Why startups should care about geopolitical repercussions of US climate law

Pity Donald Trump. He spent four years in office tearing up trade agreements and ranting about rewriting old ones, all to little avail. Now, a key U.S. climate law is doing more to change the dynamics of international trade than any blustering and bullying ever did.

The Inflation Reduction Act has been hailed as a win for domestic producers of minerals that are critical to electric vehicles and other hallmarks of the decarbonized economy. The most impactful so far have been the provisions that require a minimum amount of domestic sourcing and processing to be eligible for the $7,500 EV tax credit. That language alone has spurred tens of billions of dollars of investment in the U.S. battery supply chain.

But there’s no way the U.S. can produce all that’s needed — the country simply doesn’t have enough reserves, while China has a lock on many parts of the market. So the law also includes a handy loophole qualifying minerals from countries with which the U.S. has a free trade agreement. The law already qualified “North American” suppliers, and the free trade language opens the door further.

Late on Monday, the door opened a little wider as the U.S. and Japan announced a trade deal encompassing cobalt, graphite, lithium, manganese and nickel, all minerals that are key components of EV batteries. The agreement opens up both markets to new supplies of the minerals, allowing battery manufacturers and automakers to benefit from the IRA’s minerals requirement.

For now, Japan is the only country to successfully negotiate a new agreement in the wake of the IRA, but it probably won’t be the only one. The EU, which has made no secret about its displeasure with the new law, is also in talks with the U.S.

In the seven months or so since the IRA was passed, the global landscape for critical minerals and battery manufacturing has changed rapidly, and a potentially steady stream of new free trade agreements promises to keep things fluid. For founders and investors alike, that injects a fresh dose of uncertainty.

Why startups should care about geopolitical repercussions of US climate law by Tim De Chant originally published on TechCrunch

Fusion startup Type One Energy gets $29M seed round to fast-track its reactor designs

One fusion startup is betting that a 70-year-old idea can help it leapfrog the competition, so much so that it’s planning to skip the experimental phase and hook its prototype reactor up to the grid.

The decades-old concept, known as a stellarator, is deceptively simple: design a fusion reactor around the quirks of plasma, the superheated particles that fuse and generate power, rather than force the plasma into an artificial box. Easier said than done, of course. Plasma can be fickle, and designing “box” around the fourth state of matter is fiendishly complex.

That’s probably why stellarators spent years in the fusion-equivalent of the desert while the simpler doughnut-shaped tokamak ate everyone’s lunch, and nearly all of their research funding.

But not all of it. Type One Energy is the brainchild of a handful of physicists steeped in the stellarator world. One built the HSX stellarator at the University of Wisconsin-Madison, two more performed experiments on it, and a fourth worked on the Wendelstein 7-X reactor, the world’s largest stellarator.

Together, they founded Type One in 2019 and nudged forward their approach to fusion at a steady pace. The company wasn’t in stealth — TechCrunch+ identified it as a promising fusion startup last year — but it was operating on a slim budget.

Fusion startup Type One Energy gets $29M seed round to fast-track its reactor designs by Tim De Chant originally published on TechCrunch

Forget banks: Investors should be worrying about the climate

The reports issued by the U.N.’s Intergovernmental Panel on Climate Change are usually grim affairs. But even by that standard, last week’s seemed particularly bleak.

The upshot is that the world has already warmed by 1.1 degrees Celsius, and we’re on track to hit 1.5 degrees Celsius — the “safe” limit set by the Paris Agreement — in the early 2030s. So unless we make drastic changes, the world will blow past the amount of warming deemed safe, just 10 years from now.

There’s a good chance that by the time 30- and 40-year-olds hit retirement, the world will be shitting the bed. The hurricanes, heat waves, polar vortices, fires, floods, droughts — all the things that make us stock the pantry, invest in backup power, and beef up our insurance policies — we’ll be waxing nostalgic about those. Wasn’t it cute how bad we thought things were back then?

Where the fuck is the panic?

To be sure, plenty of people are worried. Problem is, most of them don’t have (or can’t marshal) the sorts of sums required to put a dent in the problem. Meanwhile, those who do are largely sitting out one of the biggest crises — and one of the biggest opportunities — of their lifetimes.

There are a handful of investors who “get it,” but most don’t. Rather than invest in fusion or batteries or carbon capture or grid management tools, they seem content plowing their money into ad optimization software, corporate spend cards, corporate SaaS platforms — CRM, marketing, or payments, take your pick! — or anything to do with the metaverse, really. One after another after another. (Soon, AI chatbots will join the list because, come on, have you seen what happens after the latest toy lands on “60 Minutes”? It’s like a bunch of high schoolers rushing to ape the latest TikTok trend.)

And when they’re not busy financing incrementalism, they’re giving failed wunderkinds hundreds of millions of dollars or fanning the flames of runs on regional banks. Is that what they aspire to?

It would be less frustrating if venture capitalism weren’t tailor-made to tackle a problem like this. Sizable but manageable risks? Check. Needle-moving technologies? Check. Enormous upsides and the potential to refashion trillion-dollar markets? Check and check.

Where is everybody?

Let’s compare two vastly different markets to illustrate the problem. Over here we have software as a service, which investors have lavished with money and attention because those companies produce recurring revenue, which is often steadier and more predictable. Altogether, SaaS companies worldwide raised $122 billion last year, according to PitchBook. In other words, to fund companies that lease software on a monthly basis rather than sell perpetual licenses, VCs invested more money than the entire GDP of Slovakia.

On the other side we have clean energy, which includes everything from batteries to renewable fuels, building electrification, solar, wind and more. Here, investors placed $40 billion worth of bets last year. In case you’re bad at math, investments that eliminate carbon pollution in myriad sectors of the economy were one-third those made just to sell software on a monthly basis.

Venture capitalists once backed companies that took big, consequential swings. In 1946, VC pioneer American Research and Development handed the founders of High Voltage Engineering a $200,000 check to develop a fledgling technology known as X-rays to treat cancer. At $2.8 million in today’s dollars, that may not seem like a lot of money. But remember, apart from ARD, venture capital didn’t exist back then.

Today, those big swings are similarly modest. Probably too modest. Investors should be collectively ramping up their ambitions, but the numbers don’t reflect that. Let’s look at two “big swing” techs: carbon capture and fusion energy. Last year, global VC firms invested just $4.25 billion in carbon capture and a mere $1.1 billion in fusion energy, per PitchBook. Together, they represent a “get out of jail free” card, allowing humanity to produce enough energy to drive the power-hungry process of reversing nearly 200 years of unchecked carbon pollution.

Fusion represents perhaps the riskiest bet of them all. The science has progressed rapidly in recent years, and many startups express growing confidence in their timelines, but there’s still plenty of risk involved. Yet the technology has such tremendous potential, both for the climate and for returns, that investors should be pouring enormous sums into the market.

In that way, fusion shows a way forward. Most fusion companies will need a lot of money, and most probably won’t pan out. But those that do will deliver significant returns. Today, the global energy market is worth $10 trillion. If one company could capture even a sliver of that, it would be rewarded with an absolutely stratospheric valuation.

Given the risky but promising nature of a fusion-heavy portfolio, let’s assume for the sake of argument that investors will need 1,000x return from a winner to cancel out losses from their failed bets. If today’s portfolios assume winners need to return 10x, that means venture capital will need to take 100x more shots. So either firms need to get way bigger or there need to be way more of them. The easiest solution, of course, would be for more firms to dive into fusion. But that would mean that many would fail, too.

Fortunately, fusion isn’t the only climate tech that’s in need of investment. Opportunities are multiplying by the day. Some are riskier than others, but all of them are bets on the future. And given that all of our futures are tied to the climate, if any of those bets pay off, the returns will accrue not just to investors, but to everyone. In climate tech, venture capital has a chance to get back to its roots — investing not just for money, but to change the world.

Forget banks: Investors should be worrying about the climate by Tim De Chant originally published on TechCrunch

Unearthly Materials claimed to have big-name investors, but they weren’t all on board

Ever since they were discovered over 100 years ago, superconductors have seemed a bit magical.

You might have seen one on YouTube, levitating above a pool of liquid nitrogen, shrouded in vapor as the super-chilled seventh element boils off. Or maybe you’ve been inside a much larger one that was cooled by liquid helium, generating tremendous magnetic and radio waves that allowed doctors to peer inside your body as part of an MRI.

Even with their delicate temperature requirements, superconductors have become key players in science, medicine and technology. So you can imagine the excitement when earlier this month, a team of scientists led by Ranga Dias, a professor at the University of Rochester in New York, claimed in a paper that they’d created a room-temperature superconductor, one that exhibits the same magical properties at 69.8 degrees Fahrenheit, to be exact.

If the claims are true, and if scientists are able to refine the product further, it could become a truly transformative technology. Fusion reactors, which rely on superconducting magnets to confine the blazing hot plasma, would grow smaller and cheaper. The electrical grid would stand to be transformed, as lossless superconductors would make transcontinental power lines a reality. Maglev trains might stop being the butt of jokes and become a real alternative to air travel.

In order to capitalize on their research, Dias and Ashkan Salamat, co-author on the paper, founded a company called Unearthly Materials.

I recently stumbled upon a YouTube recording of a virtual talk Dias gave to a Sri Lankan scientific society and university in which he claimed to have raised a $1 million seed round and a $20 million Series A for Unearthly Materials.

In his presentation, Dias claimed to have prominent investors and respectable fundraising figures. The $1 million seed round featured Union Square Ventures’ Albert Wenger, Spotify’s Daniel Ek, Dolby chairman Peter Gotcher and Wise co-founder Taavet Hinrikus. The Series A included Breakthrough Energy Ventures and Open AI’s Sam Altman; Ek and Hinrikus followed up.

Though its website is spare, and LinkedIn lists just six employees, Unearthly Materials is not exactly a secret. But at the same time, the company isn’t tracked on PitchBook and doesn’t appear on Crunchbase. It’s unusual for a widely publicized startup to raise $20 million without writing a blog post or issuing a press release.

Holy grail of materials science

Unearthly Materials claimed to have big-name investors, but they weren’t all on board by Tim De Chant originally published on TechCrunch

BlocPower hits its stride, landing $25M Series B to expand its residential energy retrofit platform

For all the focus on carbon pollution produced by shipping and aviation, some of the most challenging to abate will probably be residential buildings. In the U.S., housing units stand an average of 130 years before they’re torn down, according to a recent study.

Homes and apartment buildings built 100 years ago, or even 30 years ago, are woefully underprepared for the energy transition. More often than not, their major mechanical systems rely on fossil fuels, their electrical systems are undersized, and their walls and windows are leaky and poorly insulated.

All that can make for housing that’s less comfortable and less efficient than it needs to be.

Nearly a decade ago, Donnel Baird realized that in many cases, paying for retrofits like this can be cost-prohibitive, requiring a lump sum payment upfront. Even though the benefits might accrue over the years, it was a hurdle many owners couldn’t or didn’t want to cross.

So he founded BlocPower, which has been chipping away at the problem for nearly a decade, developing a roster of projects to prove its retrofit-as-a-service business model that’s focused on low-income communities. This week, it announced that it had raised nearly $25 million in equity and $130 million in debt financing.

The Series B round was led by VoLo Earth Ventures and joined by Microsoft Climate Innovation Fund, Credit Suisse, Builders Vision, New York State Ventures, Unreasonable Collective, Kimbal and Christiana Musk, Gaingels, Van Jones, Kapor Capital, My Climate Journey, Tale Venture Partners and NBA star Russell Westbrook. Debt financing was led by Goldman Sachs.

BlocPower hits its stride, landing $25M Series B to expand its residential energy retrofit platform by Tim De Chant originally published on TechCrunch

To fix the climate, these 10 investors are betting the house on the ocean

Climate change is a problem important and pressing enough that investors have begun to grasp the opportunities that arise when trying to solve it. Now, they’ve started to cast their nets wider for other, adjacent opportunities.

Tech that serves to conserve the oceans while using it to replace older, more harmful means of generating energy and food seems to be one such opportunity. In fact, when we asked 10 investors in the sector to share their thoughts on the space, we quickly learned that ocean conservation tech startups are seeing more and more interest from generalist investors now that climate change is hot and people are seeking more ways to mitigate its effects.

“Climate change used to be more focused on terrestrial operations. It is now ‘warming’ up to ocean conservation,” Daniela Fernandez, managing partner of Seabird Ventures, told TechCrunch.

The world’s oceans and its climate have always been tightly coupled. Winds generate ocean currents, which in turn influence weather patterns both over the open water and deep into the continents.

“Our planet is 70% ocean, so the urgency of facing and solving climate change can only be properly addressed if we include the ocean in the equation,” said Rita Sousa, partner at Faber Ventures.

The open ocean also contains tremendous amounts of energy. Previously, accessing it meant drilling into the ocean floor to tap hard-to-reach deposits of oil and gas. But today, it increasingly means tapping the enormous energy represented by the ocean’s winds and waves. Just offshore wind alone has the potential to meet global electricity demand by 2040, according to the IEA, which is well in excess of all offshore oil and gas production today.

Stephan Feilhauer, managing director of clean energy at S2G Ventures stressed the viability of technologies like offshore wind as commercial alternatives to fossil fuels: “Offshore wind has established supply chains across the globe. It is possible today to manufacture, install and operate gigawatts of offshore wind energy using technology and equipment that is well-established and has years of operational data to help us understand its performance. Offshore wind is the only ocean-based renewable technology that meets these criteria today.”

The oceans are constantly exchanging gases with the atmosphere, too, most importantly withdrawing and storing about 30% of all carbon dioxide pollution. The ocean’s capacity as a carbon sink has created problems for myriad marine life, which have depended on historically stable acidity levels that are now creeping higher. However, this very capacity also creates opportunities to put key nutrient cycles to work and capture humanity’s excess emissions.

“A healthy ocean will continue to provide crucial opportunities for carbon sequestration,” said Peter Bryant, program director (oceans) at Builders Initiative. “There are a number of opportunities for increasing the ocean’s ability to store carbon. We have biological approaches that include ecosystem restoration, seaweed cultivation and iron fertilization; chemical solutions where you use minerals to lock dissolved carbon dioxide into bicarbonates; and electromagnetic approaches that store carbon by running electric currents through seawater.”

Founders and investors have a growing appreciation for the ocean’s potential as a resource for renewable energy and its capacity to buffer and even solve some of the climate problem.  “We’re confident in the ocean’s resilience here. It’s simply one of the best resources we have in the fight against climate, and that means opportunity,” said Reece Pacheco, partner at Propeller. “We won’t achieve our climate goals without the ocean. Full stop.”

Christian Lim, managing director at SWEN Capital Partners, agreed: “It took too much time, but finally the ocean is being recognized as a critical piece of our fight against climate change.”

We spoke with:

Daniela V. Fernandez, founder and CEO, Sustainable Ocean Alliance (Seabird Ventures)

Climate change is the elephant in the room. Has the issue’s rising profile sucked the air out of the room or is it bringing attention to ocean conservation that otherwise wouldn’t be there? How have things changed in the past five years?

Climate change has been a topic for decades. It used to be a “nice to have” about a decade ago: “If you have the extra funds to perform climate risk assessment, then we will dedicate it to climate change.”

Now, it’s more of a “must have.” If we don’t address climate change, we’ll see more extreme weather events. Over the past five years, we’ve seen more focus on ocean conservation, but there is still a $149 billion annual ocean funding gap. Climate change used to be more focused on terrestrial operations. It is now “warming” up to ocean conservation.

We are just now beginning to see a distinct shift in tone. The thinking used to be that “the ocean is a victim of climate change,” but now the thought is more “the ocean can become a climate hero” and play a huge role in reducing our carbon footprint. Yet, this shift is still very much in its infancy. In particular, the philanthropic community is just starting to recognize that there is an urgent need to support efforts to develop ocean-based climate solutions.

Until now, most climate funders focused on terrestrial or atmospheric issues, and ocean funders focused on important, but only tangentially climate-related ocean issues such as ending unsustainable fishing practices and establishing marine protected areas. The ocean is already the biggest carbon sink on the planet, and we need to better understand both what absorption of all that carbon is doing to ocean ecosystems, and how much more it can potentially contribute without disrupting its other critical ecosystem functions.

It’s also been encouraging to see governments taking action to truly prioritize and create financial incentives for investing in climate/ocean innovations, such as the bipartisan Infrastructure Law passed in the U.S. in 2022. There is also an upswell of talent realizing that working a “typical” job is no longer an option if we won’t have a liveable planet in the next seven years. We are seeing society reset its priorities and climate is one of the highest ones at the moment.

Climate change has been called “recession-proof” because governments and investors have come to recognize the scope, scale and urgency of the issue. Do you think that’s true of ocean conservation tech as well?

Yes. Climate change and ocean restoration are inherently linked. The ocean is humanity’s biggest protection against climate change, as it produces more than half the air we breathe and absorbs 93% of excess heat from global warming.

Ocean tech and climate change companies and investors all have the same goal. The urgency of the climate crisis has kept passionate funders and entrepreneurs engaged in the development of solutions regardless of the state of the economy.

Climate change has affected the oceans greatly, causing everything from rising water temperatures to more acidification. How are you approaching the question of climate change in your investments?

Seabird Ventures is internally tracking impact and reporting on social and/or environmental factors in our investments. We have externally reported on the following key ocean impact areas:

  • Blue carbon & CO2e removal or avoidance: Initiatives in this category are incredibly important for capturing and avoiding harmful GHG emissions, which contribute to climate change and ocean acidification. The impact of these companies is measured by the weight of CO2e emissions reduced or sequestered as a result of the solution.
  • Waste reduction and circular use: We focus on companies that reduce the amount of solid waste and plastic polluting our ocean. Two approaches commonly used are preventing plastics from leaking into waterways, and plastic cleanup solutions. Plastic pollutants are responsible for choking marine life and destroying both marine and coastal ecosystems. Tracking impact in this category is done by measuring the mass of plastic reduced, avoided or recycled. Companies offering fully biodegradable plastic alternatives are also considered in this area for their ability to displace the use of traditional plastics.

    To fix the climate, these 10 investors are betting the house on the ocean by Tim De Chant originally published on TechCrunch

Divert bags $100M growth equity, $1B financing to tackle grocery store food waste

Every year, about 35% of the food supply in the U.S. is wasted. About half of that’s because of picky eaters or outsize restaurant portions, but the rest happens further upstream, according to the U.S. Environmental Protection Agency, with about 6% to 13% occurring at grocery stores.

For grocery stores, which operate on very thin margins, that loss is significant. The environmental toll is big, too: Grocery store and other retail food losses in the U.S. alone represent 10 million to 20 million metric tons of carbon pollution annually. That’s about as much as some entire countries, like Kenya or Guatemala.

A large part of food waste’s carbon problem happens at the landfill. There, microbes break the food down anaerobically, meaning without oxygen. That process releases methane, a greenhouse gas that’s 84 times more potent than carbon dioxide over 20 years. Landfills can capture the methane and burn it, using it to produce power, for example.

Burning the methane transforms it into carbon dioxide and some other pollutants. While the pollution burden isn’t ideal, from a climate perspective, it’s probably better than the alternative. Only about a fifth of all U.S. landfills capture the gas; the rest just let it seep into the atmosphere.

Part of the problem with landfill gas is that it can be hard to capture. If you’ve ever seen a landfill, you probably understand why. They’re not exactly precision machines.

Intercepting food waste before it hits the landfill changes the equation, though. That’s where Divert hopes to step in.

The company, which was founded in 2007, works with grocery store chains like Ahold Delhaize, Albertsons, Kroger, Safeway and Target to tackle the problem. It starts by analyzing a store’s waste stream and suggesting ways to minimize waste in the first place.

Divert bags $100M growth equity, $1B financing to tackle grocery store food waste by Tim De Chant originally published on TechCrunch

Why so many gigafactories? It’s not just EVs driving demand

The current battery boom might feel familiar to those who lived through the clean tech bubble that burst a decade ago, with an awful lot of money being invested in what are still nascent markets.

But certainly they’re bigger this time around: The number of electric vehicles on the road has more than doubled in the last seven years, for example, and demand doesn’t seem to be slowing. Market share for EVs has been growing even as the overall automotive market has softened in recent years.

It’s been enough to convince automakers and battery companies to commit nearly $300 billion to building a raft of gigafactories around the world, including more than $38 billion here in the U.S. alone. That confidence has cascaded through the market, driving waves of investment that have resulted in over $42 billion in venture and private equity capital committed to battery research, development, commercialization and manufacturing.

For battery startups like Michigan-based Our Next Energy, betting it all on the automotive market, which is notoriously fickle, can be a risky proposition. Demand for cars and trucks often craters when the economy tumbles. EV sales have been historically tied to an even more volatile indicator: gas prices. And as COVID showed, just a few ripples in the automotive supply chain can send shockwaves through the market. The automotive market has a lot of volume, sure, but that doesn’t make up for the fact that margins are typically thin.

As investments go, the automotive sector doesn’t seem like a great place to make massive, long-term bets like the kind required for gigafactories.

And yet the money keeps flowing, and companies like ONE and its investors are increasingly confident that this round of climate tech investments will turn out very differently from the last. What’s behind that bravado?

Why so many gigafactories? It’s not just EVs driving demand by Tim De Chant originally published on TechCrunch

Higher egg prices yield demand for alternatives

Price parity with traditional foods is one of the main challenges for alternative protein startups. However, the avian flu, a shortage of cage-free eggs and a subsequent rise in prices in late 2022 seems to provide an “in” for alternative egg companies to show they can compete.

Egg prices rose from a couple of dollars, depending on geographic location, to over $5 a dozen in December as the avian flu spread across all 50 states, killing millions of chickens and turkeys, and causing shoppers to rethink purchasing the pantry staple and future meal plans. New data from the Bureau of Labor Statistics shows that egg prices rose 8.5% between December and January, while the year-over-year pricing jumped 70%.

There is some good news: Cases of avian flu fell in January with fewer than 500,000 in total poultry deaths compared with more than 5 million in December, according to U.S. Department of Agriculture data. However, Rosemary Sifford, the USDA’s chief veterinary officer, told The Wall Street Journal that this could be short-lived. She said that when wild birds migrate in the spring, the virus is likely to surge again.

While this might seem like an opportunity, I spoke with some startups in this sector and investors to see if alternative egg companies can and should take advantage and race to get their product to market or expand their consumer base.

Higher egg prices yield demand for alternatives by Christine Hall originally published on TechCrunch

Tesla opening its Superchargers to all EVs might be a masterstroke — or a terrible mistake

After a decade of keeping its North American charging network closed to outsiders, Tesla appears poised to allow other electric vehicles to use its Superchargers.

The White House announced on Wednesday that the company would open 7,500 chargers — including 3,500 250 kW stalls along highways — to any EV with the combined charging system (CCS), the standard broadly used in the U.S. (The company has vowed to do something similar before, so maybe don’t hold your breath just yet, though this new Biden administration fact sheet has some hard numbers, which were notably absent last year.) The first bricks in the EV charger wall should rattle loose by the end of 2024.

If Tesla follows through — again, a big “if” given the company’s preference for splashy announcements and optimistic timelines — it could usher in a sea change in EV charging infrastructure in the U.S.

Today, Electrify America, the closest competitor, has about 3,500 fast chargers. If Tesla were to make the change overnight, it would double the number of fast-charging stalls.

Tesla’s main motivator, of course, is getting a piece of the $7.5 billion EV charging pie that’s part of the Bipartisan Infrastructure Law. While opening a portion of the Supercharger network will help the automaker’s bottom line courtesy of the government, the move will also have some knock-on effects that are likely to upend EV charging in the U.S. Here are a few ways those could unfurl.

The cynical take is that Tesla is simply going to use federal money to put even more distance between itself and its competitors. It’s possible, even likely, that the company will use the new funding to add new stalls to its already enviable network.

Tesla opening its Superchargers to all EVs might be a masterstroke — or a terrible mistake by Tim De Chant originally published on TechCrunch