August 10, 2021

Opportunities for Climate Tech Startups in the U.S.

Written by German Accelerator

In the most recent German Accelerator “Pass The Mic” Series, we hosted a fireside chat with members of the climate tech industry to discuss key trends and latest developments in the U.S. climate tech scene. Lubomila Jordanova (Founder & CEO, Plan A) and Dr. Bernd Weber (Founder & Executive Director, EPICO KlimaInnovation) provided insights into the unique challenges faced by startups and policymakers. With an investor perspective, Fridtjof Detzner (Co-Founder & Partner, Planet A Ventures) and Sebastian Heitmann (Co-Founder, Extantia Capital) emphasized the importance of validating the science and economic viability behind any climate tech startup.

Moderating the panel, Christian Busch (Managing Partner, German Accelerator in the U.S.) explored the topic of climate tech in the U.S. from a startup and political perspective. In addition to showcasing how climate tech startups have a measurable positive impact on the planet, the panel also shared opportunities available in the U.S. market and valuable insights into what matters to climate tech investors.

To get things started, there are 51 billion tons of greenhouse gases emitted every year. How do you assess opportunities and think about the impact you can make? How do you evaluate an opportunity from both an investment but also from an impact perspective?

Lubomila Jordanova: After a surfing trip to Morocco, where I spent most of my time cleaning the beach, I decided to educate myself on the topic of climate change, pollution, and human impact from a scientific perspective. Through my research, it quickly became evident that the main stakeholder in climate change are corporations, as they have the most amount of money and influence internationally. So when it comes to how we ended up with the focus that we have now, it is essentially the thought process related to: Where can we make the fastest impact due to the sheer size of the industry? Who has the most incentive to move? Who has the most amount of people they can influence? Of course, again, the answer is corporations.

Fridtjof Detzner: The big realization I had for myself was that impact is sometimes a bit counterintuitive. At Planet A Ventures, we use life cycle assessments as a method to approach and calculate impact. We always compare the idea of a startup to the needs of today’s world and what ideas/solutions already exist to really calculate how different it is from each other. The idea of a life cycle assessment is that you map out the whole life cycle of the product. You look at all the mass and energy balances throughout the lifespan of the product. How much energy, products, and resources go into it as well as how you use it and how often you use it. This allows you to calculate your CO2 or waste reduction, come up with specific numbers, and quantify the impact. It’s a game-changer because you’re able to project what this difference can make in the long run. A scientific perspective is crucial to make informed decisions and not just believe you’re going in the right direction. We have limited time and resources, so it’s about making the right calls and finding the companies that really make a difference.

Bernd, how do you pick the causes or projects that you want to throw your weight behind? And how do you make the message simple enough for a politician or a group of politicians to get behind?

Dr. Bernd Weber: Promoting innovation beyond mere headlines and buzzwords in the political debate is a challenge. It’s important to come up with a good narrative, a framework, and of course, precise policy concepts to sustain innovative approaches. How can we reach net-zero while at the same time contribute to prosperity and ensure social acceptance? For me, the key to achieve this lies in a focus on market orientation and innovation. It is very important for Germany and Europe to promote and foster a framework where startups can emerge, scale up, and prosper, to then help us tackle the goal of net-zero. This is not only a question of technological innovation but also about policy innovation and the mindset. We need to shift from rigid regulation trying to prescribe and foresee everything in a top-down manner towards boosting innovation, becoming much more agile and courageous in our policy approaches. This would provide us with a huge opportunity. More patents are filed in cleantech in Europe than in any non-European country, with Germany accounting for a particularly large number. But these innovations are hardly scaled up, so that startup companies do not reach the demonstration or commercialization phase of their technologies.

Christian Busch: Let’s use that as a quick segue to talk about the U.S. One number that I saw in the PwC report on The State of Climate Tech 2020 is that about $60 billion have been invested in climate tech startups between 2013 and 2019, of which almost 60% were in North America, about a third was in China, and the EU was far behind with about 12%. In the U.S. President Biden has changed the narrative and enabled the American capitalist spirit to take over and really start investing in the climate tech space. Some states like California have been frontrunners in climate investing. In regulatory frameworks, Texas is surprisingly far along – it is one of the largest wind energy producers in the world. Florida is home to one of the largest solar energy producers. So there are definitely things happening, but what will unlock a lot of the growth in the U.S. is that there is a large amount of private capital flowing into the space. I have probably seen a dozen new climate funds that focus more on early-stage startups in the last few months. There are also rumors about several of the very large Silicon Valley funds raising separate $5 billion, $10 billion climate funds that are going to go live later this year.

To frame the opportunities or the verticals, I will give some stats from Breakthrough Energy. You can split climate into five main buckets: (i) electricity, which accounts for about 27% of global greenhouse gas emissions, (ii) transportation with 16%, (iii) manufacturing with 31% (this includes things like cement), (iv) buildings with 7%, and (v) agriculture with 19%. When you think about the opportunity set, from the U.S. perspective, energy is huge. That includes electricity, transportation, and manufacturing – as most people know, the U.S. is not as much of a manufacturing state anymore, but still a very large market. Buildings and agriculture are comparatively small in the U.S.

When you think about the opportunities, where do you look in Europe, or Germany specifically, and what do you think makes the most sense to start aggressively exporting?

Sebastian Heitmann: I just want to say it simply, it boils down to energy. We have problems in the building and agriculture sectors because of renewable energy sources, and we have problems in the transportation sector because we lack renewable energy sources to create green hydrogen. I think about 75% of greenhouse gas emissions, one way or the other, relate to energy. And that’s basically the creation of clean, renewable energy. Today, we have three major sources of new energy: wind, solar, and hydro. Then the baseload sources: fossil fuels, gas, coal, or oil. And there’s nuclear, with the philosophical question of whether it’s clean or not clean. We need innovative energy, and we need to unlock energy sources, such as geothermal, that are clean, available, and affordable. From a fund perspective, we look first and foremost at the climate impact, but then also strongly consider the economic impact. If a company is not economically viable, it cannot be sustainable and, therefore, will not be able to reach any climate impact. So, the intersection of economic and ecological viability is where the magic happens, that’s always what we’re looking for in every technology we assess. There are technologies available today that, if the world would be willing to pay the price, could really change the game. For example, take the fertilization of oceans. If you would do that on a massive scale, it’ll have quite an impact. It’ll enable the oceans to sequester a lot more CO2 than they do today. It’s just there’s no economic incentive behind doing this. Yes, there are unsolved, important questions of what to do with the CO2. But if the world would be willing and able to pay $5 trillion per year – I think that would roughly be today’s cost – to clean the air, we’d be able to take that CO2 out. We have that money, $5 trillion is a lot, but it’s not unpayable. But again, it’s not an economically viable solution. It’s very expensive, and there are cheaper ways of producing CO2. So it’s always finding this intersection.

To answer your question, I would love to see a sequence plan one day where we really understand what are the first things we need to do, because everybody’s doing left and right here. Germany, for example, has a strong agenda on hydrogen, but it’s probably not the first thing in the line of solving the climate question.

Lubomila Jordanova: Maybe I can just add something on a more fundamental level. At the end of the day, we’re trying to address a sequence and an ecosystem of problems that have been consecutively created over decades, and energy surely is one of the main sectors to consider. But the truth is, with a broken chain of command or alignment between different stakeholders, none of this innovation really matters because it’s never going to be implemented at scale. And it’s also never going to be adopted where it really matters. We keep on thinking that the agenda that is happening in the Western world is really driving what’s happening on this planet. But the truth is, we are the reason for the creation of a lot of emissions elsewhere, and that is neither legislatively nor economically bound to the choices that we make. So we’re not responsible for what’s happening elsewhere in the world. I think what matters is to put this energy discussion into the context of who is adopting this innovative energy solution and who is doing the leapfrogging between innovation cycles that we as a Western society have not allowed ourselves to skip, to then lead to the adoption of sustainable solutions. And that is, for me, one of the biggest challenges that we have as a society, as innovators, and hopefully as investors.

Bernd, with the transition of power from one government to another every four years, how do you get a government or multiple governments to create a lasting strategy here?

Dr. Bernd Weber: You will always have a short-term element in politics. At the same time, Europe’s Green Deal and Germany’s Climate Change Act, the climate law foreseeing Germany to achieve net-zero by 2045 and increasing CO2 emission targets by 2030, are signs that it’s not so much a matter of party politics per se anymore. The debate is not whether to reach net-zero or not, or whether to try to accelerate to the greatest extent possible. But the debate now is much more about how to get there. What are the right means to do this? Of course, there is political disagreement on the policies which can get us there, but it needs to be a productive debate about the best concepts. Cost efficiency is an important criteria in this debate because we don’t have endless money as a resource. We only have limited resources in terms of public spending, so we need to focus and adopt policy instruments that are effective and provide a stable framework for investments across legislative terms. An important milestone is the EU’s “Fit for 55” package, in which the EU decided to follow the German example and price CO2 emissions in the sector of mobility and housing by introducing a second CO2 emission trading scheme. Key question for a successful implantation will be, how we manage to balance increasing CO2 prices socially and ensure the competitiveness of our industrial sector during a transition period.

We talked before about energy being the very beginning of the net 0 value chain. For the next government in Germany, but also elsewhere, it will be a tremendous challenge to scale up renewable energy and synchronize the increasingly decentralized energy production with a more flexible energy demand. This is where we need a lot of innovation, and we need it fast. It won’t be the next government of Germany that can solve all the issues, but the goal is clearly set, and time is a crucial factor, especially when it comes to innovation cycles. Now it is time to start adopting the necessary policies. Even more since the International Energy Agency has calculated that almost half of the additional emissions reductions in 2050 relative to current policy plans would be from technologies that have not yet reached the market today.

Is there a climate tech startup that you are really excited about and if so, tell us how you would advise them to build their business internationally?

Fridtjof Detzner: I would pick traceless, a portfolio company of ours, which creates a substitute for plastic. They’re using a second stream of organic matter, which exists worldwide, and you can get it at a low price. It’s super interesting because it allows companies to have plastic substitutes.

Dr. Bernd Weber: I cannot pick one startup, also since we, as an independent think tank, see so much innovation taking place right now which is fascinating. One thing which I find very promising from a macro perspective is the end-to-end digital verification of CO2 emissions, because thereby we can use the CO2 price signals, which we have already implemented politically in Germany and Europe and combine it with technology to provide transparency and incentives to reduce CO2 along the entire value chain. Together with the Fraunhofer Institute we are currently looking into this and will publish a joint study in autumn after the German election.

Lubomila Jordanova: I would love to explain my company and what we do at Plan A because it has significantly changed, especially over the last six months. At Plan A, we’ve developed a data processing software that can take any data in a company and turn it into ESG (environmental, social, and governance) insights. Based on these insights, we’re automatically able to develop a carbon reduction and ESG improvement plan, which comes with very granular, tangible suggestions for activities, policy changes, and so on within a company. We work with large corporations, banks, automotive, and data processing software companies. We believe in scientific knowledge, which is why more than a quarter of the Plan A team are climate data scientists, carbon accountants, ESG experts, and climate modeling experts.

An example where there is still a discrepancy between stakeholder alignment is a company called BeWorm. This is a science-based company that comes from Aachen University, which uses worms to essentially make plastic disappear because the worms can eat the plastic. They’ve had a very interesting situation with funding because they have a scientific approach but also the “worm-based approach”. This innovation may not be adopted because it doesn’t fit the standards of a typical investment, we’re familiar with.

Sebastian Heitmann: If we look at the 51 gigatons that you mentioned coming into this call, that’s the current amount of CO2 we emit every year. I think plastic is important, but it’s also a bit of the panda of climate science (thinking of how the panda is used by WWF). Plastic is not such a large problem from a pure climate crisis perspective. We see a lot of initiatives on plastic pollution, and plastic waste is certainly not good. But if we got rid of the plastic problem, it would just make a tiny dent in the climate question. It’s not small, but in the large scheme of things, it’s not huge.

So back to energy – I think it’s always tough to understand that this energy source of heat below our feet is the world’s largest battery. Our planet itself is a battery, and we’re not using this energy today simply because we have no efficient way of accessing it. For me, it’s always tough to understand how we can fly to Mars but are not able to dig a hole 10 kilometers deep and solve all our energy problems. That’s why we invest in a company called GA Drilling, which has tried to solve that energy problem by drilling deep holes. People are always scared that we’ll sort of cool off the planet by this method, however, it’s 6,300 kilometers to the core, and they’re only drilling 10 kilometers deep. It’s starting to become a really trending topic in the investor scene.

What are some common mistakes or misconceptions you would urge climate tech founders to avoid?

Lubomila Jordanova: One of the common mistakes that I see in the space is that everyone thinks they can build a sustainability company. Climate tech or green tech is like MedTech but for the earth. You’re dealing with the health of the planet. And you really need to be respectful to the mechanisms through which it works, which means that you really need to understand the science. We’re facing yet another issue of increased cycles of greenwashing. Think there have been many controversial announcements in the news worldwide related to certain technologies that have claimed efficiency but have not been able to achieve it. We need to be super careful with how we apply ourselves to the topic and use our capabilities and skills. So if you’re a product manager and find your topic in climate change, that doesn’t mean you need to essentially build a company yourself. Maybe first test yourself in an existing company that is really basing its choices on science. Because we have one shot with this experiment that is now ahead of us to address climate change. And we are the ones that are going to be on the losing side if we fail on this one. So we need to make sure that we use our resources to our best capability.

As we approach the end of our session, can you comment on food waste?

Sebastian Heitmann: I would love to see technology about food waste, since it’s typically more about behavioral changes, which are, from a VC perspective, tough to make sense of regarding the economic impact. So technology-wise, we are looking rather at finding other ways to not necessarily eliminate food waste, but making it less impactful on the planet by having sustainable agriculture, by having lab-grown meat, for example.

Fridtjof Detzner: We’ve been looking deep into a lab-grown poultry meat substitute. The early indication had been that this is positive and it’s going to produce much less CO2 than normal grazing of chickens, but actually, new studies have shown that it’s not as impactful and the growth vectors needed to cultivate the meat are still super CO2 intensive. It turned out that for a poultry substitute, it was even worse when it comes to CO2. It was super interesting to have this level of detail and understanding to judge if something’s really part of the solution or if it’s part of the problem.

Sebastian Heitmann: I know the problem very well, I can second that very much. Our scientists sort of hit our fingers and say no-no, do the full math and a full lifecycle analysis. Frankly, this happens to every other idea. Every other pitch deck we look at, while it looks like an interesting business, at the end of the day, the emissions created in the process may not be ideal. It often ends up just being marginally positive or even negative. We say that any technology that is not able to pay back its embodied emissions before 2030 and hence does not become a net reducer, is not relevant. And that kills a lot of different businesses.

Dr. Bernd Weber: If I may add a political perspective on agriculture, I think it’s very important to highlight that we are pricing emissions in every sector now, but we are not doing this in the agricultural sector. So this is a sector where regulation and policy approaches are lagging behind and where politicians need to think hard about how to reduce CO2 emissions there as well. And, of course, any form of technological innovation that can help us to accelerate CO2 cuts in this politically difficult sector will be highly valuable.

In closing, what is something that you can do personally that has an impact?

Fridtjof Detzner: We often talk about using less plastic or eating vegan, which is all positive. But what is often overlooked is where to invest your personal money and who to work for.

Dr. Bernd Weber: I would go in the same direction. Question yourself every day. What are you working on? What is the product that you buy? What is the fruit of your labor? And is this contributing to the solution or the problem?

Lubomila Jordanova: Even if you’re not working on the problem of climate change directly, check where the products you buy are made and look at the small print because quite often, we don’t even know about the impact we’re making. As consumers, we have a lot of influence.

Sebastian Heitmann: It’s about making the right choice daily, and about voting the right people into power.

 

Panelist Bios:

Fridtjof Detzner is Co-Founder at Planet A Ventures. After a life-changing trip, Fridtjof shifted from co-founding a website building company and instead focused on startups that contribute to achieving UN sustainability goals. Planet A is an investment fund with a science team on board who can determine how much better a product/ service is compared to today’s current options, broken down on a per-product basis. Fridtjof is also the co-founder of the DIY website builder Jimdo.

Sebastian Heitmann is Co-Founder at Extantia Capital, a venture firm that invests in early-stage technology companies that reduce significant amounts of CO2. Originally an economist, Sebastian started investing in the space in 2007. Following the 2015 Paris Agreement, he started the company to help put together some capital for entrepreneurs who contribute towards planetary health.

Lubomila Jordanova is Co-Founder & CEO of Plan A, a Berlin-based startup that has developed a science-based, end-to-end SaaS platform that enables companies to measure, monitor, reduce, and report their environmental footprint while improving their ESG performance. She is also the Co-Founder of the Greentech Alliance, a community of 500+ startups which are connected to over 350+ advisors from VC, media, and business, who help them monthly with advice and feedback. Lubomila realized there is a fundamental issue with how we perceive our consumption patterns and our capacity to manage the ecosystem, rather than being peaceful and respectful participants in it. She dedicates her time to the topic of sustainability and especially corporate engagement.

Dr. Bernd Weber is Founder & Managing Director of EPICO KlimaInnovation, an independent think tank that develops market and innovation-oriented strategies and concepts for reaching net-zero. Previously, he was the Director Industry, Energy and Environment at the Wirtschaftsrat (Economic Council), where he was responsible, among other things, for the work of the Federal Expert Commission on Energy Policy and the decision-making summit “Convention on Energy and Environmental Policy”. He founded and led the European Energy Lab 2030, an agile energy policy think tank bringing together 60 experts from politics, business, and science.

 

If you’re a German startup in the climate tech space and would like to get started on your expansion journey to the U.S., join our U.S. Market Access Program with a climate tech focus in Q4 of 2021, or speak to our company scout Alice.