The fundraising playbook for software has been set for decades. In climate tech, not so much. A new initiative aims to bring clarity for founders and investors, and fast-track climate technologies.
While climate tech companies could potentially reduce 90% of 2050 global emissions if they were deployed at scale, only one-tenth of those firms are currently commercially competitive. Many of the software innovations that shape our lives were built on common frameworks, but an adequate blueprint for bringing climate technologies to scale does not exist.
That’s why EQT Ventures, a Swedish venture capital firm committed to early-stage tech startups, says it has launched The Climate Brick, a new community and framework aimed at speeding up European climate tech.
Sandra Malmberg, a partner at EQT Ventures, told Impact Investor that the main aim of The Climate Brick is to get more climate companies to scale. “And with scale comes impact. By creating different scaling formulas, or basically a roadmap to scale, we can get those companies to scale faster, and thus to impact faster,” she said.
The Climate Brick also wants to connect the ecosystem needed on the journey to scale, according to Malmberg, who talks to around three to five different companies seeking investment each day.
Seven bricks
Ted Persson, a partner at EQT Ventures, believes that while most technology investors are very comfortable investing in software, climate investing is more problematic. “They’ve done this since the mid-90s, and the playbook is kind of set. So if you say, ‘We’re raising a seed round, or we’re raising an A round or a B round’, everyone knows what you’re talking about. But in climate investing, and especially if there’s a hardware component, it’s different.”
In the past year, The Climate Brick analysed 3,000 companies through a set of data platforms, conducting 100 expert interviews. Based on that information, it has come up with what Persson called “seven archetypes, basically seven bricks”.
The idea is that each brick represents a different type of company, ranging from gigascaling to green deployment and moonshot. Each business profile (called Bricks) has a unique risk profile, a suggested capital stack, and a roadmap for scaling the business.
“What we have noticed is that a software investment round, a really good one, can be closed within the venture capital landscape within days,” said Persson. “They go out, they meet a handful of investors, maybe a dozen, and then they get a bunch of term sheets. And then the next week, it’s done. We don’t see this in climate tech, it takes way longer.”
Open letter
With a record 43% of $49.1bn in global climate tech venture capital investments deployed in Europe in 2023, The Climate Brick has come at a crucial time, Malmberg and Persson said.
An open letter, a call to action for the climate tech community to create the missing manual to scale and impact, was signed by 50 signatories, including representatives from HSBC, Norrsken Foundation, Swedish electric transport company Einride and Sweden-based battery developer and maker Northvolt.
“If you look back in history, technological shifts have gone really fast,” said Persson. “The world develops in step changes. And I think we’re in the middle of a very interesting step change.”
The Climate Brick project, which was funded by EQT Ventures and Contrarian Ventures, will be free for all climate tech stakeholders to join.
‘Removing friction’
While a funding round for a software company would typically involve a founder and equity investors, “in climate hardware and climate deep tech, you have an ecosystem of stakeholders that you need to align and engage with”, said Malmberg. “These range from universities to banks, to VCs to founders, so it’s much more complex. And today, they’re not united around a common language, and must scale these companies.”
The fundraising journey for most climate tech founders is “very messy” and “unknown”, said Persson. “There are so many questions being asked along the way all the time. How much should I raise? What are the milestones required? What type of capital to raise? How do I structure a Letter of Intent and offtake agreements? And what about strategic investors? When should I bring them in?”
“We want to remove all the friction and create a journey that is as straightforward as the software investing journey. So that is the Climate Brick,” said Persson.
