Sustainability tech has been all the buzz in the last few years.
And yet, behind the curtain, the picture isnt quite as rosy.
According toStatista, VC investment in sustainability and climate tech has been steadily declining since 2021.
Something just doesnt add up in venture capital.
Why arent investors backing the innovations needed to create a more sustainable future?
The core issue lies in how they evaluate investment opportunities.
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Consider one of the clients we worked with developing revolutionary ocean-cleaning technology.
Despite recognition from the UN and an excellent client roster, the company has struggled with financing for years.
Worse, many companies also need significant upfront investment in physical assets or infrastructure, unlike purely software-basedstartups.
The bottom line: impact investments arent yet firmly matching traditional VC returns.
A funds ability to raise Fund II or III depends entirely on the performance of its previous investments.
Rethinking the climate tech model
Financing the next generation ofclimate techmight require new solutions from everyone.
The question is, are investors truly willing to find new models?
Needless to say, this approach does little to drive meaningful environmental and social change.
We have a few ideas.
VC investors need to work with other ecosystem players to offset financing risks while balancing risks and returns.
Some use catalytic capital to de-risk early-stage investments or create revenue-based financing options for steady-growth sustainability companies.
Monthly advice in board meetings will be valuable, but the true contribution lies in hands-on help driving adoption.
Investors need to consider new frameworks for evaluating sustainability investments.
After all, the biggest risk might not be backing sustainability tech too early but too late.
Tech investing isa key themeof this summersTNW Conference.
The event takes place on June 19 and 20 and tickets arenow on sale.
She currently serves as a partner at the VC consulting agency Waveup.
