Why a new London-based Climatetech fund is taking a scalable approach
Late last month, London-based investor Kiko Ventures announced the launch of a $450 million “platform” to support climate tech companies. The aim, say its co-founders, is to take a more flexible approach to funding science-based startups working in the sector. Giving startups time to bring their products to market is key to the strategy.
It probably shouldn’t be surprising that VCs have woken up to the lure of climate tech. As I write this, the UK is preparing for a spike in temperatures which will see a health and life hazard warning come into effect over the next two or three days. Weather events like this used to be relatively rare in Britain, but are now happening with increasing frequency. It’s a similar story all over the world. From winter floods to summer droughts and heat waves, climate change poses real problems. A very good reason for the renewed interest in climate technology.
And according to Climate Tech VC, companies working on climate solutions attracted around $40 billion in investment in 2021. Investor enthusiasm is easily explained by the well-known equation that big problem + solution = opportunity for investors, but it’s worth remembering that we’ve been to a similar place before.
For example, the late 2000s saw a boom in clean technology investment, particularly in North America. By 2012, the bubble had burst, leaving many VCs nursing burnt fingers. There were a number of reasons, but one of the main factors was the speed to market, or to be more precise, the lack thereof. VCs were used to working on three to five year time horizons. Good for software, but it wasn’t a model that suited a hardware-focused cleantech industry.
So what has changed? When I spoke to founding partners of Kiko Ventures, Robert Trezona and Arne Morteani, I was eager to hear their perspective on the opportunities in the industry and how investors can avoid the pitfalls of the past.
Kiko Ventures was created by FTSE-250 listed investment company, IP Group. As Trezona explains, IP Group was already an active investor in climate technology, so the launch of the new platform essentially builds on existing investment strategies while establishing a brand specific to startups that are growing. tackle the greenhouse gas emergency.
“We are looking for transformative companies,” he says. “It could be companies that are working on breakthrough science, but it could also mean companies with business models that can scale very quickly.”
Kiko Ventures was launched with existing climate tech assets (IP Group) valued at £175m and has since made new yet to be announced investments. Portfolio companies include C-Capture (carbon capture technologies), Mixergy (hot water technologies) and Magnomatics (energy-efficient motors and generators).
A common factor is that they are science and engineering based companies – a status shared by a large number of companies in the climate technology sector. According to Morteani, these companies are not always well served by conventional venture capital models.
“The problem with venture capital funds is that they run out of money and their behavior starts to change,” he says. Kiko’s structure is different. As a listed company on the London Stock Exchange, IP Group is backed by institutional investors. This in turn means that Kiko can take a longer term approach. As a permanent investor, it has an indefinite life. “We can behave more like a family office,” adds Morteani.
So what does this mean for holding companies? Well, Kiko positions itself as a lifecycle investor, willing and able to provide funding from pre-seed, seed, Series A and beyond.
As such, Kiko is able to work with founders from the research stage – before a business model is fully developed – and provide ongoing support when the solution is out of the labs and into the market. .
It takes some trust. Kiko Ventures studies technologies such as hydrogen fuels or the processes needed to capture carbon more efficiently. This is hard science and the problem for many early stage investors is not just understanding the business model and the market, but also the more fundamental question of whether the technology is actually viable. For this reason, the KikoVentures team is made up of specialists. “We all have a scientific background,” says Trezona.
By providing evergreen capital, Kiko aims to avoid the pitfalls of the past, but it wasn’t simply investor delays that halted the previous cleantech boom. We can say that the market conditions were not good. Today we have a “climate emergency”. Ten years ago, we heard of much milder global warming. Technologies – such as carbon capture – were seen as a cost and there was arguably no real incentive for emitting companies to invest in them.
So is anything different? Are today’s climate tech startups (and their investors) reaching out to a more receptive potential customer base?
It seems that the answer to this question is yes. The pace of transition can often seem glacial, but regulation, politics, customer demand, and investor pressure combine to drive companies toward net zero. This should mean that technologies once considered an expensive indulgence will become mainstream. “Many companies are developing CCS (carbon capture and storage) plans,” Trezona says. “And companies are eager to have access to cutting-edge climate technology.”
It is not a bubble likely to burst. But what we may well see is the emergence of investors willing to think longer term.