Half of the largest European venture capital deals in Q3 involved climate tech startups as the sector has seen less severe declines than others in VC dealmaking. A total of €9.1 billion (around $9.6 billion) was invested across 748 deals in the first 9 months of this year, according to PitchBook‘s Q3 2023 European Venture Report. This represents a fall of 42.8% for deal value and 38% for count compared to 2022. (FinTech and Software saw >70% declines)
Jørn Haanæs, Investment Director and Partner at Katapult VC (HQ in Norway) shared his view on climate tech with us on ClimateTech Investor Panels.
Katapult VC is a global investment company focusing on early-stage impact-driven technology startups. Over the last 5 years, Katapult has made 169 investments in impact tech startups from 47 different countries. Katapult invests within three investment verticals: Ocean-, Climate- and Food-tech. Katapult has run nine flagship accelerator programs and three corporate accelerator programs. Jorn has been with Katapult for about 3 years managing the climate fund, has reviewed 1000+ and interviewed hundreds of startups every year; before this, he was a successful entrepreneur who exited from his B2B software startup. He believes the climate challenge is the most pressing challenge for humans, and also will be the most profitable opportunity.
Interviewed by Jessie Chuang, the interview questions include:
Major public investments (procurement) and policies driving ClimateTech private investment momentum in Europe, and the timeline of impact.
Which nascent sub-sectors of climate tech have the most promising potential? (What sub-sectors are too crowded?)
How do you identify and evaluate them during diligence? (Invest after PMF, revenue?)
Please introduce Katapult and talk about your previous and recent investments and portfolio-building strategy.
What companies in your portfolio are growing faster than others? Lessons learned? Does impact investing sacrifice return for impact?
Takeaways:
In the climate tech space, we usually look at energy, mobility, cities, and enabling technologies. Cities and urbanization (urban tech stack) are the driving forces for reducing CO2 footprints. It relies on companies and consumers to adopt new innovations better than the previous ones, so you must make better or cheaper products. Climate tech needs to make its unit economics work.
Now the regulatory framework driving this is strong, but we mostly invest in B2B, less in B2G. CO2/externality taxing has started to influence the market to recognize climate tech startups, and we need to respond.
For seed-stage investors, we need to look at a very large number of startups and invest in a portfolio of enough deals in different opportunities. The power law is true in the early and later stages. Finding winners is much more important than negotiating the price. Identify winners and invest early, make them ready for series A investors, and we’ll generate returns.
The acceleration model after investing has been proven to be very effective and valuable, startups can fix their most important problems during the program (note: it can be remote). Katapult’s portfolio companies have a very high survival rate of startups – only 23/169 failed.
Overall Katapult has an average net IRR across funds of around 41%, which proves that the financial return of impact investing doesn’t need to be compromised. Actually, returns come from impact! Impact investors are different from philanthropy investors, and should not sacrifice returns for impact.
Katapult started as an impact investor in 2017 backing startups working on both social and climate issues, no one was doing that back then. These companies need much more than capital, and Katapult’s main value is connecting them with knowledge, networks, and opportunities, also helping them understand, classify, and communicate their impacts to drive value creation. Both Africa, Ocean, and climate funds are built from insights identifying under-invested areas, and applying the same method to invest and grow.
We invest in mostly revenue-generating companies, revenue-generating isn’t product-market-fit (PMF), and most seed companies don’t have PMF. We try to help startups understand how to run structured experiments to get to PMF. There are two very important distinguishing factors that de-risk startups: the first is closing the first customer to have revenue, and the 2nd is making sure you have quality revenue, don’t scale too fast, and continue to do experiments.
The boom and bust in previous clean tech cycles are faults of our financial system. We are going to decarbonize the entire economy, the opportunity is huge! The first order is energy since it goes into everything else.
About ClimateTech Investor Panels – ClimateTech is hard for investors not only because it’s mostly deep tech, but also because the variables for unit economics and adoption readiness are evolving. We interview one ClimateTech investor every Friday, a 30-minute Zoom meeting without live-streaming, we’ll do a briefing after every interview to be shared with broader networks. Join Zoom meetings to talk to speakers, or invite others to join the conversation/follow insights (Sign up).
