Unlocking Capital for a Sustainable World
The general consensus among all market participants is that there is no single solution, whether policy or market led, to the climate crisis. The IPCC’s ‘red alert for humanity’ reports over the past year, highlighting the high risk of breaching the 1.5 degrees of post-industrial period global warming have served to further strengthen and focus global efforts across mitigation and adaptation measures, through a variety of partnerships, alliances and cross-border investments.
Make no mistake - the transition to net zero is a financial as well as a social discussion. The amount of global investment required to reach net-zero on the Paris Agreement trajectory is staggering – around US$2.4 trillion per year over the next 30 years. This is triple the amount currently being invested each year around the world.
Changing the way we do things is about more than process. Technological advancements continue to develop and refine the business models across all sectors that are actively seeking to decarbonise. In energy, for example, the convergence of property and energy management is underway, as developments in solar, batteries, and control systems continue to define the role that DER orchestration will play in energy markets as coal exits the system. Series A and B raisings for blockchain payments platforms, home energy management systems, and metering technologies are no longer limited to incubators, providing opportunities for investors to deploy sustainability capital into the willing arms of founders with amazing ideas.
As a net-zero focused firm, we often find ourselves at the epicentre of investors seeking net zero assets, and companies seeking capital to grow and scale operations into new markets. This is reflective of global trends. Morgan Stanley recently reported that the global Net-zero Asset Managers Initiative now has 87 signatories representing $37trn in assets under management, all committing to support investments aligned with net-zero emissions by 2050 or sooner. Put simply, finding the capital is not the problem.
For companies seeking to enter this market with new technologies aimed at closing abatement cost gaps or enabling new markets, there are four things to consider.
Firstly, it is critical to understand the role that your technology or service plays in the markets of the future, the pools of value that it creates, and the counterparties for whom these value pools are the highest. Technologies often have multiple applications, and series A companies tend to focus on those applications that are the fastest to monetise – these may not be the highest and best value use of the technology. Having an eye to long term upside and a path to achieving it is critical.
Secondly, having a clear understanding of your competitive moat is essential, alongside a realistic assessment of what makes you special. Being open to the reality that others may be developing different answers to the same problem is key; knowing who these companies are and the differences between your technology and theirs is a question best answered by you, not your prospective investors.
Thirdly, not all capital is equal to a start-up. Financial investors can solve the problem of production scale, but they may not get you into the right rooms that provide access to higher value sales channels like a strategic investor can. Whereas strategic equity stakes by a prospective customer of your technology may impose restrictions on sale to competitors or not ultimately deploy the technology as first envisaged.
Fourthly, don’t wait too long. Cash position and burn are the first questions after “how does it work” and “how does it make money”. High cash burn, low cash reserves, and ill-crafted processes often result in small numbers of bidders, and asymmetric negotiating power.
The next 20 years will be unlike any other in history as Government and society demand new processes, clean technologies, and positive ESG outcomes from the conventional suppliers of almost everything we consume. This unprecedented challenge comes with an unprecedented opportunity for new technology and promising companies that bring them to market.
Keen to know more or to see how we might be able to help? Message or email us to continue the conversation.