BlackRock CEO Larry Fink recently predicted that the next thousand start-up unicorns would be in climate technology. Cleantech is certainly back and well on the way to creating nearly $1 trillion in market value. I admit, though, to a deep foreboding when reading about this oncoming herd of climate unicorns.
Are these the mythical unicorns usually born in Silicon Valley that disrupt relentlessly, need little outside help for their founders and descend like deus ex machina to save the day and let everyone else off the hook?
Or are these the kind of unicorns that take immense effort; collaborate actively with a massive ecosystem of other smaller companies; and depend on cross-sector support, including government, media and philanthropy?
We have a growing tendency to rely on big tech to solve the world’s problems, lacking functioning governments and markets. If it’s not the sexiest breakthrough tech, with billion-dollar potential and a charismatic founder, then it’s not worth investing in.
But the stakes are too high this time and time is too short. We cannot sit back, relax and let the old type of unicorns solve the problem alone. We need a new breed of unicorn, countless smaller businesses and a cross-sector approach to win this fight.
Climate tech yesterday: Reports of its death were greatly exaggerated
Back in the early days of the Obama Administration, it seemed that the long-awaited price on carbon might become a reality. When that fell apart, investors fled the cleantech space and stayed away for the better part of a decade. The received wisdom was that climate tech was, at best, too expensive and ahead of its time, and, at worst, a liberal hoax and money pit.
But slowly, surely – and often too quietly – the best of the climate companies rose. SolarCity, Sunrun, Sungevity, Tesla and dozens of others have shown the way and generated extraordinary value. Virtually every one of these companies derives its core model from now-proven infrastructure, be it solar power, electric vehicles and batteries, or even financial solutions to make these advances affordable for everyday buyers.
These are a new breed of collaborative, cross-sector unicorns building profitable real businesses that result in tangible products, supported by ecosystems of smaller businesses like solar installers, car parts suppliers, sources of credit and the associated jobs. Note that few, if any, of these businesses invented new technology; most are integrators or financiers of technologies that took decades and billions to invent.
In doing so, these companies all benefited from strong public sector support for invention, testing and scalability. Their innovations often sprang from research spanning generations, starting with bench science at major universities and national laboratories.
Among the earliest buyers of energy-efficient vehicles were large government fleets and the military has pioneered the combat-tested use of renewable fuels and power. In turn, the first generation of successful climate start-ups are now generating social value and tax dollars to repay those grants, investments,- and loan guarantees.
These are not your average Silicon Valley unicorns, then.
Climate tech today: Fully charged and ready
Meanwhile, however, the tide has turned completely. Global collaboration largely failed, legislation on carbon pricing stalled in the U.S., and the world’s eyes have turned increasingly to moonshot innovation to save the day. Time just ran a piece on how the climate fight is going private, while The New York Times wrote about how Europe needs investors to focus on the environment, not NFTs, in order to solve the climate crisis.
This is a hallmark of the mistaken assumptions in the innovation sector; society has missed the point. While part of the climate solution will have to come from new so-called breakthrough technologies, one of the keys to scaling will be the commercialization of comparatively proven technologies and approaches, not all of which come from tech unicorns.
We’ve already seen how effective this can be. The breakthrough that made solar power possible at scale in America wasn’t perfecting panel technology (although that was a condition precedent); it was finally leveraging financial technology to make the innovation affordable. These companies became unicorns, it’s true, but they hardly fit the mythological mold.
More workaday solutions are also promising, if not maybe destined for billions of dollars each. For example, one of the biggest hurdles we face right now is scaling the charging infrastructure necessary to power the transition to electric vehicles. I recently met a startup seeking to maintain those chargers. While a maintenance service might not generate a unicorn exit, there will be millions of chargers out there that will need servicing. This is an investible idea that deserves resources.
Neither can venture capital alone be the driving force behind climate solutions. For all the hype, VC is only a tiny fraction of the total asset base of the world. We can certainly show the way, finding transformative models and technologies and building relationships between companies and government entities. But once we do, there needs to be a deluge of capital from private individuals, institutions and the government because this is a much bigger problem than any one sector can tackle.
This is the most exciting time in climate tech history. We’re seeing compelling advances in energy generation, storage and efficiency; in agriculture and oceans; in mobility and supply chains; in sustainable materials; in real estate and infrastructure; and in financing solutions to make all of this affordable. We are ushering in the future of community solar and other inexpensive, scalable models to democratize access. Not only that, but we’re also seeing the increasing prominence of ESG standards influencing the way capital moves.
Climate tech tomorrow: Not just unicorns, but the whole zoo
Now, we stand at a crossroads. There have been deep, profound disappointments along the way, from the Paris Accords to NIMBYism, to geopolitical events driving us back into the fossil fuel past. But there have also been triumphant moments of climate tech generating huge successes of major legislation favoring climate action and steadily increasing public support.
We cannot fall back on the zeitgeist that animates so much of innovation funding and attention in America: the hunt for the almighty unicorns that will save the day. So many investors feel that something isn’t worth doing if it’s not a unicorn. Policymakers are placing a huge public burden on entrepreneurs and VCs to ride in like the cavalry because other mechanisms have thus far failed.
To be clear, I’m not opposed to moonshot unicorns. We do need game-changing advancements like hydrogen fuel cells and super-efficient batteries. The companies that develop the winning technologies will be very successful, but they will mostly be a new breed of unicorn: A more sustainable, collaborative and valuable kind, surrounded by an enormous, cross-sector innovation ecosystem.
The climate tech revolution is underway and we are finally poised to reap some benefits of all the preparatory work that’s been done. Now let’s keep it going strong; invest in potential unicorns for sure, but also invest in the rest of that ecosystem aggressively, push for the policies we need, elect the right leaders and make sustainable changes to our way of life. In short, we cannot wait for a few rare tech companies to save us.
Innovation and entrepreneurship thrive best when we engage every part of our society. When we support the whole zoo, not just the unicorns, is when we create the real change the world needs now.
Oliver Libby, H/L Ventures
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