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WK556: Shifting Climate, VCs and Capital Stacks“Remember Red, hope is a good thing, maybe the best of things, and no good thing ever dies.”
Our last update was week 545. We missed you too. The last two months we’ve been navigating a significant uptick in portfolio activity, after what seemed like a very, very long summer, so there’s plenty to share.
Climate
Navigating stakeholder interests continues to be one of the biggest challenges and opportunities in climate tech adoption. On the one hand, BP, in 2020, pledged a 40% reduction in oil production, but shareholders helped scrap those targets. On the other hand, despite politicians continuing to play politics, a surprising coalition of 18 House Republicans recently came out in support of clean energy tax credits, warning against repealing them as over 500 clean energy projects are now active in their districts. It helps that Texas continues to set records in battery storage. This is the genius of focusing US climate policy on tax incentives.
Nature finds a way… to force us into action. With 24 billion-dollar climate disasters in 2024 so far—up from just three in the 1980s—there will be no option but to figure out building more resilient infrastructure and creating new insurance solutions (including self insurance). Traditional insurers are increasingly pulling back from high-risk areas, leading to the rise of the captive insurance market, which has now surpassed $200 billion. At the same time, resilience is proving to be a sound investment. For every dollar spent on climate resilience, communities save an estimated $13 in disaster costs and economic benefits. The expectation is that regulations will force insurance to adapt but there are other ways regulators may force us towards adaptation.
Policy aside, the best way to win in climate tech adoption remains being better, faster, cheaper, cooler, etc. Electrification is winning across transportation sectors — now with trucks and buses — because it turns out they are way better for drivers and operators. PepsiCo has deployed 89 of Tesla’s electric trucks, achieving impressive efficiency at 1.6 kWh per mile, and demonstrating the capability to cover up to 1,000 miles in a single day. These trucks are not only cutting emissions but also improving operational efficiency and driver satisfaction. The U.S. Postal Service is also making significant strides after launching their electric fleet and subsequently deciding to move toward a 100% electric vehicle fleet goal by 2026 (the previous goal was 10%), a shift that promises lower maintenance costs and improved safety for mail carriers. The extra benefits on large batteries on wheels are helping too: in Oakland, electric school buses equipped with vehicle-to-grid (V2G) technology are helping to power the grid when not in use, turning transportation into a resource for grid stability.
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Startups and VC
VCs are returning money to LPs but not at all in the way LPs hoped. We covered some of the challenges and laid out some future scenarios at climate week in NYC from changing regulations and much more active private secondary markets.
Non-dilutive options are increasingly interesting to founders. In fact, the last few months set a record for the number of teams raising grants (more on that in the next section). And many are looking beyond venture debt at credit options. We’re working on a resource to help founders navigate the full range of equity and non-dilutive funding options more effectively and welcome your input in our survey (more on this ask below).
For everyone but some AI startups, 2024 has been very weird. There are 1,400+ unicorns stuck in a ‘startup zombiecalypse‘ – and even having $100M in revenue isn’t enough if growth has stalled. Getting to the next stage of funding is harder than ever. The math is particularly brutal for those ‘hot’ 2021 deals valued at 100x+ revenue. And the steady drumbeat of recent unicorns failing is hurting entire categories.
It is fascinating to see the VC world adjust to the limits of specific business models. But also a welcome change to how we think about software and how we really move the needle on big problems.
This is a good time to remind founders to go back to basics, like:
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Portfolio News
M&A Our portfolio is very acquisitive. Urbint acquired WRM. Cycle acquires UK last mile delivery operator. Kiwibot acquires a chip maker and an ad delivery platform.
Funding We led a round in Nevoya’s $3M seed. Furno Materials won a $20M DOE grant. Applied Carbon closed a $21.5M series A (and won a small grant). Photon won a $7M DOT grant. Wright Electric won a $3.34M FAA grant. Urbio was selected for a Swiss Accelerator grant. And so was Pallon. After a very slow summer, activity picked up a bit and we’ll have a few more fundraising updates to share before the holidays.
Launches Lots of climate mitigation prograss. We invested in Choppy, which is already flying off shelves in stores. Nevoya oversubscribed demand for their electric trucks within weeks of launching — here’s why we invested. Circuit launched one of their largest electric shuttle partnerships. Wasted launched their VIPee trailer. Plentify announced a super low cost way to get the most from solar installs. CYCLE launched in Amsterdam. Shellworks nears 1 million units shipped. Mill was in the WSJ and you can find them on Netflix! And we shared why we invested in Dutch Lion to get indoor farming to price parity with traditional farming.
And there is progress on resilience too. Haas Alert connected safety product is showing up in more places – consumers are starting to notice. And first responders are safer. Pi-Lit’s newest service to connect physical safety systems to digital tools, adds smarts to crash barriers on freeways. Urbint in being featured in their customer annual reports (like National Grid) as they help improve resilience.
Awards and Recognition Near Space Labs on CNBC. Focal in an HBS case study. Qucit talks about quietly powering much of EU and US bikeshare in ZagDaily. Kiwibot is leading the delivery robot race as they discuss on Access Daily. The Loamist team are now Breakthrough Energy Fellows. Applied Carbon is in the final stages of XPrize Carbon Removal to deliver 1,000 net tonnes of CDR – they’re likely to be one of the few from the final 20 to meet this requirement. 3AM in the WSJ for an Unconventional Award.
Jobs Versatile is hiring in Tulsa for a Senior Manufacturing Center Technician. Shellworks is looking for a Quality Engineer in London. Applied Carbon seeks a Run Technician in Houston. Mark43 has a remote role for a Senior Product Manager. Mill is hiring for numerous roles in New York, including Business Analyst.There are currently 201 jobs across the portfolio.
Third Sphere Asks
Survey on different equity + non-dilutive funders We’re always striving to better support founders in the current fundraising landscape. Equity fundraising is getting tougher, and we’re seeing the trend towards non-dilutive options growing. We are encouraging startups to share knowledge with each other on who is deploying and proving to be a positive support across all types of financing.
You can help us out by taking a quick survey about your experiences with equity + non-dilutive funding options: Survey Here
The more candid you can be, the more useful this will be. Thanks in advance for your help. If you have any questions, just shoot us a message.
More founder intros please We have roughly 17 more investments to make in this fund, so please keep referring great founders over. We are looking for opportunities in any tech that touches climate mitigation or adaptation in any way, and hope to be amongst the earliest investors.
We’re looking to invest as much as $1.2M in up to $15M valuation rounds (our ideal round is $3M – $5M valuation though). We think we’re the best at helping navigate the earliest stages of company building including setting up for rapid commercialization and non-dilutive financing of the company’s journey.
Another way to think about who we’d like to meet – if there’s a bad logo, great team and you at least crack a smile because the pitch makes you more uncomfortable about the status quo or very excited about the future, that’s probably an ideal intro for us.
Best the Third Sphere Team
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