterations with innovation cycles of months rather than years. Biotech is powering new agriculture solutions. Solar installation is accelerating with the aid of robotics. Automation is accelerating it all.

By building better ways of doing things in the way that only tech can, these companies are breaking the cost barrier and rejecting the notion of a “green premium,” where clean options come with a high price tag, to create green discounts. The promised moment where hard tech makes real the economic benefits of replacing costly, polluting fossil fuels is here, and with it, some trends that will influence climate tech entrepreneurs and the entire climate tech field over the coming years.

Founders addressing seemingly niche problems will deliver huge impact

The numbers and challenges in climate can be mind-boggling when abstracted. Instead, the best founders zoom in. By asking “why” over and over again, they’re narrowing in on why something isn’t working. Often, it’s a human problem, not a limit of physics. 

For example, with heat pumps — somebody might not understand them, could be nervous about the repair rate, doesn’t know how to apply for incentives, or doesn’t know how to size the system. 

More people with technical backgrounds are becoming founders

The most exciting solutions I’m seeing are from chemistry, physics, and biology experts. This puts pressure on investors to build their technical acumen to spot and support the growing pipeline of Ph.D. and postdocs leaving academia to start companies. I expect this pattern to continue with more startups founded by former researchers, scientists, rocket engineers, and more.

First-time technical founders will have to build new muscles around speaking to adoption alongside the innovations. It’s always been crucial for entrepreneurs to effectively communicate their vision and opportunity to investors, and in pitches, I look for founders who have an awareness of a path to commercialization alongside their excitement about the technology.

The best pitches start with “I visited dozens of target users and realized that the real pain point or gap in the market is X.”  Founders get bonus points if they can illustrate how their team is learning fast and breaking down big complex problems into quickly interactive parts in order to de-risk solutions.

We’ll continue to see top talent moving into climate tech

People with technical backgrounds aren’t the only ones directing attention to climate solutions. There is a wave of people in business roles, from finance to HR and marketing, who are seeking purpose and understand that progress on climate change underpins progress in everything else they care about.

Climate tech companies are companies, after all, and need all of the same roles to bring a product to market and scale an organization. Over the last couple of years, the share of green talent in the workforce rose by a median of 12.3%, according to LinkedIn.

With a powerful planetary mission and inherently aligned business models, climate tech companies have an outsized advantage in pulling in top-tier talent from a number of industries.

Startups will continue to benefit from investors with commercial experience 

Today’s challenges remind me of my early days in solar manufacturing when funding was drying up as raw material prices spiked and a trade war spooked buyers. As the finance director, I benefited from investors who were wide-eyed about the hurdles we faced and had steady hands to guide us through them. Their hands-on operator experience meant we got pragmatic, actionable advice — like involving everyone in the company to source ideas to drive down COGS, getting creative with non-dilutive funding options, and reducing silver usage to improve margins. Constraints often produce creative solutions, and having people around the table who have weathered ups and downs before matters.

With a growing pipeline of Ph.D.s and technical founders in climate tech, the need for investors with real-world hard tech commercialization experience is even more acute. Companies will benefit from investors who can coach and mentor as their teams will inevitably need to develop management skills on the fly, navigate complex capital stacks, and repeatedly refine their path to scale.

The fundamentals are stronger than ever

While the global climate tech CAGR increased by 23% in 2023 from the year prior, founders are still navigating the changes to the broader venture capital environment where some companies are struggling to raise and paths to exit are slim. Despite these macro conditions, climate and hard tech fundamentals are stronger than ever. Climate companies are benefiting from the tailwinds of the IRA and exceptional talent pouring into the climate tech space from Big Tech and academia. 

Upgrading foundational systems that underpin the modern world and reshaping global markets make for a compelling business case and is exactly what compelled me to jump into working in climate tech over a decade ago. From my point of view, these past ten years have been a story of guts, grit, and an attitude of just getting it done. The main message? We can solve these problems. There’s already progress. We need more entrepreneurs to tackle the big challenges. When you look at the problems, the numbers are mind-boggling, and the same can be said for the opportunities.

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