2021 Could be Climate Tech’s Biggest Year: Four Areas to Watch

By Kyra Durko on January 13, 2021

With record breaking wildfires, hurricane seasons, and extreme weather becoming increasingly common and destructive, it’s clear we can’t rely on public policy alone to fight climate change. The COVID-19 pandemic has given us a glimpse of the scale of change we need to implement to reach our C02 emissions goals, and it paints a bleak picture that underscores the need for climate tech innovation. 

Travel and manufacturing came to a standstill in March, and as a result C02 emissions are expected to drop by 7% this year. But to put that in perspective, global emissions need to fall by about 7.6% every year this decade to hit the global target of limiting warming to less than 1.5 degrees Celsius above pre-industrial temperatures. Simply reducing carbon emissions is no longer enough. 

Not surprisingly, a new class of climate tech startups have emerged, experimenting with everything from pulling carbon dioxide out of the air to building carbon-negative manufacturing. But these companies need funding, and a lot of it, to have an impact. Many venture capitalists are still sore from losses from the not-so-profitable cleantech boom of the late 2000s. VCs poured money into renewables, batteries, and biofuels — areas that face deep scalability challenges, are capital intensive, and have a longer time horizon than the software companies in which VCs more traditionally invest. As a result, venture firms lost over half of the $25 billion they invested in cleantech from 2006 to 2011. 

With another decade of scientific innovation, a fresh political agenda in the United States, and the lessons from the last cleantech boom, we believe there are compelling areas of opportunity for venture capitalists in climate tech. We have seen an abundance of companies that look very different from those founded in the first cleantech boom- that is, software and data enabled companies. Looking ahead, the following are some specific areas where our team at Two Sigma Ventures sees opportunities with the potential to move our world in the right direction.

Platforms enabling sustainable creation and consumption of materials

Consumables today, from food to clothing to cars, are often harmful to the environment or produced in emission-intensive ways. A handful of new approaches, from carbon utilization in the manufacturing process to marketplaces to help upcycle materials, are starting to take off. Replenysh, a software to connect brands, recycling centers, and collectors to power the entire supply chain for recovered materials, for example, recently raised a $2M seed from Kindred Ventures. DCVC-backed Opus12 is enabling manufacturers to reduce their carbon footprints by transforming their CO2 emissions into inputs for the products they produce.

Companies leveraging synthetic biology and nature to create a greener world

Synthetic biology is increasingly being applied to climate solutions, such as carbon sequestration methods and the production of novel, greener materials. CRV and Spark Capital-backed Wild Type is aiming to grow the world’s most sustainable meat and fish, while C16 Biosciences is tackling a $61B market with funding from Breakthrough Energy Ventures to brew a palm oil alternative from microbes.

Data layers to power climate-conscious solutions

As the grid continues to become more digitized, climate events become more complex, and companies begin to track their environmental impact, there is an increasing opportunity for climate data infrastructure. These types of companies could redesign core parts of our workforce, such as insurance and corporate accounting. For example, companies like Kettle and Froglabs use machine learning to predict how climate change will impact things like business performance and risk management. Part of Y Combinator’s most recent batch, Seam created an API to easily assess buildings. It integrates with dozens of providers, such as thermostats, sensors and smart locks, with the mission of enabling companies to make buildings more environmentally-friendly. 

Software to enable consumers and companies to use renewable energy 

There are a handful of consumer and enterprise-focused software companies that make renewable energy understandable and accessible. This includes companies helping manage supply and demand on our power grid and software to actually purchase renewable energy. A team of ex-Stripe employees who launched their climate program are building tools at Watershed to help other companies do the same, while Swedish GGV-backed startup ClimateView built planning and execution software to help cities manage their transition to becoming carbon neutral. 

Of course, VC investment alone cannot lift up the climate tech industry. We need more non-dilutive funding to support early-stage R&D in critical technologies like carbon capture and storage, a more comprehensive political agenda to financially enable industry leaders to take action, and more corporations to invest in sustainability initiatives that may take longer to pay off than they would like. Every single business has a role to play, and only then can we hope to manage our heating planet.

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