This article was adapted from Climate Tech Weekly, a free newsletter focused on climate technologies.
Energy Impact Partners (EIP) is best-known for its investments in technologies meant to accelerate the integration of clean energy into the grid, including cybersecurity. Now the investment firm — backed by a who’s-who of utilities, as well as the venture arms of corporations including Microsoft and construction firm Burns & McDonnell — is targeting early-stage, climate tech startups through a new fund led by energy transition guru and futurist Shayle Kann.
The Deep Decarbonization Frontier Fund has already received commitments of more than $200 million on its way to $350 million, according to a press release issued by EIP last week. "We are looking for audacious entrepreneurs taking big swings at big problems in climate tech," wrote Kann. "Over the last six years, we have built an ecosystem and process to drive innovation in massive, mature and technically complex industries; nowhere is this skillset needed more than the drive toward deep carbonization."
For the purposes of this fund, Kann’s thesis for "deep decarbonization" centers on five goals, outlined in an interview with the Climate Tech VC newsletter. (Quoting these verbatim.)
- Achieve low-cost, abundant, reliable, ubiquitous zero-carbon electricity
- Tackle the biggest industrial emitters
- Solve transportation
- Build a carbon management industry from near-scratch
- Decarbonize Maslow’s basic needs
No pressure, right? This is actually a refined version of the "grand challenges of deep decarbonization" list that Kann, a long-time market analyst who built the Greentech Media Research division, published last fall. Aside from Kann, the fund recently added three new team members: Investment Partner Ashwin Shashindranath (previously with financial services firm Macquarie), Director of Technology Gregory Thiel (formerly with ARPA-E) and Chief Technology Officer Michael E. Webber (former CTO and CSO of Engie).
The Frontier Fund actually made its first investment "more than a year ago" in a battery technology startup in Somerville, Massachusetts, Form Energy, which is working on multi-day energy storage for the electricity grid. Other startups that have already received investments by the fund include: Electric Hydrogen, working on renewable-powered hydrogen production; Nitricity, developing zero-emissions nitrogen fertilizer; Carbon America, a point source carbon capture play; Zap Energy, an "economic" nuclear fusion play; Sublime Systems, a zero-carbon cement manufacturer; and Boston Metal, which processes steel from "electricity, not coal."
If you’re keeping score, you’ll notice that the fund’s disclosed list doesn’t currently include anything to do with transportation and mobility. In the Climate Tech VC interview, Kann talks up the need to get over some of the biggest barriers to electrification: range; charge time; user experience; and minerals shortages. He’s also thinking about "mode-changing" innovations. Some questions to ponder, he suggests: "Should we ship goods over oceans via smaller hydrofoils? Should we replace coastal trips with electric sea planes? Can we re-engineer cargo logistics to minimize truck miles? Are eVTOLS a realistic climate solution?" (That last acronym is shorthand for electric vertical takeoff and landing. Yeah, I know.)
Consult your Magic 8-Ball
What else are climate tech investors pondering for the year ahead? That was the convening force for a thought-provoking webcast last week hosted by nonprofit climate tech investor Evergreen Climate Innovations, formerly Clean Energy Trust.
The session included Kann, Evergreen Managing Director Paul Seidler, Azolla Ventures General Partner Johanna Wolfson and Urban Us Partner Shilpi Kumar. The host made a big show of advising viewers not to make investment decisions based on the commentary, but a number of themes really resonated with me.
- SPACs face a comeuppance. Kann pointed out that of the several dozen startups that used special purpose acquisitions corporations to make an initial public offering, last week there were just six trading above $10 per share (a typical price for many of these offerings). There are still quite a few SPACs hunting for potential transactions — and there will be a second wave as those "licenses to hunt" expire after two years. Generally speaking, by the way, climate tech stocks haven’t fared well during the recent sell-off. An EIP index that tracks about 40 high-profile companies is off 13 percent since the beginning of the year.
- Watch this space. Where will all those general funds and private equity funds that jumped into climate tech last year put their money? There needs to be more focus on backing early-stage "hard tech" rather than the capital-light investments that those funds typically favor, suggests Wolfson. Azolla, created by Prime Coalition, is focused on catalytic investments that require patience over the long term. Many of its investments are focused on pioneering new materials, such as Lilac Solutions, Twelve and Mallina.
- Expect a wave of excitement linking Web 3.0 and climate tech. Remember all those blockchain energy ventures from a few years back? Get ready for another wave of activity at the intersection between climate tech ventures and emerging expressions of the web focused on creating more decentralized versions of applications where people have more control over their own data. This could be particularly important for the rise of carbon markets, which rely on trusted information to work effectively. It seems a longshot at this moment, but given how important digitalization will be for the internal corporate adoption of carbon accounting and management, something’s gotta give and I’m sure my inbox is about to be flooded with news of crypto and non-fungible tokens (NFTs).
- We’re living in a material world. One thread weaving throughout the discussion — mentioned by all of the investors — was about the potential impact of ventures focused on decarbonizing materials and resource extraction, processes that are at the center of every industrial decarbonization challenge. "The highest impact climate-related sector is not energy or EVs or decarbonized aviation, it is advanced materials," observed Seidler.
I’m not an investor, so I won’t use that prediction in any kind of financial way but I wholeheartedly agree with that assessment and it will definitely inform my coverage. Where are you betting in 2022? Share your ideas via email to [email protected].
Editor's note: This article was updated to clarify the positioning of Evergreen.