Hardware companies dominate list of promising climate tech startups

What must occur for a startup to affect climate change?

The most promising candidates are inclined to be hardware startups which have spent years developing and proving their technologies, in keeping with a brand new report. Oh, and specializing in energy or raw materials helps.

This reportpublished by Congruent Ventures and Silicon Valley Bank, surveyed greater than 50 experts from academia, finance and the private sector to create the list, which was then narrowed right down to 50 North American companies divided into 4 categories: agriculture and food, energy, buildings and mobility, and manufacturing and materials.

The majority of the ultimate 50 are in manufacturing and materials (18), with energy startups not far behind (13). Agriculture and food were underrepresented, despite the undeniable fact that the sector accounts for a couple of third of carbon emissions, suggesting there’s still plenty of room on this space for brand new founders and investors. Almost all of the startups are focused on hardware, which contradicts the preference of most generalist VCs for software.

That promising climate tech startups are mostly hardware companies may not come as much of a surprise. Climate change is a real-world problem. Software can only change a lot about how people interact with the physical world; if hardware continues to depend on fossil fuels, software can only chip away at margins.

The average startup within the report is 7 years old and has raised $374 million. That last number is skewed by some particularly well-funded startups, comparable to Commonwealth Fusion Systems, Impossible food, Redwood Materials, They AND Terra Powereach of which has raised over $1 billion. The median company, nevertheless, is a bit different, having been founded six years ago and raised $114 million.

The split between the mean and median reflects the undeniable fact that most companies on the list fall on either side of the so-called Valley of Death of commercialization. Early-stage climate tech startups can reach proving that their technology works, but after they move on to commercialization, the fee of a first-of-a-kind facility is commonly much higher than many investors are willing to bear. In the Congruent/SVB report, 28% of companies raised lower than $50 million, while the identical share raised greater than $500 million. In other words, when companies make it across the valley, investors often reward them for it.

It’s also not surprising that the standard company on this list has been around for nearly a decade. Early-stage climate tech startups often must prove the science that supports them, a process that takes some time. Then, hardware can take years to construct and refine. The net result’s that climate tech startups can take longer to mature than traditional software startups.

For investors who don’t concentrate on climate, making long, expensive bets on dangerous hardware startups generally is a tough pill to swallow. But the potential payoff is important: McKinsey Partner recently noticed that the climate technology market is already price $1 trillion and is anticipated to double every decade. In the face of climate change, companies which can be most probably to scale back emissions can capture a major share of that market, and their investors can profit.