22 October 2022 |

Niche climate venture funds


Previously, I wrote

…I also anticipate more niche venture funds to crop up… Last week we saw Convective Capital raise a $35M fund specifically for wildfire management and mitigation start-ups. Expect to see a lot more granular focus from funds… there will be no shortage of opportunity.

Turns out it didn’t take long for more niche climate tech venture capital funds to announce themselves. Here’s the first part of the news: Propeller — led by Brian Halligan, the co-founder and executive chair of HubSpot — announced a new $100M fund for companies innovating climate tech solutions in the ocean. 

The water’s warm

Propeller’s is a first-of-its-kind climate tech fund, as far as I know, namely one exclusively focused on ocean-based climate solutions. We’ve written about a few in the carbon removal realm, including Running Tide and Planetary Technologies. But opportunities to drive climate action in the ocean extend far beyond that, almost as endlessly as the ocean itself. 

Within carbon removal, there’s also the entire blue carbon focus area, which refers to restoring and expanding coastal ecosystems such as mangrove forests. And outside carbon removal, there are countless other opportunities; whether you’re into generating energy via tides or decarbonizing maritime shipping, the ocean meets climate tech space has something for you.

Mangroves on the edge of the ocean in the Seychelles (photo by Dan Maisey)

As part of Propeller’s press release, their team identified ocean-based climate techs as a significant opportunity and as an underfunded area, hence the impetus for their fund. The fund will also work with the Woods Hole Oceanographic Institution (WHOI), a research group that will help portfolio companies with research, IP licensing, etc…

For more details, I’ve posed a few questions to the team. We’ll see if we can publish those on Sunday. I’m stoked to see what firms Propeller backs. The ocean is already one of the world’s #1 defenses against climate change. It’s time we help it out instead of pummeling it with carbon

The fusion and the fury 

One new niche fund not enough to corroborate my thesis? In other news yesterday, Lowercarbon Capital announced it raised a $250M fund to invest exclusively in nuclear fusion start-ups. While Lowercarbon invests across many different areas of climate tech, this is the second fund they’ve raised dedicated to one specific, narrow vertical (earlier this year, they raised a $350M fund to invest in carbon removal companies).

An old joke about nuclear fusion quips that the technology is always 20 years away from viability. In recent years, however, billions of dollars have poured into companies that hope that’s no longer the case. Additionally, researchers have made some concrete strides; a couple of labs worldwide dedicated to nuclear fusion research have created (very short and small) energy-positive, (momentarily) self-sustaining nuclear fusion reactions. That’s a big step towards using fusion to reliably generate electricity.

Nuclear fusion is the force that powers our Sun (photo credit to Lenstravelier)

Fusion is a holy grail of sorts in some folks’ eyes; it’s the process that powers the sun and, if harnessable on Earth, could provide massive amounts of electricity. However, as I wrote in my last email about solar power, there’s no silver bullet for climate change. Even if fusion works someday, all the other constraints on electricity that apply to other fuel sources will still hold for fusion, including energy storagetransmission, and more. 

Lowercarbon’s note on its new fund does a good job of describing fusion’s potential role in the world. It’s not going to replace all other fuel sources. But it could be an excellent complement to meet growing electricity demands as industry and transportation increasingly rely on electricity rather than fossil fuels and as more developing countries expand electricity access. 

The real holy grail of energy is a concert of low-carbon fuel sources working together harmoniously. Suppose we ever get to a point where we have more than enough energy (hard to imagine considering current geopolitics). If we do, we get to do all kinds of fun stuff, whether engineered carbon removal, desalination, or anything else that floats your fancy. 

Alright, I’m just daydreaming. Back to the here and now. The most well-funded fusion startups include: 

To be sure, grid-connected fusion energy is probably still a feat we’ll be waiting for until next decade (at least). In the interim, it’ll be interesting to see whether Lowercarbon identifies promising ecosystem-level bets to make. These companies will be able to make money before fusion ever generates a grid-connected volt. 

Said differently, not every relevant fusion firm will build the reactors. There are probably opportunities for firms to specialize (i.e., go more narrow themselves) and provide upstream and / or downstream services to the companies listed above that are building fusion reactors. For instance, building walls for nuclear fusion reactors (fusion reactions require heat exceeding 100,000,000° F). 

The net-net

I’m pleased that my mini-thesis on more niche funds has been borne out swiftly, and I expect these new funds to be the first of many to come. If you want to join me in guessing which climate tech areas will soon have dedicated, niche funds, just pick your favorite tech area. I bet the funds are coming.

Funds going more narrow and niche also signals more maturity for the climate tech industry. Five years ago you could raise a general ‘climate tech’ venture fund and be a contrarian. Not so much anymore.  

That’s good news if you’re a founder or operator. The more investors you have access to who have taken the time to understand the ins and outs of what you’re doing (or dedicated their career to the same thing), the better. And when founders building climate tech firms do better, that’s a win for the Earth. 

So, who’s launching a fund for climate tech media firms? Call me.