Sustainability technology has been a sensation in recent years. Investors chase promising ESG companies that urge governments ambitious laws, and companies come on board to say goodbye to new solutions. Sustainability financing is expected to achieve unprecedented level with the BCG Henderson Institute estimate Accumulated global investments to achieve zero net to achieve 75 trillion dollars by 2050.
And yet the picture behind the curtain is not quite as rosy. Accordingly StatesmanVC investments in sustainability and climate technology have decreased steadily since 2021. While AI startups ensure the financing rounds within just a few weeks, sustainable-focused companies can spend years in the donation. As a partner at VC Consulting Agency WaveupI have seen dozens of extraordinary startups that are forced to start despite validated technology and clear market potential, from sustainable agricultural solutions to carbon capture technologies.
Something just doesn't add up in risk capital. Why are investors not the innovations required to create a more sustainable future? The core problem lies in the assessment of the investment options.
The great expectations of no agreement
When looking at sustainability technology companies, most VCS expect quick acceptance, hockey stick growth and the massive total addressable markets (tams) (understandably, the VC formula may simply not work). They apply the same metrics and expectations that are used for SaaS and KI startups, and although some sustainability companies may fit this form, many are simply in the market launch to demonstrate these characteristics.
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Consider one of the customers in which we have worked together with the development of revolutionary ocean cleaning technology. The team managed to build a product with a clear and proven ability to drastically reduce the pollution of the ocean by reducing the amount of microplastics that get into the water. Despite the recognition of the United Nations and an excellent customer order, the company has been struggling with funding for years. For VCS, the lack of rapid growth overshadowed the patented technology, earlier environmental impacts and an excellent economy. Although most investors recognized impressive results, they could not feel comfortable with the adoption time bar and the growth speed, since for many corporate customers of sustainable investments, they are more of a “beautiful” category than a “must-have”.
It does not help that many sustainability solutions are bought by several stakeholders within organizations, which leads to longer and unpredictable sales cycles. Even worse, in contrast to purely software -based startups, many companies also need considerable investments in physical assets or infrastructures. The result? Dark statistics: While traditional technology companies from Serie A to Series B usually take three years, sustainability technologies need years to achieve scaling on average for seven years.
Conclusion: Impact investments do not yet correspond to the conventional VC returns. While there has been a concerted push since 2015 to argue that the effects of the returns are approaching, the data often tells a different story – and this performance gap creates a fundamental voltage with the VC model. Venture funds work under strict restrictions: You have trust in your limited partners, your fund structures of closed funds and defined schedules for submitting returns. The ability of a fund to increase Fund II or III depends entirely on the performance of its previous investments. In this context, the support of “good investments” that are not viable enough will paradoxically risky – even for an industry that is based on risks.
Rethink the climate tech model
Financing of the next generation of Climate technology Could require new solutions from everyone. The question is, are investors really ready to find new models?
With many VCS (without calling names) we see a disturbing trend: instead of looking for new possibilities to adapt investment framework and financing mechanisms or to collect more time for the procurement of startups with high potential climate tech, set consultants for repositioning Their existing portfolios companies as “ESG-friendly”. This essentially includes the search for an ESG angle in otherwise conventional software companies in order to report LPS steps that were carried out during the financing of sustainable tech solutions. To mention unnecessarily that this approach does little to promote a sensible environmental and social change.
What is the alternative? We have a few ideas.
1. Remember traditional financing mechanisms
VC investors have to work with other ecosystem actors to compensate for the financing risks and at the same time compensate for risks and yields. Today, leading impact investors are working to combine traditional VC money with impact-first capital and to structure investments with different return tranches for various investors. Some use catalytic capital to endanger early stamina or create sales -based financing options for steady sustainability companies. Others develop result -based financing models that are bound with the effects of metrics.
For companies that have to deal with VCS as a whole, funds in Evergreen This has no fixed life cycles and enables longer stopping periods can better correspond to the development schedule of Sustainability Tech. Companies and large companies that confront the pressure to the transition to Net Zero can also become sustainable supporters by offering both capital and pilot opportunities for sustainability start -ups.
2. offer implementable help to accelerate the path to scaling
The monthly advice in the board meetings will be valuable, but the real contribution is practical help with the acceptance of adoption. The best impact investors take their time in which their money consists of partnership with companies for companies in order to secure pilot options and market validation for their portfolio companies, to work with government agencies on grants and subsidies and to work with industry consortia to accelerate acceptance.
3. Adjust metrics and expectations
Investors must consider new framework conditions for the evaluation of sustainability investments. Traditional SAAS metrics could be replaced by impact-adjusted indicators that take into account both financial and sustainability results or enable longer return life cycle that match the development time bar of the sector and adoption curves.
Important to note: It is not about lowering the standards. It is about adapting them to the unique properties of sustainability technologies.
For VCS, the question should not be whether you invest in sustainability technology, but how you can adapt your approach to these critical innovations. Without this shift in perspective, we risk the next wave of transformative technologies that could help to manage our most urgent ecological and social challenges. The greatest risk may not be to support sustainability technology too early – but too late.
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