The software investing journey is much easier and simpler than the climate tech journey, says Ted Persson, partner at EQT’s venture capital fund, EQT Venture. “In software, if you’re a founder, you basically meet an investor, do your pitch, get a term sheet and then shake hands.”
The climate tech journey, however, is “way more complex”, says Persson to McKinsey executives at the Green Business Building Summit in Stockholm. “There are many more stakeholders: there’s the founder and the equity investor, of course, but also the universities where the intellectual property might have originated, supply partners, regulators, grant providers, debt providers, project funders and offtakers.”
According to McKinsey’s estimates, a successful transition to net zero will require the creation of 1,000 unicorns — start-ups valued at US$1 billion ($1.3 billion) or more — and 300 decacorns — start-ups valued at US$10 billion or more — in the climate tech space by 2030.
Despite this strong demand, the path for climate tech founders is anything but smooth. Persson was among a group of venture capitalists who — with help from McKinsey — studied the trajectories of 3,000 climate tech start-ups from 2020 and conducted more than 100 interviews with a diverse range of stakeholders.
Fundraising is a dance, says Sandra Malmberg, also a partner at EQT Ventures. This jig is particularly challenging for founders in the “relatively new” climate tech space, she adds, where it can take “months” to find the right match between an investor and a founder.
Malmberg says she meets “maybe three or four founders a day”. “Some of the smartest, most brilliant brains in the world are working on climate technologies, but they spend so much time trying to understand what they need to deliver on in order to unlock financing.”
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She adds: “We thought: ‘What if we could help companies save time on fundraising, so they can shift that time toward scaling their business instead?’ That’s why we created The Climate Brick, providing what we call ‘the missing manual’ to scale climate technologies.”
The Climate Brick is a fundraising and scaling playbook for climate tech companies, built on the venture capitalists’ interactions with stakeholders. According to Persson, The Climate Brick is inspired by the SaaS Funding Napkin, an annual resource that describes funding milestones for software companies.
Seven ‘bricks’
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The authors have charted seven “distinct scaling and fundraising journeys”, based on companies’ speed to scale, risk profile, capital sources, sustainable impact and other dimensions.
Each of the seven journeys is a “brick” in the manual, says Persson. “We call it The Climate Brick because we like the notion of these bricks being the bricks that build up the future, in a way. Each brick specifies financial, commercial and product dimensions, but it also gives insight into the technology milestones, value chain milestones and execution milestones a start-up would need in order to fundraise and scale.”
Within each brick, founders can find three “critical unlocks”, which are the most important things to get right in connection to that particular journey, says Persson.
Each brick also comes with a “pioneer case”, and Persson hopes to collect more of such case studies “so that we have several per brick”.
For example, one brick is called “Gigascaling”. It describes the journey of a company that builds capital-intensive, large-scale plants for green production, says Rokas Peciulaitis, founder of Contrarian Ventures and one of the creators of the manual. “The three critical unlocks for that kind of company are a clear roadmap to cost competitiveness, the ability to execute seamlessly and scale rapidly, and committed offtakes.”
Another brick is “Moonshot”, or a company that works with “highly novel technologies”. “This type of company needs to prioritise ensuring grants and public funding, reaching and proving technological readiness through heavy R&D investment, and locking in commercial partners and customers early on.”
Across all seven journeys, however, some lessons are universal. Peciulaitis says all clean tech founders should understand their capital stack and consider non-dilutive finance early in the financing journey. “This can change your company’s trajectory. It also affects the type of talent you require. For instance, due to the complexity of a climate tech company’s capital stack… you need a highly experienced CFO with a strong understanding of financial structuring.”
Another insight is that climate tech companies need to unite stakeholders, foster knowledge-sharing and collaborate “much more” than companies in other sectors, adds Peciulaitis.
“In the world of software, there is an element of ‘it’s us against the world’. By comparison, the climate tech space requires a more collaborative approach. It’s not so much a question of ‘move fast and break things’, but rather, it’s ‘move fast and fix things — together’.”
Read more at www.climatebrick.com
