Almost exactly 12 long, long months ago, I pontificated about the "roaring" decade to come for artificial intelligence. While 2020 was completely bonkers for so many reasons, all five areas where I predicted AI would have the most demonstrable impact — energy management ($8 billion in spending from 2020 to 2024), improving soil conditions ($360 million more for Indigo Ag), modeling climate risks (Microsoft’s "Planetary Computer," anyone?), protecting biodiversity and boosting supply chain traceability — continued to progress.
Against the odds of a pandemic-distracted economy, 2020 turned out to be a breakthrough year not just for practical applications of AI, but also for "climate tech" — solutions ranging from agtech to zero-emissions transportation to industrial decarbonization approaches.
Consider these highlights:
- According to a year-end report by research firm Pitchbook, there were at least 354 funding deals for climate-tech startups as of Oct. 31 — the second highest count in the last 10 years, after a record 436 such events in 2018.
- PwC reports that climate tech investments have grown at five times the venture capital market over the past seven years. Big deals (those worth more than $100 million) represent $0.61 of every $1 invested in this category. To be fair, climate tech still represented just 6 percent of all VC in 2018, but annual investments grew from $418 million in 2013 to $16.3 billion in 2019, PwC notes.
- Three of the biggest transactions in 2020: $600 million in early-stage funding for Swedish battery company Northvolt (Volkswagen at the center); $110 million for carbon-capture startup Climeworks (a record breaker); and $140 million for indoor-farming entrepreneurs Plenty (adding a major produce company, Driscoll’s, and bringing its total to $500 million).
In the spirit of looking ahead and bidding this terrible, horrible, no good, very bad year goodbye, here are what the trendlines suggest could be five big climate-tech stories in 2021.
1. More monetary participation from corporate funders
$3 billion. That’s the aggregate amount that just Microsoft ($1 billion) and Amazon ($2 billion) pledged during 2020 to spend on climate-tech innovation.
Both have started spending: Microsoft’s first money went to Energy Impact Partners, a coalition of utilities backing a portfolio of energy startups. Amazon’s first deals included CarbonCure, Pachama, Redwood Materials, Rivian and Turntide Technologies.
The two tech giants are far from the only big corporate investors willing to spend — as demonstrated by the recent launch of Third Derivative, created by Rocky Mountain Institute and New Energy Nexus. One of the more recent declarations came from United Airlines, which will make a "multimillion-dollar" investment in 1PointFive, a carbon capture venture affiliated with Occidental Petroleum. (See theme No. 2.)
2. Big money from big oil
In mid-December, British fossil fuels company BP bought a majority stake (the amount wasn’t disclosed) in Finite Carbon, the biggest U.S. forest carbon offset developer. During the same week, Shell Ventures doubled down on its investment in ZeroAvia, a company working on hydrogen-electric powertrains for zero-emission airplanes.
As big oil scrambles for ways to keep existing wells and extraction sites open as long as possible, expect more climate-tech dabbling.
Job creation — especially in BIPOC communities — is one of the biggest places where climate-tech startups could demonstrate their broader value as the economy recovers.
3. The funding arc for circular economy startups
In December, TerraCycle, the upcycling company making a big bet on the concept of reusable packaging through its Loop venture, closed a $25 million Series A round for the service.
That wasn’t the only notable investment for a circular economy startup this fall: in early September, battery recycling venture Redwood Materials — started by Tesla co-founder JB Straubel — emerged from stealth with a reported $40 million in funding.
Also in September, BlackRock disclosed that it had raised $900 million for a fund dedicated to circular economy ventures in the first year.
While there have been dedicated funds for circular economy ventures, notably Closed Loop Partners, these moves signal growing mainstream interest. Even if the investors don’t actually use that phrase, which brings us to ...
4. Decarbonizing industrial processes
I’m listing this right after the circular economy for a reason: There’s often a circular bent to the business model of the startups cropping up in this space.
Consider these three ventures brought to my attention by Cody Simms, senior vice president of Techstars: Phoenix Tailings, which recently received $1.35 million in seed funding for its focus on recovering materials from "tailings" ponds associated with mining operations; Queen of Raw, which raised $1.5 million for its approach to keeping "deadstock" fabrics out of landfills and incinerators; and Renewal Mill, which makes flour out of byproducts related to the production of other plant-based products, such as oat milk.
The economic reboot kickstarted by the COVID-19 pandemic has companies around the world rethinking their systems and supply chains. We’ll be hearing more about companies focused on turning carbon into value. Among the ones finding funders are concrete company CarbonCure (see theme No. 1) and kin such as CarbiCrete, ECOncrete or Solidia; and Carbon Upcycling, creating materials from captured carbon dioxide emissions.
5. The intersection of climate tech and environmental justice
When air pollution monitoring venture Aclima snagged $40 million in funding in November (including from the aforementioned Microsoft fund), it was notable for two big reasons: Investments in woman-led startups, as well as those founded by Black, Indigenous and people of color (BIPOC) entrepreneurs, are still relatively rare; and Aclima emphasizes its ability to address public health concerns, especially those linked to communities of color.
Aclima co-founder and CEO Davida Herzl told me there was a "total transformation" in thinking in the marketplace over the past six months, as the company was closing its round. "Entrepreneurs will be advancing equity on the climate side," she said.
As just one example of the impact, in late September, Cox Enterprises shifted the focus of its next social impact accelerator program with Techstars to prioritize startups dedicated to addressing systemic racism. And in mid-December, Greenlining Institute published a guide meant to help climate-tech startups address issues of diversity, equity and inclusion.
I also encourage you to familiarize yourself with the model espoused by Elemental Excelerator, which encourages startups to embrace an "equity in, equity out" mindset as part of its Equity & Access Track. That is, bringing in diverse individuals through inclusive hiring, cultural, mentorship and supply chain practices, and projecting out into the community by anticipating unintended consequences and prioritizing economic benefits.
Sara Chandler, managing director for the program, told me that participants are encouraged to think about diversity, equity and inclusion holistically as part of their business model rather than as something to prioritize "later" or "after." Elemental works with the startups to design projects that include local community organizations, an idea that it calls "Square Partnerships."
One participating company, reforestation specialist DroneSeed, is testing a model to mitigate the seasonality of its jobs. The idea is that employees might perform local field work part of the year, while rotating into administrative roles at other times.
Indeed, job creation — especially in BIPOC communities — is one of the biggest places where climate-tech startups could demonstrate their broader value as the economy recovers. "This is a moment to be a beacon," Chandler said.
With that, I bid adieu to 2020 and welcome the possibilities of 2021. Wishing you a happy and healthy New Year’s weekend.