Venture Bytes #101: VCs Double Down on Carbon Tech Startups

VCs Double Down on Carbon Tech Startups

As the world confronts the escalating consequences of climate change, the imperative for innovative solutions intensifies. In 2022, global CO2 emissions reached a record 37.49 billion tons, up 1% from 37.12 billion tons in 2021, as reported by Statista. This uptrend in emissions occurs despite the increased adoption of clean energy technologies, highlighting the gap between current measures and the emission targets for environmental sustainability.

Currently, traditional carbon removal measures such as land management and forestation remain predominant. Overall, 2 billion tons of carbon dioxide is removed from the atmosphere every year, according to a report from the University of Oxford. However, the technology-based, novel carbon removal methods account for only 0.1% of it.

The prominence of tech-driven carbon start-ups is surging within the broader climate tech space, where innovation will not only shape environmental outcomes but also drive the next wave of economic growth in the green technology sector. The US has committed to use technology to remove 300-500 million tons of CO2 per year by 2050, according to the US Department of State. Additionally, the EU’s ‘Fit for 55’ initiative targets 225 million tons of CO2 removal by 2030. Further, an estimated 1,300-fold increase in carbon dioxide removal via emerging technologies is required to maintain global temperature rise well below 2° Celsius, alongside a doubling of natural sequestration, by 2050. These numbers underscore a burgeoning market demand and significant market opportunity for carbon capture startups.

VCs are answering the call, with 3Q23 marking a historic surge in investment in carbon and emissions tech, culminating in $7.6 billion in deal value across 219 deals—the highest on record, per Pitchbook. The funding soared 120% quarter-overquarter and 110% year-over-year. This financial infusion is a testament to the burgeoning confidence in their capacity to deliver scalable and efficacious solutions.

Various startups have emerged as a lucrative investment opportunity in the carbon capture and storage space. Svante, a Canadian carbon capture startup, recently partnered with Samsung Engineering for CCS projects in Asia and the Middle East, setting the stage for sustained revenue growth. Swiss start-up Climeworks, a pioneer in direct air capture and CO2 removal, caters to clients including Microsoft, BCG, Swiss Re, Shopify, UBS, Stripe, Zendesk, JP Morgan Chase & Co, and Accenture, among others. In addition to start-ups in the core carbon capture space, companies in carbon accounting and analytics also stand to benefit from the surging demand. California-based Watershed helps companies measure, reduce, and offset their carbon emissions. The company raised a Series B round in February 2022 at a valuation of $1 billion. Persefoni, which raised its Series C round in August 2023, is a leader in carbon management and accounting. Based in Arizona, the startup specializes in providing asset managers, banks, and other financial institutions with precise calculations of their financed emissions footprint. It boasts a notable client roster, including four of the top ten global Private Equity firms and four of the twenty largest banks in the world. Beyond the financial sector, the company also services a diverse range of corporate clients from industries such as manufacturing, agriculture, energy, apparel, retail, software, and business services.

Government regulation such as the Inflation Reduction Act (IRA) has also started to pay off for these start-ups. For example, Carbon America, which is building two commercial CCS projects in Colorado, has received government funds under a $6 billion Industrial Demonstrations Program. Post-IRA, various new projects have been announced with a combined carbon removal capacity of ~1,800 metric tons. Further, data from Rhodium Group anticipates that the IRA will significantly bolster the US carbon capture and direct air capture infrastructure. The firm projects a 35-40% increase in installed capacity by 2030, which would represent an uptick to 100-103 million metric tons, as compared to 74 million metric tons without the IRA’s influence.

Autonomous Mobility Proliferates Beyond Passenger Transport

The pursuit of self-driving technology has been fraught with optimism and setbacks. Industry giants like General Motors, Google’s Waymo, Toyota, Honda, and Tesla set aggressive timelines for rolling out passenger autonomous vehicles—with aims as early as 2018— yet the reality has unfolded differently. As of now, consumers have access to semi-autonomous vehicles featuring advanced safety mechanisms, but the fully autonomous, Level 5 dream remains on the horizon.

However, just as the space race led to the development of scratch proof lenses, foil thermal blankets, invisible braces, and innovations like the dust buster, the intensive research and technological progress within the self-driving space has catalyzed the emergence of a robust autonomous mobility technology with multiple use cases. The deployment of autonomous mobility technology spans diverse settings, encompassing mines, military operations, medical facilities, warehouses, industrial complexes, airports, educational institutions, residential areas, and hospitality. The regulatory landscape is more permissive for cargo transport, given the lower risks compared to human transportation, facilitating a smoother path to commercialization. Evidently, the early stages of large-scale commercialization can already be witnessed, exemplified by the recent launch of the first commercial autonomous trucking route between Houston and Oklahoma City by Maersk and Kodiak Robotics in October 2023

Considering the versatile applications of autonomous mobility technology, start-ups with formidable technological foundations in autonomous mobility stand poised to attain significant value in the near future. An exemplary case is Nuro, a California based delivery robot startup, which has already demonstrated its success by serving prominent clientele such as Uber Eats, Kroger, 7-Eleven, Domino’s, and more. Furthermore, Ava Robotics, a Massachusetts-based robotics firm, has harnessed autonomous mobility technology to offer a range of solutions, including remote

collaboration, security surveillance, telemedicine services, and client engagement, positioning itself as a key player in this evolving sector. Additionally, Starship Technologies, a California-based startup in robot manufacturing, specializes in the development of a fleet of self-driving robots tailored for the delivery of goods within various campus environments, highlighting the considerable growth potential of the technology.

The integration of autonomous mobility technology in various use cases holds the potential to unlock significant opportunities, including round-the-clock productivity enhancements and heightened operational efficiency. Moreover, the reduction of human labor involvement stands to reduce expenses by mitigating the risks associated with accidents, errors, and rework. This, in turn, allows human resources to redirect their efforts toward strategic endeavors that remain resistant to automation. Furthermore, the widespread adoption of autonomous mobility technology will facilitate the formulation of actionable insights through the collection and analysis of machine-generated data.

The macroeconomic dynamics are also aligning to propel the adoption of autonomous mobility technology. Reports from the World Economic Forum (WEF) and the United Nations highlight the surge in global population and urbanization, which will intensify urban density and traffic congestion. WEF projects the global population to reach 8.5 billion by 2030, with a substantial 60% residing in urban centers.

Concurrently, the United Nations underscores the ongoing trend of escalating urbanization, with the global urban proportion expected to increase from roughly one-third in 1950 to nearly two-thirds by 2050. This increasing urbanization coupled with the growing adoption of eCommerce is anticipated to exacerbate traffic congestion, further accentuating the need for autonomous mobility solutions. In tandem, the anticipated shortfall in healthcare workers as reported by the World Health Organization (WHO) underscores the critical role autonomous technology can play in healthcare logistics. WHO predicts a shortfall of 18 million healthcare workers by 2030. Autonomous mobile robots are emerging as a plausible solution to the transfer of medication and medical supplies, helping to maintain safe environments and freeing up staff to spend more time with patients.

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