You know what the funniest thing about Europe is? It’s the little differences. I mean they got the same s*** over there that they got here, but it’s just, it’s just there, it’s a little different.
– Vincent Vega, Pulp Fiction
Shaun and Shilpi just got back from six weeks in UK, EU, and Israel and over 70 meetings with LPs, founders, and advisors which provided a great opportunity to learn. We believe the EU will be one of the more strategic regions where climate tech teams will find customers and talent.
Climate policy in the US and EU is sharply diverging. One way to see this is to compare public market stock prices for companies affected by climate-transition risk. EU firms are flat or down. Their US counterparts are up—in some cases, quite a bit. You can see why.
In the US, at the federal level, we’re going backward, with climate legislation stalled and a Supreme Court taking us back in time, including placing limits on agencies such as the Environmental Protection Agency. Even at the local level, states like Texas are trying to punish banks for divesting from fossil fuels, meaning we’re going back to where we were when we first started Third Sphere—cities and states will lead the way on climate policy again.
In the EU, green parties now play much more important roles in the largest economies, such as Germany’s. This leads to actions such as agreeing to phase out fossil fuel cars by 2035. And public sentiment is clear. You can and will be shamed for flying when you can take an electric train powered by wind.
Diverging policy and sentiment drive varying customer demand. Real estate portfolio owners in the EU are looking for ways to decarbonize fast and EV ownership is growing rapidly from one set of wheels to many. The soon-to-be-shipping electric pickup truck in the US just doesn’t account for the growing difference in adoption. Then there are industrial processes—multiple US-based companies in our portfolio see clear signals of growing early adopter demand from the EU.
And then there is talent. EU founders who might have moved to the US even a few years ago are now choosing to remain in places like Zurich, Berlin, and Copenhagen. Their local venture ecosystems have grown with the growing political uncertainty in the US.
Finally, regional climate specializations are emerging. For most climate investors, the scale and scope of the hardware required is often overwhelming, but this plays to the strengths of founders who have spent time in German manufacturing. And in the Nordics, Copenhagen is a few years from being a net-zero city—and being a few years ahead of everyone else in areas such as electrification and decarbonization means you have some advantages in anticipating what others might need.
We’ll likely make more investments in the EU, but we’ll also be looking to help our existing portfolio companies figure out how to enter EU markets as customer demand ramps up.
Climate supply chains
Some of the most valuable climate tech companies will be hardware companies, and they all have varying levels of exposure to supply chain risks for both their scope 3 emissions and resilience.
For supply chain resilience, we’re seeing a continued shift to China + 1, where companies, including very early-stage startups, will source from China while also ensuring they have another potential supplier. One noticeable change is a major shift to Japanese suppliers and, while it’s still anecdotal, we’re seeing startups travel to markets such as Germany and Switzerland in search of specific expertise and components.
At the policy level, most countries are reassessing their supply chain strategies, which is good for resilience and combating inflation. The exception may be most African nations, which already do four times trade with China vs. with the US. They’ll likely continue to source their next-generation infrastructure from China, including wind, solar, batteries, and electric vehicles.
We’re also keeping an eye on hardware finance. “Buy now, pay later” is already helping accelerate areas such as electrification with the adoption of everything from e-bikes (also, at one point, stationary bikes) and Onewheels to low-emissions heating and cooling. But there are already signs that a BNPL reckoning is underway.
Here’s a historical example of why your company might be in the best shape ever, even if investors seem to be saying otherwise. And here’s an oldie but goodie on keeping your head and team above the noise. For some startups, even war is not an excuse to not grow. We’ll be watching to see if this changes in the next few months.
What’s odd right now is it seems climate valuations in private markets aren’t down as much as we’d expect, though this data is likely still reflecting deal terms agreed to or even completed in Q1 2022. Still, compared to Web3, climate tech has been more resilient, perhaps because there isn’t an equivalent real-time signal like token values.
We’re relieved to see less noise from Web3—rebuilding the financial system can wait. The core technologies Web3 hopes to disrupt do a lot less damage than our core fossil fuel infrastructure, so if the disruption takes a decade longer, fine with us. But we can’t wait on climate investments.
If you know folks looking to move from formerly high-flying opportunities, we have a lot of opportunities for you to share in the next section.
Jobs and Opportunities
Perl Street is looking for more teammates, starting with a senior software developer / director of engineering. Builders Patch is also looking for leadership on the engineering side and some stellar sales talent to work on closing the gap in affordable housing. Near Space Labs recently hired a head of production. Toggle hired a CTO. Both are seeking to further expand their teams. Gradient needs help building and shipping their beautiful self-installed heat pumps, specifically supply chain and logistics.
Here’s another 400+ opportunities to work with us.
Bowery launched their largest vertical farm yet (and not a moment too soon). Bumblebee is on Netflix to share the future of dense living. Near Space Labs was on Axios sharing their new imaging robots. Limeloop was on Good Morning America to share their progress in reducing e-commerce waste. Cove Tool launched the next iteration of loadmodeling.tool to simplify HVAC design, especially the interaction between architects and engineers. Upshift is raising a Republic-led round.
We shared a recap of recent funding announcements from TC and why we invested in Photon Marine, Chargelab, Singularity.
Family planning is a deeply personal and complex decision factoring health, economics, and many other factors including climate change. We’re exploring how to help our portfolio navigate the recent supreme court decision and its impacts on recruiting, retention, and wellness.
Third Sphere Updates
Shaun on climate, Shilpi on cities, and Stonly on venture in recent appearances.
We’re excited to welcome Roscel Asuncion to our team. Many of you have already met via email. Roscel will move from a part-time to a full-time role and she’ll expand her support for our team, helping us with operations from data quality to communications. This work greatly simplifies our investment and portfolio support process and also has been super helpful in our fundraising process.
We’ve also been pleased with our first cohort in our fellowship program. We could make more full-time team hires, but we greatly appreciate the additional perspectives that come from multiple fellows working with us through the investment process. As we build out the platform team, we’ll look to do something similar to support our portfolio companies. Here’s more background on the Third Sphere Fellowship program.
Our first close on our newest fund welcomed ImpactAssets and over 30 returning LPs and portfolio founders. Our next close is expected at the end of July. Over the last month, it seems the generalist LPs have slowed or paused. But the investors who are committed to climate tech are continuing to push forward.
Our credit fund will soon close with another institutional investor. We’re seeing more opportunities for credit to help shape smaller equity rounds. For startup founders, this is a path to lower dilution, even as valuations contract. And we’re getting more comfortable underwriting early-stage risk, so we’re hoping to continue accelerating our credit offerings.
Shilpi, Stonly, Mark, Roscel, Anthony, Zeev, Yana, Shaun, Apoorva, and Miela.