Embracing Systemic Complexity: The Ecliptic Capital Climate Thesis

In the last two years, I’ve experienced a wide range of emotions when it comes to climate change.

This includes experiencing the failure of my state’s power grid that led to hundreds of weather-related deaths in Feb of 2021. This also includes welcoming my son into this world only weeks after that power failure. Imagining what we would have done with a newborn and no power/heat along with failing cell phone towers is a sobering thought for parents of all stripes. Right now, as I write this post our power/heat has been off for 55 hours due to yet another abnormal winter ice storm in Texas. Roads are blocked and shut down due to ice and schools are closed. Now as I publish this post those issues are gone but not fixed.

I understand that much like climate change, these are systemic problems; caused by various factors, each with numerous hypotheses to potential solutions. As many of you may be aware, there’s a difference between weather & climate. However, you may not be aware that there is strong evidence to support that the storms in 2021 & 2023 were caused by climate change.

There’s no magic bullet to fix state power grids and there’s no magic bullet to fix climate change.

However, we believe that powerful forces that can catalyze this change are finance and the innovation brought by startups. We also believe that there are really two core elements: solutions that build resilience to the effects and solutions that work against the cause or symptoms.

Those events in 2021, naturally, led me to question what I was doing in this world to fight for a better future version of it. That time to reflect, with some hard pushes by becoming a climate fellow at Terra.do, has led me to the career I have now.

WE ARE CALLED TO BE ARCHITECTS OF THE FUTURE, NOT ITS VICTIMS. THE CHALLENGE IS TO MAKE THE WORLD WORK FOR 100% OF HUMANITY IN THE SHORTEST TIME POSSIBLE, WITH SPONTANEOUS COOPERATION AND WITHOUT ECOLOGICAL DAMAGE — R. BUCKMINSTER FULLER

I’m a partner at Ecliptic Capital focusing on climate change and energy transition in pre-seed, seed, and series A startups; typically leading rounds with check sizes from $250k to $5m.

So what does that actually mean?

As you might have seen in the VC and investing world, climate tech is booming. The scale of the challenge along with the potential for impact on humanity and our planet, make this a particularly attractive space for Ecliptic to apply capital. Startups don’t innovate in a vacuum any more than weather happens separately from climate.

We approach climate tech investing as a type of unique ecology. There needs to be an ecological balance between funding, innovation, and technology to truly drive change.

According to Forbes: “Within the next five years, PitchBook forecasts the climate tech sector will become a $1.4 trillion market — this represents a compound annual growth rate for climate tech of 8.8%. — enough to make any self-respecting investor raise eyebrows.”

My former employer (and the acquirer of one of my companies), PwC had this to say, “The total quarterly investment in climate tech throughout 2022 ranges between US$15 to $20 billion, a figure that has been consistent since the first half of last year.”

When it comes to climate tech and energy transition, even with all that current funding, we are merely in the starting blocks of a long race to 2050. The insurance firm Swiss Re recently estimated an investment of $270 Trillion is needed to get to net zero in 2050.

Even with venture funding tightening at the start of 2023, we believe there’s a bounty of opportunity in overlooked sectors of climate such as Industry, Climate Mgmt/Adaptation, Buildings, and Carbon Removal.

Also VC’s aren’t the only ones playing a bit of climate catch-up, players of all shapes and sizes are re-evaluating their investment strategies and allocating capital into the Climate space

Another upside to this sector that makes us bullish is the regulatory tailwinds we are seeing. Most of you reading this know about the Inflation Reduction Act created by the US Govt, however, the EU and others are starting to take action, and for the first time world leaders agreed to the concept (it’s a start) a climate loss and damage fund to help struggling countries that have been devastated by climate change due to richer countries actions.

If there’s one thing I’ve learned in the last couple of years of research, classes, and education it’s that climate change is a truly systemic problem. Even as we fund change through Ecliptic Capital, I know that big tech and startups alone won’t save us, it’s going to take a wide range of finance, policy, and personal actions, to make a difference and get us to 2050.

The good news is there’s a wide range of proposed hypotheses for the climate change problem.

Here at Ecliptic Capital, we are a big believer in focus. One of the questions we have for every entrepreneur who pitches us is are you solely working on this problem? Therefore, we won’t be concentrating on all 63 sectors listed above!

So what are we going to do about it?

In no particular order, here’s what we want to explore and make our next big Venture bets on.

• Adaptation powered by Data — Climate-fueled extreme weather got top notice at last year’s annual UN conference, held in November in Sharm el-Sheikh, Egypt. For the first time world leaders agreed to create a loss and damage fund to help poorer countries adapt. It’s a long way to a potential net-zero 2050, and along that path, climate adaptation is going to be a gigantic opportunity and a huge Capital P problem that needs to be solved. This topic could be dealing with everything from wildfire detection and control to monitoring the weather or climate risks of a particular part of a country and making automated decisions using advanced AI/ML. We want to concentrate on the latter, as it ties into our Data Security investment thesis. Some examples here.
• Building creation, and electrification/modernization — When’s the last time you stopped, looked at a building, and thought about how it was built? How long it would last? And what happens when it dies? As an architecture nerd, I think about this all the time. Our built environment will continue to be…well..built. That said we firmly agree with Carl Elefante, the former president of the American Institute of Architects, who said: ‘The greenest building is the one that already exists.” However, we know that’s not always the case. So how can we affect the creation of new building materials? Or how can we improve the heating/cooling envelope of existing buildings? We are proud to already have an investment in this space with The Nano Shield and their cool roof technology. When an existing building gets an upgrade what does the EV charging look like? We are proud to already have an investment in this space as well with Veloce Energy. They are working on the next generation of electric infrastructure to be built all over the world.
• Climate-Friendly Materials — One of the more sickening things I’ve learned in the last couple of years is that only 9% of plastic is recycled. The rest is burned or left to accumulate in landfills or oceans or the human body. As you can imagine this is a Capital P problem that is only getting worse as we march towards our future with 7.8b of us running around on this planet. This is also an area that is ripe for innovation from replacing plastic fishing lures to replacing plastic entirely. We are proud to be funding Nabaco. This innovative startup is working on replacing plastic packaging in grocery stores around the world and many other adjacent markets.

One other thing we are keeping our eyes on.

Direct Carbon Removal + Storage — This might be the most controversial ClimateTech solution, so let’s talk about it. Is building giant carbon removal plants + building storage mechanisms that will have a timeline of hundreds if not thousands of years to sequester the carbon really the most sustainable answer? All the while selling carbon credits? No. We don’t believe it is. But this technology is in its infancy. That factory+storage+carbon credit is the “Car Phone” of the 1980s. It will only get better. There are hundreds of startups pursuing this technology in a wide variety of ways that don’t include building a giant factory. From mineralization (see the folks at 4401) to pyrolysis, to sinking kelp or even safely sinking mine waste into the ocean. The next billion-dollar startup is in this sector and the more created, the more carbon we are removing. We think about it in two buckets.

• DCR solutions can sustain themselves at scale without carbon credits.
• DCR solutions will have a product (other than DAC) and will require selling carbon credits to supplement its revenue.

So let’s do something about this, together. Gone are the days of the sharp elbow VC and BS Wall Street thinking. We all need to work together to fund this work.

• So, are any of those problems you are investing in as an investor?
• Do any of those match the problems you are solving as an entrepreneur?

Then let’s talk sooner rather than later. We take a long-term focused approach to our founders, guiding them through the early stages of their business and offering education, workshops, and connections with other climate founders. In fact, we often meet with founders months before investing. That said 2050 is coming faster than we all think. Shoot me a message and let’s talk.

On a personal note, I’m a board member for the Multicultural Refugee Center where we are tackling climate change-fueled refugees and run a regenerative farm. Feel free to contact me about that as well.

P.S.

Need a refresher on some basic climate terms? I got you covered.

Know folks who doubt the science? I got you covered.

P.P.S.

For the startups reading this here’s what we believe climate impact means when it comes to the companies we want to look at.

According to our friends at CTVC Climate impact = Climate tech companies that must fulfill one or more of the below “climate impacts”.

• Mitigation — directly decarbonize across key emissions sectors (electricity & heat, ag & land use, industry, transportation, buildings)
• Adaptation — adapt to a changing climate with new products and economic models (new insurance products, producing food to use, geo-engineering)
• Monitoring — gather information/data about emissions or climate risks and impacts to generate insights (emissions and sustainability reporting, climate risk and intelligence)
• Removal — remove existing emissions from the atmosphere (carbon removal, nature-based solutions, reforestation)
• Regeneration — enhance general environmental “positive externalities” and “do more good, not just less bad” (regenerative ag enhances biodiversity & sequesters carbon)