Investing in net zero innovation
Article for Cambridge Institute for Sustainability Leadership (CISL) | By Ian Lane
Ian Lane, Partner at Cambridge Innovation Capital and contributor to the finance session of our 2021 Accelerator to net zero, shares his insights on the world of startup investment and the crucial role small businesses play in accelerating the path to net zero.
Finding solutions to the climate crisis has become more urgent as every year passes – and now with COP26 very much in people’s minds, it feels like that sense of urgency is finally starting to enter the mainstream. There are a number of wide-reaching government interventions being proposed – but start-ups too have a unique role to play in the journey to achieving net zero carbon emissions.
The role of startups accelerating the path to net zero
With the widespread global commitments to halve global emissions by 2030 through the UN’s Race to Zero, the pressure is now on to deliver on these. There’s also pressure to meet the growing ethical expectations of consumers around the world, who are increasingly motivated by the sustainability credentials of companies and products. The funding available for startups is reflective of this. With increased financial support, experts in the field (both entrepreneurs and academics) now have the necessary backing to develop the cutting-edge innovations that will accelerate the path to net zero. No one industry or sector can deliver net zero on its own – but startups have specific strengths which make their active involvement in this journey particularly important.
As the name suggests, disruptive innovators can set about tackling challenges with radical innovations that disrupt all that has come before. The Cambridge eco-system is a prime example of where ground-breaking science is translated into world-leading companies that make a positive impact around the globe.
Starting from scratch, founders can build a company that is entirely tailored to its purpose – allowing them to move with agility and scale at pace, in a way that other companies constrained by bulky processes and supply chains cannot. Without shareholder interests to protect, startups can take much bolder risks to advance in the field. Although these risks don’t always pay off scientifically or commercially, there is always progress and there is always learning.
Where risks do pay off and startups deliver a highly advanced sustainable product, not only are innovative solutions delivered to the world that might never have otherwise been found, but it puts pressure on bigger companies to keep up thus promoting even more innovation.
What investment opportunities are available to startups?
Whereas previously there was relatively little funding to be found in sustainability, it is now a huge growth area for business. With major investments from governments, venture capital, NGOs, private companies and universities seeking sustainable solutions, there are many funding opportunities available to start-ups.
The sustainability space is incredibly attractive to investors. Back in March, Arrival, the electric vehicle company, staged possibly the largest ever stock market listing for a UK tech company with a £9.5 billion listing. Similarly, Octopus Energy recently raised $600 million from Al Gore’s climate fund. In our own portfolio, we’re proud to support impact-driven companies which are accelerating the transition to net zero. These include Origami, which provides smart software technology that improves the economics of green energy for renewable energy companies, and PragmatIC Semiconductor, which has developed ultra-low-cost flexible electronics with the potential to hugely reduce the carbon footprint of the semiconductor industry.
But it’s still relatively early days for sustainability tech, and there’s lots of untapped potential and plenty of opportunity for growth.
How has the world of startup investment changed?
The pandemic forced us to live very different lives, very quickly – but it also showed just what can be achieved when all bets are off. We have it in our scope now to imagine bolder, more ambitious visions of the future. For me, that translates into what I consider a strong investment opportunity.
The most interesting trend in net zero investing in 2021 is the breadth of challenging applications being tackled, be that carbon removal, next generation batteries, heavy industry, aviation or plastic replacement. Historically venture investment dollars have often funded incremental innovation, but a large portion of current investment is going into the hard to abate or challenging decarbonisation sectors, which is very encouraging in terms of hitting our net zero goals. The other key trend is that we continue to underestimate the gradient of the cost curve for new technologies as they scale. Roy Amara, a Stanford computer scientist in the 1960s, told colleagues that he believed that “we overestimate the impact of technology in the short-term and underestimate the effect in the long run”. Amara’s observation is incredibly important as we look at the economic feasibility of adopting new technologies but is also an important consideration for investors as they look to invest in net zero technologies.
It’s more than possible for investors to generate generous financial returns through investments that support solutions to social or environmental issues – profit doesn’t have to be sacrificed for sustainable solutions. Achieving net zero is a huge challenge, but I’m confident it’s a challenge we can rise to. I believe in the power of innovation, and as investors, our role is to support these talented innovators to deliver their solutions to the world.