Innovators, entrepreneurs, investors, in fact, anyone serious about the business of climate, listen up! In this episode, host Bill Nussey catches up with Kim Zou and Sophie Purdom, the founders of Climate Tech Venture Capital, which, in just two short years, has become one of the world’s leading sources for data driven analysis and insights into the world of climate venture investing. This brilliant and dynamic duo gives us an insider’s peek into their clear-eyed and data-rich analysis of venture capital in the climate tech industry for the first half of 2022. Zou and Purdom share which verticals and sectors are leading and which are lagging, where the money may be headed and a fun look at how the pair built a globally recognized firm from the ground up. If you are serious about climate technology, you need to follow CTVC… and this is a great way to get started!
Here are some of the highlights from their discussion…
“So headline numbers: climate tech startups raise 18.6 billion in the first half of 2022 across 477 venture deals. That funding number represents a 21% decline compared to the second half of 2021, but the 477 deals number actually represents… a 36% increase [in total deal count] compared to that second half of 2021.”
“At the start of 2020 … a lot of people started waking up to the fact that climate isn’t just climate change. It isn’t just [that] the world is ending. It’s actually a real opportunity where you can do good in the world, but you can also make a lot of money. There’s a lot of exciting technology challenges to solve here. There’s a lot of exciting investments to make here. So I think being able to turn that climate conversation on its head from the science of it and “the world is ending” aspect of it to a financial and technology opportunity… this is what gets people so excited about climate tech.”
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CTVC First-Half 2022 Climate Tech Venture Report
Full Transcript
Bill Nussey:
Well, hello and welcome to everybody in the freeing energy community, happy summer. Hope everyone is surviving the crazy heat that’s blanketing the US and the world. And we’re going to do our little part today as we always try to do to make a dent in that universe and see if we can’t make the world a solely better place by bringing innovation and incredibly inspiring people to talk with us and what they’re doing to make the world a better place through plain energy and local energy.
Our guests today, we actually have two guests today, are in incredible storytellers, data providers who have become quite well known and deeply respected in this industry in the last couple of years. I’ve wanted to have them on the podcast for a while and it turns out that they’ve got some new information to share with all of us, particularly our entrepreneurs and innovators and investors in this audience.
I am super excited to introduce you to Sophie Purdom, who’s out of New York and Kim Zou out of San Francisco, the dynamic co-founders of Climate Tech VC, who in just a couple of years has emerged as one of the world’s leading sources of data driven analysis and insights along with some really great storytelling surrounding the world of climate technology and the money being poured into it. They are the founders of what most of you have heard of as CTVC. Welcome Sophie and Kim. Great to have you today.
Sophie Purdom:
Excited to be here. Thanks for having us.
Bill Nussey:
Well, as you probably know, we’d love to start with personal backgrounds. How did you get here? What’s your story? What motivates you? What motivated you to be in this industry? Of course, with two of you, we could flip a coin and see who goes first, or we could ask you to develop one of those sophisticated data models that you have, but I say let’s just jump into New York and start with Sophie. So Sophie, you’re an author, a teacher, you started an AgTech company. You describe yourself as a sustainable business practitioner and investor, but your journey started in England in a 250 year old attached cottage, with days running around fields and hay bales.
Then your family moved to Massachusetts, and at the age of 13, you had your first taste of business when you helped your family started eCommerce company. As part of that, you developed a philanthropic offshoot that donates 100% of the net profits to support grassroots environmental education. Wow, so I can’t say I’ve met many people with a story like that, particularly one that started at 13 years old. So what was the inspiration for all this?
Sophie Purdom:
Quite the throwback, hearing it all laid out that, huh? That you even got the thatched cottage part in there. So well done, sleuthing. What’s the inspiration? What’s the start for all of this? There’s so many different ways to tell that story. I think for me, literally grew up in nature. So very rural England and you get a sense of, I don’t know, how the seasons work and I have a deep love for animals.
But I don’t live in the country anymore. I’m here in Manhattan and I’m an adult. So I don’t go find snails and turn over leaves that every day. For me, climate has evolved and matured along with my personal growth and journey as well. So said another way, this has been a reinforcing path in which as I have impact and I get to pursue my passions, then feel very fortunate that that’s led to professional success and growth opportunities as well. So it’s really quite reinforcing, and I feel lucky that got to jump on that early climate train as it was leaving the station.
Bill Nussey:
Sam, our producer, is fantastic at finding stories about people that give you insights into what they do when they’re not on podcasts. And one of the things he found was that you’re pretty handy with the kilowatt meter. What’s the story there?
Sophie Purdom:
Sure. Yeah, another throwback. Let’s see, the handy kilowatt meter. This is a device for folks that have maybe never heard of this nerdy thing before, that you plug it into the wall or into an appliance that’s drawing electrical load and it tells you what the load is at any point in time.
Bill Nussey:
I have two of them.
Sophie Purdom:
You have two of them?
Bill Nussey:
I do.
Sophie Purdom:
Of course you do. Amazing. We’ll have to do a poll of the folks that end up listening to this and see if anybody else in the audience has a kilowatt meter. But this handy little thing quite literally helped connect me into the climate ecosystem. So again, you plug it into the wall or the appliance and it tells you the draw, but it also tells you this thing called the phantom load, which is a clever name for whoever came up with that. Turns out that appliances often draw energy from the grid when they’re not in use and net net, that’s a waste and pretty inefficient.
Sophie Purdom:
So I was given one of these things in high school by a highly engaged woman that was getting involved with the environmental science single course that was offered at my wonderful public school. And we became friends as a result. And then we got a whole bunch more of these devices and we got a whole bunch of students and we created this energy gang, which then led into … Clearly branding is my forte, right?
That led to a whole initiative that after a couple years ended up saving enough energy just through behavioral changes and practices that resulted in enough savings to hire a couple new folks on staff at the school. So being able to convert the kilowatt meter and the phantom load savings all the way through to connecting the climate impact to what really matters, in this case at school, that for sure is the budget and bottom line and making sure there’s more resources to run the whole system really well.
That was a big lesson for me of maybe I care about CO2 atoms in the sky, getting those molecules out of there. Well, that’s not what motivates most other folks. Jobs do, and money does, and figuring out how to communicate climate and bring it back to the language that folks are native in.
Bill Nussey:
I love it. I love it. Let’s go over to San Francisco and talk to your colleague, partner, and friend Kim. She cut her teeth in California at the intersection of environment and finance in high school. And at John Hopkins where she earned her degree, Kim started an environmental club in high school and then honed her skills as part of the John Hopkins student-run venture fund, A-Level Capital, where she and her colleagues sourced deals, talked to founders, and ran their own due diligence in college. Kim did her first venture capital too when she was a sophomore in college. What inspired you, this interest in climate and the environment, so early in your life or your career?
Kim Zou:
That’s a good question. I feel similar to Sophie, it’s always been something I’ve been pretty cognizant about, to remember my mom used to take my sister and I to the local conservatory and things that. But I do remember a moment, and I don’t know if this was a climate reason or if this was a more selfish reason. It was 2010 or 2011, and I remember hearing that the world was ending in 2012 because of the ancient Mayan prophecy and that there’s going to be all these earthquakes and hurricanes and tsunamis, and the world was going to end. And I watched the documentary, went to bed, and I was terrified, had nightmares. And 2012 came about, the world didn’t end. And I was like, thank God.
But then a few months later, I think Obama was President at the time, and he was talking about climate change. And it just brought back all these memories of 2012 world ending. And I was like, wait, this is real. This isn’t a ancient Mayan prophecy. These things are going to happen. It’s not going to happen in one year, but it’ll happen over the course of all of our lifetimes. That’s terrifying and that same fear arose. So yeah, maybe that was what sparked the climate interest, was just fear of the world ending, but also realizing there’s a lot of positivity here too. Not only are we trying to save ourselves on the fear side of the spectrum, but also we should be doing this. We should be doing good for the world. We should be doing good for climate since it’s our home, our one and only home.
I think that was the evolution of it all. And then when I got to university, knew I wanted to work in this space, but I think at the time clean tech had burst a few years ago. I remember talking to a clean tech investment banker or something that was an alumni, and I was like, “I want to go into your space. It sounds so cool.” And he was like, “Don’t come in here. There’s just me. There’s no one else here. Either do traditional energy or do technology or something else.” So I ended up starting off more on the technology route, which is how I ended up here in California.
Bill Nussey:
So let’s talk a little bit about some of your early getting your feet wet in this. Can you tell us about that first deal you did when you were in a sophomore at college? That’s really, really crazy. And is it a unicorn public IPO yet?
Kim Zou:
Yeah, I know, my one exit when I was in college, exciting times, it was this company called Osmosis. As you all know, Johns Hopkins, very well known for its public health and medical school. And this company Osmosis was really interesting, because the thesis with A level as we invested in any Hopkins affiliated company, whether they’re alumni or current students.
So I sourced this company. It was two medical students at Johns Hopkins who I think they had just left medical school to build this company, which is so inspiring. Because after going through all the things to get into medical school and you up and leave, that’s super, super inspiring. So they built this platform called Osmosis, which is almost like a Kaplan eLearning platform specifically for healthcare and medical professionals.
Bill Nussey:
Great name, too.
Kim Zou:
Yeah. The idea is to build a bunch of, I think it was like, if you remember Quizlet, these flashcards, because there’s so much memorization in medical school and being able to generate these recurring alerts to continue to memorize and learn these terms. And then what was really interesting about the platform was after you graduated from school, you actually continue to stay on the platform. So it’s really sticky because in the medical profession, every few years or something you have to relearn some of the curriculum because you’re constantly trying to stay up to date on what’s the latest in the medical field. So they’re able to retain a lot of those existing students on the platform as they grew into doctors and nurses and things that. And then they ended up getting acquired by some new learning platform.
Bill Nussey:
That’s impressive for your first deal.
Kim Zou:
Elsevier, I don’t know.
Bill Nussey:
Elsevier. Elsevier, yes.
Kim Zou:
Oh okay, there we go.
Bill Nussey:
It’s one of the largest publishing companies in the world and-
Kim Zou:
Oh, okay. There we go.
Bill Nussey:
That’s a great place to exit. So clearly you had an early knack-
Kim Zou:
It wasn’t me. It was them, but …
Bill Nussey:
Early knack for venture fundable companies. Well, one of the things that I really love about the perspectives that you both are bringing through your work at CTVC, and it really resonates with me personally, is the fact that climate is both an incredibly important cause, something that may be the most important cause we face as humans today, but the solution is something that requires recognition and almost an embracing of the economics.
Bill Nussey:
And fortunately, the economics are completely on the side, over the long term, at least, on the side of cleaning the planet and removing CO2 from the atmosphere. But we’re in that transition period today where there’s a lot of confusion around it. And you once said that, which I think is great, a lot of environmentalists don’t accept the reality of the world we live in today, which is at the end of the day, the society is governed by capitalism.
Bill Nussey:
What’s your story? What’s your perspective on the role of capitalism and environmentalism? How do you tie those together, Kim, when you’re explaining to people who think that maybe this is just something that the government should wave their hands at and fix?
Kim Zou:
Yeah, I think I came to that realization relatively early on. Look, don’t get me wrong. I love climate. It’s going to be the space I work in and the rest of my life. But I also like making money. I did do investment banking after all. So not a total angel over here, but early on was not battling, but balancing this dichotomy of wanting to make money and wanting to have a successful career, but also wanting to do good in climate. And at the time there really didn’t exist that intersection. So I remember early on taking a class on sustainable finance, which they had a few practitioners come in, folks from Hannon Armstrong and Sirius and things that.
Kim Zou:
And it made me realize there is something here. There’s this intersection of where sustainability meets finance and it was still sort of an emerging field, still very, very niche. A lot of people I talked to, I was part of an environmental club and the venture thing and everyone, just very different groups of people, I would say, who are part of those organizations. And the other side didn’t really understand each other.
Kim Zou:
But I think taking that course and digging more into the world of finance and business realized the only way we can really make long lasting sustainable change within climate is if you’re the one controlling how capital gets deployed or you’re the one informing how capital gets deployed.
Bill Nussey:
Well said.
Kim Zou:
So yeah, went down that path, but came over here to California, worked in investment banking at JP Morgan, focused specifically on technology companies, but during my free time actually was just monitoring what was going on in this intersection of climate and tech, especially given how you’re entrenched in technology in Silicon valley. And that was really the start of CTVC, was just in my free time was just seeing all these deals in energy and food and ag and transportation that all related to climate and sharing it through a newsletter.
Kim Zou:
Turns out at the start of 2020, I think maybe given where we were at the pandemic as well, a lot of people started waking up to the fact that climate change isn’t just the world is ending, but it’s actually a real opportunity here where you can do good in the world, but you can also make a lot of money. And there’s a lot of exciting technology challenges to solve here, there’s a lot of exciting investments to make here. So I think being able to turn that climate conversation on its head from the science of it, the world is ending aspect of it, to financial and technology opportunity, is what gets people so excited now about climate tech, CTVC and all that.
Bill Nussey:
I love origin stories. So can you share a little bit about move to San Francisco? How did you two connect, what made the launch of this thing happen? There’s a lot of people that want to start companies listening in, so how did you guys birth this amazing newsletter and data set that you are now so well known for?
Kim Zou:
At the start of 2020 in my free time started tracking what was going on in the space, sharing it through CTVC, the newsletter. And the company I was working for, their compliance team found out. And let’s just say some companies don’t like it when you write blogs or publications. They told me to shut it down and at the time I was like, “This is the one thing that I get really excited about. Please don’t take this away from me.” I had this professor, Cary Krosinsky, he’s a professor of sustainable finance at Yale and Brown and NYU and all these places. And when I was starting a sustainable investing fund at the end of Hopkins, got connected with him.
Kim Zou:
He was a mentor to me and talked to him about the situation. And he said, “You should meet Sophie. She’s incredible, helped start Brown Sustainable Investing Fund, and just would be a great person to know and talk to, and maybe she’d be willing to jump in here.” So I reached out to Sophie and we had a great, incredible conversation. Obviously you hear Sophie today and she’s just such a phenomenal person. I think we talked for an hour or two hours the first time we met. And I was like, “I would love to.” I thought our, our two skill sets with her, especially being on the operator side, would really take this to the next level. And so I’ll pass it over to Sophie.
Sophie Purdom:
That was so well described. I can’t actually remember the last time we did the long form version of that. So not much more to add other than shout out to like, Kim’s amazing for many different reasons. One is she just has an idea and executes on it. A lot of people have ideas all of the time, but they talk about it and they whine about it, or they think about it, but Kim just goes and does it, over and over again.
Sophie Purdom:
So kudos always to her for getting this thing off the ground and then appreciation to there’s many folks that play connector roles in climate in particular. And I don’t think they get enough credit, because back to the point about climate being so interdisciplinary and intersectional, we really need those people that are able to bridge the network gaps.
Sophie Purdom:
One of my very close friends and collaborators on many a project and hopefully for the rest of our careers, is Cary Krosinsky, who put us in touch. He’s a prolific ESG expert and long time participant in this ecosystem. He knows basically everybody at the big banks and financial institutions and he also pays it forward by teaching … We’ll have to fact check this with him, but some ridiculous amount of courses per semester at lots of preeminent institutions. I think he teaches eight courses per semester at Yale and Brown and I guess maybe Hopkins and in China and all NYU. He’s onboarded so many young people into this space before it was cool. Now it’s very cool. And so yeah, maybe just in the side of that talent pipeline is incredibly strong and continues to pay dividends.
Sophie Purdom:
So these folks that Cary and I taught a course together in 2016 and in 2017, 2018, on and on and on, those folks that were students in undergrad are now in major decision making roles, doing phenomenal work. That’s on the capital deployment side, they’re also starting companies. So now we are investing in those folks that we once knew in the classroom. And also, it’s been an amazing pipeline of cream of the crop folks that want to come join CTVC as well. So appreciative of folks like Cary laying the groundwork for onboarding folks into climate.
Bill Nussey:
What is Climate Tech VC? You obviously have a team of at least 3 or 400 people to put out all the content and research that you do. So I assume you fill-
Sophie Purdom:
A couple thousand folks.
Bill Nussey:
A Manhattan skyscraper somewhere, but who is your audience? Who’s your audience and who else is doing similar things that you consider collaborators or competitors?
Sophie Purdom:
We know our audience quite well. Right now they total 30,000 subscribers and we’re really proud of that number. As a operator, things are rarely linear, but this is an incredibly linear growth rate, which I think probably has to do with the fact that the space itself, the pie, if you will, itself is growing.
Sophie Purdom:
We have certainly saturated different customer segments, which we can spell out now. So CTVC subscribers fall into a couple categories, one of which are climate tech venture capitalists, more broadly speaking, investors that care about this stuff. Maybe they do it full time and it’s in their job title or in their funds thesis, or maybe they’re dipping their toes into it as a climate curious investor. We kind of like that term of climate curious, because it’s fun and it’s a little bit goofy, but it’s accessible and there’s a lot to learn here, so curiosity matters.
Sophie Purdom:
Anyway, I think we’ve mostly fully saturated the landscape of climate curious investors. Second bucket are operators. That’s folks that are running or starting early stage climate technology businesses. It’s also folks that work at it in all sorts of different functions and want to make sure they’re on top of news and good at their job and able to bring their full selves to work there.
Sophie Purdom:
It also includes folks that are running sustainability oriented functions at other businesses that maybe don’t have climate as a core competency or a driver of immediate value for them. So a lot of corporate operator subscribers there as well. Kim, I don’t want to hog this here. You want to jump in with, we’ve got our investor bucket, our operator bucket, our other readership.
Kim Zou:
Yeah. And we have a bunch of general climate curious folks too, that we’ve tracked. So students, operators at other companies that are trying to actually get into climate, working climate, been seeing a really massive trend line of generalists who now want to use their skill sets, whether it’s software engineering or marketing, in the climate sphere.
Kim Zou:
So yeah, have captured a lot more of these readers than we had initially realized existed, which is super exciting. I remember when we were at 2000 readers and we’re like, okay, we’ve saturated the market. This is everyone that cares about climate tech. And now we’ve grown to 30,000. So really cool to see that general market growing. And also I think to take a step back and just give a sense to non CTVC readers, assuming that all of your podcast listeners are, are CTVC readers, which is totally okay, but you can go subscribe.
Bill Nussey:
Now we want to fix that. We’re going to fix that.
Kim Zou:
Yeah. So just to give a quick summary of what is it that we do and I think part of the reason why we’ve been able to grow so quickly over the last two and a half years is we started off covering this landscape of what is climate tech, what are the deals that are happening, actually showing and tracking all those deals week over week.
Kim Zou:
We have our Monday newsletter that shows all of the deals that have happened in climate tech, from seed and series A, really early stage deals all the way to growth 500 million plus rounds. And then also showing new funds, exits and acquisitions that have happened, almost your Axios Pro Rata type of digest and then sharing what news in the space have happened, always having that lens of how does this impact climate tech.
Kim Zou:
So this crazy policy thing happened, Build Back Better, might not be happening anymore. Well, what’s that impact on climate tech? What is that impact on the investors in the space, on the operators in space. And so that’s our weekly breakdown of deals and news, and then we actually go much deeper than that. We also publish deep dives into specific sectors. We do market mapping, value chains, how do you think about a sector like the carbon markets, the voluntary carbon markets, which there’s still a lot of noise in this space, but what’s the breakdown of both companies that are helping the corporates account and understand their emissions all the way to the marketplaces and procurement platforms that are helping them decide what offsets or what removals to choose.
Kim Zou:
And then finally at other end of it, the actual supply of the carbon removal player. So really mapping out what that ecosystem looks like, but then also putting numbers behind it. You know, we’re tracking these deals, we’re tracking these companies week over week. We have a massive database behind that as well. And so we have a lot of data to actually back that more qualitative analysis as well.
Kim Zou:
So we do these deep dives. We talk to a lot of the experts in this space. We talk to the investors, the founders, we talk to market experts because the whole point of this is how do we continue to build off this network effect that we’ve created, where a lot of the smartest people in these sectors are actually readers of CTVC. And so we can actually leverage that, and it doesn’t only represent our voice, but it actually represents the community’s voice and the experts in this space. So we can ramp up really quickly in certain sectors and share those insights outside of just what Sophie and I know.
Kim Zou:
So that’s on the deep dive side, we also have done a ton of, similar to you all, highlighting stories in this space. So we’ll highlight investors, we’ll highlight founders. We published a really fantastic interview last week with Amanda Lee, from Banyan Infrastructure, similar story of going from the investor lens that generate capital to starting and building her own company right now.
Bill Nussey:
I read it. It was a great story by the way.
Kim Zou:
Yeah. Yeah. And I think the ethos here is really always, how can we continue to share information, whether that be through data, reports and also stories to continue to accelerate climate innovation?
Bill Nussey:
Well, one of the things that I really love about the perspective that you both are bringing through your work at CTVC, and it really resonates with me personally, is the fact that climate is both an incredibly important cause, something that may be the most important cause we face as humans today, but the solution is something that requires recognition and almost an embracing of the economics.
Bill Nussey:
Fortunately, the economics are completely on the side, over the long term, at least, on the side of cleaning the planet and removing CO2 from the atmosphere. But we’re in that transition period today when there’s a lot of confusion around it. And you once said that, which I think is great. A lot of environmentalists don’t accept the reality of the world we live in today, which is, at the end of the day, that society is governed by capitalism.
Bill Nussey:
And this was a really important lesson I learned when I was writing my book. One of my biggest heroes in all of this and someone who will be a guest on our podcast in a few months is Jacqueline Novogratz. She runs a firm out of New York called Acumen, which is one of the first big social impact funds. She and I traveled through Africa together, looking at how capitalism is adding to and expanding the tremendous amount of aid, which struggles to solve electrification and health and all the other challenges in some parts of Africa and India.
Bill Nussey:
What she taught me was that capitalism isn’t the only solution by any stretch, but if you don’t include capitalism, you’re leaving a lot on the table in terms of making an impact. And so the broader markets are struggling. And I’m curious, as we talk about the first half of 2022, how are these market fluctuations affecting, in your views, the clean climate tech marketplace right now and going forward?
Sophie Purdom:
Not as much as the public narrative seems to be pushing meaning, as the venture market is down 20, 25%, as the crypto market is down 30 plus percent, sometimes all of the way down-
Bill Nussey:
Well said.
Sophie Purdom:
That is actually not the story about what’s happening with early stage climate tech. I’d say the easiest description of that, because Kim and I have the privileged position of reporting on the market. I think that over the past two years has looked a little bit it’s always been an up and to the right story, but we’re here for the truth. And so we report on it, whether it’s good news or bad news, and we try to not exaggerate, even though of course, this is exciting. I think the best way of describing what’s happening right now is the climate market abides, meaning it’s resilient, it’s stable and it’s not falling off a cliff, which seems to be what folks are looking for.
Sophie Purdom:
They’re leading with that. And they’re looking for that story, but that’s not what the data shows. So we’ve got the data. We’ve tracked over the past two plus years at this point, we’ve tracked over $70 billion of climate tech venture capital. So really important here that we talked about trillions of dollars, 9 trillion, thanks McKenzie, needs to be invested each year in climate.
Sophie Purdom:
We’re talking about a tiny slice of the pie that happens at the earliest stages of company formation and growth and that’s venture capital. So venture capital, unlikely that they’ll ever be a trillion associated with the numbers that we’re tracking. Folks shouldn’t freak out that these are quote small numbers. This is probably a healthy amount of capital for the early stages of this finite pool.
Sophie Purdom:
So 70 billion deployed into over a thousand, so close to 1,200 companies, and we track that across some pretty detailed methodology. So seven climate verticals, 63 climate sectors, and then well over a hundred climate sub sectors. We’re happy to go into our methodology there. But the TLDR from this big report that we just dropped is that there’s been a 20% drop in the first half of this year’s funding, so dollars deployed, compared to the white hot back half of 2021. However, that’s really concentrated in a dearth of mega growth stage deals. Turns out that the early stages, the C, the series A, the series B, et cetera, companies, there’s been more activity there that’s been steadily growing quarter over quarter.
Bill Nussey:
Even into 2022.
Sophie Purdom:
Strongly into 2022. So it’s actually growing at the early stages, and the drop off is really concentrated to those later stage growth deals, where that $500 million plus type of deal activity has, has slowed to a crawl.
Bill Nussey:
And part of that’s the implosion of the entire SPACS market, and the fact that a lot of those … Someone taught me when I was very young, if it looks too good to be true, it probably is. And I think SPACS did more than their fair share of love into the climate tech market, EVs particularly. And all of that’s taken a backseat in this current economy.
Bill Nussey:
So that’s a great preview into the overall report. Kim, do you want to share some of the big headlines in addition to that and tell us, I’m just curious, the report came out Friday and what are the headlines beyond what Sophie was sharing?
Kim Zou:
Yeah, I think we were all kind of, at least I know I was very curious to see what the data said, especially given the recent markets slowdown and see how that’s reflected in climate specifically. So was personally just really excited for this particular report, just because I was curious if climate was relatively insulated, like all of us climate techno optimists choose to believe.
Kim Zou:
So headline numbers, climate tech startups raised 18.6 billion in the first half of 2022, across 477 venture deals. So that funding number represents a 21% decline compared to the second half of 2021, but the 477 deals number actually represents an increase. So that’s a 36% increase compared to that second half of 2021. I think what that headline story tells is that even though the total number of funding dollars have decreased, probably driven by the fact that later stage, really massive mega rounds have been hit earliest by both the air being let out of the back market, but also the market slowdown, where it’s usually the latest stage deals that get affected first.
Kim Zou:
There’s sort of a lagging effect in the earlier stage world, but still more deals overall, which means that the actual activity in the space, the amount of deals happening, investors getting involved is increasing. So there’s still that upwards momentum in, I think, interest in the space, especially as more operators want to work in climate and start building companies, start getting funding at that seed and series A stage.
Kim Zou:
So I think there’s still that upwards trend in the momentum, whereas some of those crazy 500 million plus rounds have trickled down a bit. I think one of the other interesting headlines here is we track the seven key climate verticals, so energy, transportation, food and agriculture, and land use, industry, manufacturing resource use, climate management and reporting, carbon removal and built environment.
Kim Zou:
So within these seven sectors, majority of that funding of those deals have always been an energy transparent in food and ag. It’s always been 90% of funding, but this time around in 2022 so far, we’ve actually seen a diversification where those three big sectors only now make up 70% of funding, which means there’s more diversification to these other more nascent sectors, so to speak, of climate tech. And we can talk a bit more about why that is and-
Bill Nussey:
Why do you think that’s changed? Why do you think it’s getting more investors are increasingly looking at sectors outside these original traditional ones? What’s causing that?
Sophie Purdom:
I think there’s a technology unlock that happens, and we’ve seen it start in clean tech. So climate tech sits on the shoulders of clean tech, and we should all appreciate that. And clean tech gets a bad rep sometimes because of the quote bust. However, from a technology development perspective, we would not be here without the plummeting cost of solar and wind and other clean generation technologies. So yeah, exactly fist pump, insert fist pump.
Sophie Purdom:
Same’s happening with climate tech. So maybe the bullseye of climate tech includes EVs, and electrified transportation, and sustainable food and ag, and energy generation. But then that enables us to go do a whole host of other things, including marketplaces or risk and insurance applications, climate intelligence and earth observation monitoring. It ripples out, but in my opinion, it’s a tech unlock that then enables also talent to go explore some of these other areas and investors’ appetite has been more than wet. And we see that there’s massive growth opportunities in some of these adjacencies.
Kim Zou:
I think the other point there too, is that ever since we’ve been writing about climate tech since the start of 2020, investors in this space and operators in this space have also been getting pretty smart on climate. And so in my experience, you start off within these more mature sectors, understand energy, understand transport, understand food and ag.
Kim Zou:
Then you almost go through this evolution of okay, I have a strong foundation in these core pillars of climate tech. And now I’m curious to explore what else is out there. So what’s going on in this field of carbon management and removal? Ever since Stripe announced their whole carbon removal thesis, now there’s been a lot of activity on both sides of the coin in terms of investors and operators who are now exploring this thesis of not only how do we do the mitigation, how do we decarbonize our existing industries, but what do we do about this bathtub of emissions that’s already out there? How do we remove it?
Kim Zou:
There’s been this whole ecosystem of talent and companies that have gone towards exploring that thesis, and hence why we’ve seen a very, very large spike in funding actually in this carbon vertical. In the first half of this year, we’ve seen almost an eight X growth in carbon funding in 2022, versus the same comparable period in 2021.
Bill Nussey:
So explain carbon vertical, because I assume it doesn’t mean making CO2 molecules. It means something else. I’m being funny, but what does that vertical encompass in your mind?
Kim Zou:
Yeah, that’s a great question. And, and we do a bit of a breakdown in our market map of what sectors make up these verticals. For us, we’ve categorized carbon or carbon tech as CDR companies. So companies that are doing the picks and ax technologies of actually removing CO2 from the atmosphere. So things like direct earth capture, soil carbon sequestration, forestry based solutions, biochar, BECCS. You can see all those major pathways.
Kim Zou:
The other layer of that is companies that are enabling the ability to purchase or to trade these credits, carbon marketplace and procurement companies. Then we also have CO2 utilization, so how do we utilize this waste molecule, waste carbon dioxide, and actually convert them into useful molecules like chemicals or fuels or materials. We also have enablers of this ecosystem, companies that are doing the verification, so verifying that yes, indeed, this CO2 has been sequestered in the ground or has been removed for X amount of years.
Kim Zou:
Then finally, the ecosystem of point source industrial carbon capture. So companies that are helping to capture CO2 at that industrial source of emissions. So that’s the world as we see it. There’s also the emissions management and reporting companies, the carbon accounting companies, which we’ve included in the climate management and reporting section. They do the work of what emissions are out there and understanding that footprint. But then we have the carbon vertical that’s actually doing the work of how do we either remove it from the atmosphere or capture it at the source.
Bill Nussey:
I’ve been shocked at the number of companies in the carbon monitoring, carbon accounting business in the last nine months that have emerged, some of the mega fundings there. For someone who spent most of his career at software tech, it’s exciting to see a largely software set of opportunities emerge. And it’s solving a real problem if the SCC in fact does lay out some requirements, it’ll be desperately needed.
Sophie Purdom:
One point to add there is because we’re able to track deal size by sector as well, those software plays, particularly in the carbon vertical, they might have the highest count of deals. That’s been about 36, so just over a third of the activity that we’ve tracked in carbon goes into these marketplaces and procurement software startups. However, interestingly and intelligently, they each require less capital. And so they’ve raised smaller rounds for those software companies. So even though it’s about third of the deal activity, it’s only about 15% of the total funding.
Bill Nussey:
I think that’s such an important point to make, because this is where people who come from the outside traditional venture capital investors, they, I think, often misunderstand the nuance of how capital is needed in this nonstop forward part of the world. Which is one of the reasons I wrote the book, was I laid out the five orders model that explains the different kinds of funding required for different types of companies and a thesis on what that means for their growth rates and et cetera, et cetera.
Bill Nussey:
So I think that’s a really important point, and I’m glad you highlight it. There’s another important point that you had in your first half analysis that I think people miss about venture capital in this segment, which is you use the term dry powder. It is a venture capital leading indicator or a lagging indicator.
Bill Nussey:
I think it really depends on which lens you use, but dry powder is something that I would love for you to explain and why that’s important and why that means that venture capital of all sorts and particularly in climate tech will be not directly linked to the economy. And I think this is a really big deal, particularly with the buildup of quote unquote dry powder in the last year.
Sophie Purdom:
Indeed, a very important point that we have dug into in some detail as well. So we’ve tracked, since the start of 2021, 72 climate venture funds that together manage a total of 13 billion assets under management dedicated towards climate venture. We’ve also tracked six growth funds. So still venture, just at slightly later maturity levels of these companies and they’re managing 24 billion.
Sophie Purdom:
So add that all together for the past two years or so that we’ve been tracking these announcements, we ran a quick analysis of basic pace of deployment assumptions around are they actually going to close on that, on that capital, fund cohort sizes, et cetera. And simple math, we think that there’s about 20 billion of investible dry powder sitting, ready to go in the coffers, hypothetically speaking, of these dedicated almost 80 funds ready to go into climate. 20 billion is a nice amount of pocket change to invest in early stage climate tech. When we think about the total amount that’s deployed quarter over quarter, it certainly makes sense that will be insulating the earliest stages of climate company formation from the broader macroeconomic downturn.
Bill Nussey:
And just to build on that, that money is committed. So that money, that 20 billion doesn’t just evaporate when the stock market drops and people often miss the fact that venture capital operates in a different cycle time. And that capital’s committed. And the worst thing that those venture capitals could tell their own investors is we didn’t deploy the money. They actually have every incentive and motivation to deploy the money.
Bill Nussey:
In some senses, if you are sitting on dry powder capital, and the market’s struggling, you can actually, as an investor, get better valuations, which will actually potentially increase your returns to your investors. So in a sort of unintuitive almost perverse way, a terrible market helps the venture capitalist if they happen to be at a cycle where they have a more money, they’re not at the ends of their funds on average, it’s actually a boom. So I always to put an optimistic perspective on it and I wanted to make sure we highlighted that.
Sophie Purdom:
Hey, Bill, sounds a good time to start a climate venture capital firm.
Bill Nussey:
You know, I’m thinking the same thing. We should talk offline. All right.
Sophie Purdom:
We should talk about that.
Bill Nussey:
Yeah, seriously. All right. Well, because our audience is really particularly focused on local energy, which is the small scale stuff, it covers all the infrastructure to the software, but it’s community solar rooftop, solar CNI, microgrids. One of the questions that I always get asked, and I don’t know if you guys slice the pie this way, but what’s different from when I was a venture capitalist with Greylock and everything we invested in was axiomatically going to be bits. Now we have bits and atoms. Do you look at the world through the lens of companies that have just bits, like carbon accounting companies, just atoms or bits and atoms together? How do you think about that?
Kim Zou:
Yeah, definitely. We do evaluate and tag all of our companies across multiple different lenses, including what is the actual technology type, is it bits? Is it atoms? Is it molecules? We also track synthetic biology and biotech. We also track what technologies are specifically novel technologies or deep tech, especially in areas like climate, where so many of these things haven’t yet been developed or in the process of commercializing out of the lab and is a mature software technology with different business models applied to it. To give a high level breakdown in our almost 1500 set of companies that we’ve tracked over the last two years, there’s a pretty interesting split where a slight majority of them are still hardware companies. About 46% of that number is classified as hardware versus about 35% of that is classified as software.
Kim Zou:
And obviously there’s not a black and white way of categorizing this. A lot of times there’s software embedded in these hardware companies where it’s really used to optimize the deployment of say energy storage assets. And it’s hard to really separate out the two, but there’s some of these pure play software companies, some of these companies that are specifically selling hardware assets, but there’s software really embedded and how that gets deployed. So that’s a general highlight, I think.
Kim Zou:
We’ve seen different sectors of this market lean towards one or the other, especially in sectors like energy. Within that, a lot of companies on the DER side or on the renewable side, there are the hardware companies that are developing new technologies like solar perovskites. But there’s also a lot of software companies out there that are now at the stage where there’s solar infrastructure, this wind infrastructure’s getting deployed. How do we actually manage those assets? How do we optimize them, especially relative to a volatile grid.
Kim Zou:
A lot of that is software. A lot of that is optimization and efficiency algorithms that are better managing that volatility as opposed to just physical things in the ground. And I think as some of these sectors mature, we’re seeing more of these software plays, pure play software plays, that are now optimizing the existing physical infrastructure.
Bill Nussey:
It’s exciting to see the evolution of this space go from 2010 when it was how do I build a better solar cell or make biofuel to this very diverse landscape? And I think you guys have a great model for breaking it down. Really great stuff. You mentioned deep tech, and as a full on nerd, I love the deep tech stuff. Let’s invent a new molecule, let’s invent something that’s never been done before that has the chance to disrupt everything. How do you think about that and how many of the investments are deep tech?
Kim Zou:
That’s a great question. I used to be an investor at Energy Impact Partners, where we have a frontier fund, frontier being a synonym for, for deep tech or novel tech. So have explored a ton of these sectors, a ton of these technologies. It’s super fascinating. I think in order to get to that last 20%, last 10% of decarbonization, we definitely need these solutions like long duration energy storage, or even something nuclear fusion down the line. They can be breakthroughs in how we think about our energy and transportation and food and agriculture systems. So the way we categorize deep tech is hopefully going to become more scientific, but the way we think about it now is has this been done before? Is this a mature technology on the TRL scale?
Kim Zou:
Or is this something that’s still relatively novel that has IP around it? And so about 35% of the companies we’ve tracked fall into this category of novel technology it’s never been done before.
Bill Nussey:
Wow. It’s bigger than I would have thought.
Kim Zou:
Yeah, and it’s not just across physical hardware. I think oftentimes, especially in sectors like food and agriculture and land use, a lot of that is in the biology side of the world, where within agriculture, there’s all these novel seed treatments or novel microbes. So if he knows this world well, that is also deep tech, that is also novel technology. So lest that be forgotten, there’s lots of different novel technologies and deep technologies out there and experts and scientists that are working in those spaces.
Kim Zou:
And so I think this is a really important and exciting area of climate tech, but one point I’ll make here, which I think from the later stage side of a venture, we should all start thinking about, is deep tech and novel tech is awesome. It’s super exciting. It’s so important, especially at that early stage. But there is this value of death, there’s this chasm that happens around the series B, let’s say, stage where you go from the lab to doing your initial pilot facility, initial pilot demonstration, to then needing to actually scale up and build your first commercial scale project. And there’s this huge chasm where there isn’t as much venture funding or willing venture funding to fund that $50 million plus commercial scale project.
Kim Zou:
I think there needs to be more communication. There needs to be more shared diligence between the early state venture side of the world, as well as those players that traditionally fund either commercial projects like project finance or infrastructure capital or debt and help share that diligence to get those later stage investors, those less risk averse investors to get comfortable with these technologies over time.
Kim Zou:
Because if we want to really scale these novel technologies like long duration energy storage, those investors do need to come into play, not 30 years from now, like what’s happened in some of the solar and twin sectors, but less than 10 years from now. So there is that dichotomy where we need to, I think, better match the early stage excitement in novel technologies in deep tech with informing what that downstream capital will hopefully then come into to build the physical or molecular infrastructure.
Bill Nussey:
I think one of the cool things, regardless of the venture return, which is all important, but it is just these new deep tech ideas are inspiring. I think they’re the reason that young scientists and innovators, or want to be scientists and innovators get into the field. That said, if I had a dollar for every headline I read in the stuff I read that this is going to breakthrough, it’s going to solve the energy problem, I’d start my own fund with it. So there is a lot of hyperbole, but it’s still inspiring. And it’s really encouraging to hear how much of the venture deals are looking at, are going into this shoot for the moon stuff.
Sophie Purdom:
Quick shout out there. Deep tech is hard. Used to be it’s synonymous with hard tech and requires additional services, timelines, handholding, community, along the way. And that should be said explicitly. One organization that does a particularly great job at identifying entrepreneurial scientists and then helping them scale and start successful companies with amazing track records is Activate.
Sophie Purdom:
Lots of these Activate fellows, which there’s well over a hundred at this point have gone on with a pretty amazing success track record to launching both impactful, but also profitable, deep technology businesses. And increasingly they’ve noticed that deep tech and climate tech go hand in hand and that that’s what the best entrepreneurial scientists in the world want to work on. And so interesting anecdote that Activate itself has shifted its focus over time from emphasis on different deep technology areas, almost entirely into climate technology as the scientists, the talent themselves, raise their hand and want to dedicate their life to applying their skill sets to solving climate.
Bill Nussey:
Before we started recording, the three of us were discussing the future. And while some of the things we discussed will remain in the future, I’m so excited about what the two of you and all the folks working with you have done, and I just wanted to ask the broad question, what do you do with all this? You’ve got this incredible base of fans. You have this database of knowledge, you are prolific in the community. What do we think about when we look forward at CTVC?
Kim Zou:
That’s a great question, one that we’ve gotten asked multiple times along this journey and sometimes didn’t have the answer, but now it’s becoming more clear. I think I won’t share too much yet on what’s in the future, but I will provide some hints. I think the thesis here, the ethos really has always been information transparency is critical to driving climate innovation and deployment. And CTVC has played a really important role with that at the very beginning of 2020, when we launched the newsletter, when we launched the content side of the platform.
Kim Zou:
I think the next phase of CTVC goes deeper into how do we better provide information transparency into tracking? Not so not only what’s going on in the venture side of the world, but actually being able to connect the dots past just venture to, again, all these other asset classes that need to be deployed at the later side of the spectrum, connect the dots to the public sector policy.
Kim Zou:
I think that’s the direction we will continue to move towards in not only being CTVC, the newsletter and the content platform, but going deeper into data analysis, into insights, into that sort of data driven reporting. So we’ll share more hopefully on what that looks in a few months, but know that CTVC today, the newsletter today that hopefully you know and love will continue to stay free and available to all. We’ll continue to share these insights and hopefully drive forward more talent, more capital coming into the climate innovation space.
Sophie Purdom:
One note from that is that we made a really conscious decision to not try to build too much on top of the core CTVC newsletter publication platform for a long time. So we’ve been nose to the grindstone here for two years, publishing twice a week with very limited breaks, trying to spit out deeply researched content without monetizing it, without trying to skim anything off the top or off the side.
Sophie Purdom:
And just being very focused on building an incredible asset without getting distracted, without trying to do too many things at once, such that the intention, or maybe the bet was that if we did a great job at that, and we were consistent and really high quality that it would unlock opportunities that we wouldn’t have even been able to imagine a year prior. And so why prematurely shut those doors and pick from the more finite pool of options, versus allow for this to grow exponentially and therefore offer much better opportunities when we’ve proven ourselves out.
Sophie Purdom:
So that’s where we’re at now, of we’ve done the thing, we’ve proven the thing, and now we’re going to go open some of those other doors. Really importantly, though, that will continue to drive back value into the core CTVC quote newsletter asset. So we think a lot about flywheel effects and network effects here at CTVC. This would not work without, for example, our readership wanting to self promote, if you will, through the newsletter.
Sophie Purdom:
A case in point example of that is we’re the orchestrator. We get to market and spread funding news, which means that folks want to subscribe to get that information. Also means that folks want to give us their private information so that we can add it to put it out to the rest of the readership. So simple example there, but it happens in lots of other flywheel and network effects. We’re teasing the audience here, but there’s lots of levers there where this asset will only continue to grow.
Bill Nussey:
So we are running out of time, but I have to ask you really quickly, what advice would you give to entrepreneurs? You’ve talked to more entrepreneurs than anybody. So just off the top of your head, someone wants to get into space or thinking about raising money. Sophie, let’s start with you. What would you just tell an entrepreneur?
Sophie Purdom:
Don’t try and pick the perfect silver bullet solution. Pick the area or challenge or technology that gets you excited, and it’s going to get you up and out of bed and working on this thing for the next 10 years. So it’s kind of self optimized, because we need durability and enthusiasm and a silver buckshot, not silver bullet here. And you better believe that if there was a silver bullet, other people probably would’ve found that already by now. So come join in the fun, but don’t worry about finding the needle in the haystack, one single best solution, pick something that you want to work on for the next decade.
Bill Nussey:
Kim.
Kim Zou:
I love that piece of advice. Currently switching over from a bit of the investor hat over to the entrepreneur hat. So hopefully taking some of this advice as well. I think one thing I realized is just speaking to a lot of people in this space is there’s a lot of really smart experts. There’s a lot of really smart people that have been around the climate tech, clean tech wheel more than once. And I think sometimes Silicon Valley and San Francisco and these folks come in and think this has never been done before. I’m going to entirely disrupt this sector, which is super fair, and it happens in technology all the time. But there’s a lot of really smart people in energy. There’s a lot of really smart people in food and ag in these sectors.
Kim Zou:
And I think just understanding what’s been done before, understanding how these ecosystems work, because they’re very nuanced. For example, I worked at a venture firm that partners with a lot of utilities and that whole sector is just, it’s a regulated monopoly in some ways. And it’s a different way of operating than I think typical B2B enterprise SAS works.
Kim Zou:
I think understanding the nuances within clean tech, within climate tech and talking to some of these experts that have been around it more than once is a good place to start out as well, compared to some of the traditional Silicon Valley ethos of just disrupt the space and let’s build something that no one’s ever done before. I think taking a step back to understand what’s already been built, how do these ecosystems work, and then navigating climate tech that way is a much better entrepreneurial journey, I think, into the space.
Bill Nussey:
So as we wrap up, we like to ask our guests these four lightning round questions. Since we have both of you, we’re going to give each of you a chance to answer them in the just super quick answers. And we love to get your perspective. So I’m just going to jump in and ask each of you starting with the first question. What excites you most about being in the clean energy business? Kim?
Kim Zou:
We’ve talked about this, but I think it’s really just like, quote unquote, the energy around this. There’s the energy that you normally get with working on something technologically exciting and challenging, but also the energy you get that all of this is moving towards, hopefully, the greater good of solving some of these climate challenges, of having an impact a bit greater than yourself.
Kim Zou:
Then also working alongside people that believe that, and that are excited about that just as much as you are. There’s so much more collaboration here. There’s so much more support and connection here, I think, relative to a lot of other sectors, because there’s this greater thing that’s connecting all of us beyond just all of us heads down working on our company or working on our firm.
Bill Nussey:
Sophie, what do you like about it?
Sophie Purdom:
The people, the people. Period.
Bill Nussey:
All right.
Sophie Purdom:
Easy answer there.
Bill Nussey:
And if you could wave a magic wand and change just one thing, Sophie, in this industry, what would it be?
Sophie Purdom:
I’m glad I got to go first, because there’s one clear answer here, which is put a price on carbon.
Bill Nussey:
Yes.
Sophie Purdom:
Put a appropriately high universal, international proper price on carbon.
Bill Nussey:
Kim?
Kim Zou:
Make more catalytic funding available. There’s government funding, there’s some forms of philanthropic funding, but we need more of those that are willing to take a bit higher risk and maybe compromise a bit on returns to get past that value of death, I think, in climate tech.
Bill Nussey:
Fantastic. All right, Kim, what do you think will be the single most important change in how we generate, store, and distribute electricity in the next five years?
Kim Zou:
The obvious answer here is storage.
Bill Nussey:
Ding, ding, ding, ding. There’s no right answers, but that’s the right answer. Sophie, anything you want to add to that?
Sophie Purdom:
Well, this has been leading. Apparently anything I say next will not be correct, but perhaps the other one that’s particularly top of mind at the moment is transmission and it’s a hard one for early stage venture activity to really impact. We’re seeing a lot of NIMBYism, interesting parallels to what’s going on with electricity transmission or lack thereof also happening with transmission or distribution of hydrogen or of CO2.
Sophie Purdom:
I think Mindshare tends to go to the generation or if we’re running with the electricity hydrogen and CO2 parallels here, you talk about the generation of it or the capture of it. Then we got to talk about how do we get it where it needs to go and then it’s how do we use it or store it? And I’m interested in how do we get it where it needs to go? Probably because I just think distribution models are endlessly fascinating, and it’s a big focus of my investing as well as literal go to market.
Bill Nussey:
Fantastic. All right. Final question. And we all get asked by people who don’t spend their day in this industry. What can I do to help?
Kim Zou:
I think the first step is talk to as many people as you can. I’ve always just been, I think there’s people in this space are very, very willing to chat about their experience. And then the other key piece of advice is climate tech is not one sector. It’s every sector. It’s how we eat, how we move, how we power ourselves, energize ourselves, I guess.
Kim Zou:
And so there’s a place for people of all different skill sets in every sector with this lens that now we’re thinking about it through decarbonization, through adaptation, through mitigation. And so whether you’re a software engineer, whether you’re in marketing, whether you are operator or founder or investor or whomever, there’s just space for everyone, because climate tech hopefully will be everything. It’s a lens in how we think about, I think, our economy versus a specific sector.
Bill Nussey:
And Sophie, to bring this home today, what’s the best advice?
Sophie Purdom:
Bringing it home. If you’re serious about climate, the best way that you can participate is with your time and with your talents and by coming and joining, working on climate. So come play venture with your career and find a role working either directly or indirectly in climate. Of course there are structural reasons, so that’s not tenable all the time at different points in one’s life or for different people with different circumstances.
Sophie Purdom:
But being educated and being enthusiastic and being passionate about this stuff, so therefore participating in discussions, whether that’s online or IRL as we come back from COVID, doing things like listening to this podcast and maybe, dare I say, reading Climate Tech VC to stay abreast of everything. You’d be an informed voter, informed consumer, and my dream would be that everybody ends up working on climate.
Bill Nussey:
Well for all of our listeners, that is a phenomenal way to wrap up one of the most interesting conversations we’ve ever had with two of the most inspiring people that we’ve had on our podcast. Thank you, both of you, for your time today. I’m really excited. Everyone should take a read of your H1 report, which we will publish on the webpage. And we look forward to following you with all these teased new, big things coming out and let’s stay in touch and we’d love to have you back on next year when these stories are the new future and you can talk about them some more. So thank you both for your time today.
Kim Zou:
Thank you.
Sophie Purdom:
Brilliant. This has been a pleasure. Thank you very much.
