While global technology and financial leaders have suggested that the world’s first trillionaire will be someone dealing with climate change and that many unicorns are on the way, current levels of VC are overshadowed by the mind-boggling amounts of funding that are needed to give humanity a fighting chance.
In October, climate technology startups created over US$32 billion in 2021 and, according to Dealroom and London & Co., US VCs invested nearly $50 billion in climate technology companies between 2020 and 2021. However, depending on who you talk to, climate finance Gap = Go it currently stands at $2.5 trillion to $4.8 trillion.
To put this gap into perspective, total global VC funding (across all sectors, including climate) in 2021 was at an estimated $643 billion, and most countries in the world, with the exception of a handful, have a GDP below $4 trillion. In addition, a sharp increase in the number of climate funds and startups some experts concerned about the potential of a bubbleand skeptics might argue that traditional venture capital investment strategies are too risky to make a significant contribution to tackling climate change.
So where exactly do VCs influence global efforts to address climate change? In fact, a large part of the investments will go towards infrastructure investments, as well as emergency financing, which will not bring similar returns to ventures. Likewise, new national policies and programs will be led by governments, and as conditions worsen in certain countries, foreign aid agencies will be crucial actors.
So we will not look to VCs to write billion-dollar checks, create new political incentives, or provide shelter and food to populations in need. However, VC funds and their investment strategies and networks have unique characteristics that give them an important position in these global efforts.
Below, we outline five key areas where we believe VCs can play a role in addressing climate change:
Supporting and de-risking climate-proven technologies
Venture capital has a vital role to play in reducing the risk of climate technologies, which can help reduce costs, accelerate adoption rates and transform markets to enable a decarbonised future. Any hope of tackling the climate crisis requires helping entrepreneurs mitigate technological risks and scale their innovations quickly and cost-effectively.