Harnessing the Power of Capital for Climate Impact: Investing in Green Molecules- Insights from MIT’s Tough Tech

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Energy Capital Ventures

In the rapidly evolving landscape of climate technology, it's crucial to stay on top of the latest trends and strategies. We are excited to share some key insights from the recent Tough Tech Summit that could shape your approach to capital allocation, policy, and impact. Organized by The Engine, the Tough Tech summit is a place for deeptech founders and investors to meet, exchange ideas, and work together to build the future we will all live in. While the event targets a broader audience, we will focus on key messages on the Climate side and its relevance for green molecules.

With plenty of Green Molecules innovators presenting, including recently announced ECV Portfolio Company, Osmoses, it was clear that these technologies are going to put a dent in global carbon emissions. With more funding, and the right partners, Green Molecules are positioned to drastically decarbonize hard-to-abate sectors.  Energy Capital Ventures is excited to serve as the platform that will bridge these companies with the Natural Gas Industry.  

The Long Game

The ClimateTech sector is not for the faint-hearted. It requires patience, resilience, and a long-term vision. The technology may take time to mature, but the potential for compounding value over time is immense. This is not just about saving the world; it's about creating world-class returns.

A New Class of Investors

A new breed of investors is emerging, with a focus on deep tech and infrastructure. These investors are more akin to Private Equity than Venture Capital, and they are ready to back the right ideas with the necessary capital. While traditional Venture Capital is necessary in the early days of the technology development and pre-commercial efforts, Private Equity and early Infrastructure funds come in to fund First-of-a-Kind (FOAK) and early projects, providing the necessary capital for climate companies to commercialize their innovations. On the LP side, traditional endowments are beginning to shift their assumptions, recognizing that ClimateTech is not a concessionary investment, but a sector that can deliver substantial returns.

The Role of Corporate Allocations

Climatetech innovation at scale will not occur in a vacuum. Startups need to work with energy incumbents who have the tools, know-how and balance sheet to deliver cost-effective, safe and reliable energy for all. From a capital stack perspective, panelists at the summit highlighted the importance of on-balance sheet corporate allocations to work with top climatetech companies. By working closely with these companies, incumbents can gestate ideas and drive them into their portfolio, creating a symbiotic relationship that benefits all parties involved.

The Impact of Policy

Policy and politics are increasingly intertwined in the energy sector. Understanding customer needs and future market trends is crucial. If you are in Deeptech, it's not just about R&D and your product, but also about your business model and market readiness. Policy plays a crucial role in shaping the ClimateTech landscape. It can act as a catalyst, kick-starting new ventures and driving innovation. However, it's essential that businesses are not overly reliant on policy, and that the fundamentals of the business model are sound in the long run.

The Challenge of Scale

Scaling up is a significant challenge in our industry. This vintage of climate investments needs to work, both from a capital and impact perspective. We need to get it up and running like companies that have done it for a long time. It's not just about incentives but also about market mechanisms and taking care of dislocated communities in the transition. Another challenge will be navigating the “liquidity gap” - companies might generate value that compounds over time to tremendous returns, but liquidity within fund cycles will be a challenge as the timelines are longer. However, these challenges are not insurmountable. With the right support, guidance, and access to capital, ClimateTech startups can thrive and deliver on their promise.

The Power of Storytelling

The narrative around ClimateTech needs to change. This is not philanthropy; it's about building good businesses driven by great founders. It's about commercializing solutions that can scale and deliver value across the chain. This is also reflected in the make-up of attendees and the background of ClimateTech founders, who are more and more coming from business backgrounds and startup success in other industries. The business case is more clear, the economic opportunity has been proven, the right people are in the room.. This is definitely no longer a philanthropic game.

The Magic Wand

If we had a magic wand, we would wish for easier access to first-of-a-kind capital that doesn't take years and millions of dollars to access. We would want to see projects moving quicker. Today, 60% of the energy in Asia is coal, and the plants will be depreciated in 50 years. We need to change this, and we need to do it fast or we will be locked in a future where emission reductions on a global scale are harder and harder to achieve.

In conclusion, the ClimateTech sector is ripe for disruption. It offers a unique opportunity to drive both impact and wealth creation. Continued Green Molecules innovation by entrepreneurs dedicated to solving tough tech problems is creating a market with enormous growth potential. As energy executives and ClimateTech founders, you are at the forefront of this revolution. Let's seize this moment and shape a sustainable future for all. At ECV, we are big believers in a sustainable, resilient and cost-effective future where Green Molecules play a front and center role in decarbonizing the energy sector.