Gigacorns vs unicorns – venture funding Europe’s climate business
The venture provider, founded by entrepreneurs and venture capital experts, is all about ‘climate first’ and investing in companies developing deep decarbonisation technologies “that will lead to a world beyond fossil fuels”.
And whereas the traditional venture capital investor dreams of the ‘Unicorn’, the company that can achieve a $1 billion valuation, Extantia’s ‘Gigacorn’ also must have the potential for 1 billion tons in CO2 emission reductions by 2050.
“We back companies that make a meaningful contribution”, asserts Extantia’s website, stating that its ‘Giga Suspects’ are most likely to be found in the areas where the highest percentage of emissions are being generated.
With Extantia’s third and largest fund about to be launched, we spoke to Dr Laura-Marie Töpfer, General Partner, who joined the company in April from the World Economic Forum where she was a venture builder and Investors & Funding Lead for the UpLink digital platform that connects high-impact start-ups with the Forum’s broader network.
What is the background to Extantia?
When we say we are a climate first venture fund, this means that we invest in what we believe are exceptional technology innovators that do a couple of things in combination: they slash carbon emissions at scale and they cut the cost gap to clean alternatives. And by doing so, they really turbocharge our path to net zero.
Half of the global reductions in CO2 emissions through 2030 will come from technologies readily available today, your solar and wind. But looking ahead to 2050 almost half of the necessary reductions come from tech that is in the demonstration or prototype phase, like hydrogen-based processes, for example. So we said, we need more venture capital investments to take those emerging technologies to prime time readiness quicker and that was the birth of Extantia.
There are three observations to this. One is that it is a virgin market as traditional venture capitalists are not really equipped to rigorously assess the potential CO2 savings of companies.
Another is that there is a growing number of venture capital funds covering climate tech but the majority of them focus on software investments or segments such as micromobility, which if you look at the carbon mathematics, don’t move the needle much.
Then there is the fact that we look at those through a European lens, which is somewhat of a missed opportunity as the majority of venture capital funding is concentrated in the US.
When did Extantia launch?
We launched our Pledge Fund I last year essentially uniting like-minded mission-driven families to co-invest with us as a proof-of-concept and are about to launch the new Climate Flagship Fund II.
We also have an All Stars Fund, which isn’t on our website and is a little bit different from your typical VC space as it’s a fund for funders. In other words, its a vehicle that invests into emerging climate tech fund managers that we believe are best in class. Why? Because we get to see the entire climate tech universe and uplift the entire ecosystem by doing so.
The problem we see in climate tech is that it’s very fragmented, with many small players having $20 or $30 million here and there and investing in a handful of companies, which is unlikely to materially change the energy space.
This is why we talk of Gigacorns and finding them demands a holistic approach in mapping and reporting on CO2 emissions. None of the companies we have in the portfolio are Gigacorns today, but they are the most likely to get there by 2050.
What are some of the factors that go into that evaluation?
Essentially, we do deep dives with four key criteria in mind.
The first is our carbon math assessment. We look for the total addressable market above 1Gt over the lifecycle of the company and the minimum threshold for our investment of 100Mt also is important.
The second is the time to impact, so we look at the technology readiness level. For technologies that must at least be lab proven with the need for a last push solution.
Then we look at the commercial aspects. In other words, a key question we ask is, can the technologies and business models scale to be economically viable and actually unlock the speed of innovation that’s needed?
The fourth criterion is whether we as an investor have the ability to add value beyond capital by catalysing our network of experts and co-investors. That’s a key thing for us as a good solution may be in place, but it’s also about getting it more quickly into the market.
How are the funds raised?
The core to our investment philosophy is ‘community’ and we bring together like-minded investors through what we call our Net-Zero Circle. This is a community of investors that are mission-driven and share the passion for climate action. They are families, unicorn founders and corporates who have said they want to commit a percentage of their proceeds to climate tech and to take an active role when it comes to sourcing and supporting founders.
This gives us an incredible edge from a company building expertise perspective to share with very technical but maybe not very commercially savvy founders to get them out of the product building zone and into the scale up phase. This is unusual in Europe where investors often take a backseat and has allowed us to unlock mutually reinforcing connections.
In this way, we also are equipping the next generation of climate tech investors with the tools and the knowledge that they need to hold start-ups accountable both on the climate bottom line and the financial bottom line.
What is the mix of technologies Extantia is investing in?
We focus on startups that solve big problems, not on what tech they use. Whether it’s software, which has been the traditional focus of venture capital in Silicon Valley, or hardware, we look for whether they prevent new greenhouse gas emissions or undo existing ones.
Essentially, we focus on the sectors that have the biggest emission saving potential and we look at both the sources and the sinks. If one needs to remove 1Gt of CO2 from the atmosphere this can only be achieved with support from biological and chemical processes such as those that absorb and store carbon or an ocean sink.
We have distilled six priority areas, industrial processes, electricity, agriculture and forestry, transport, buildings and construction and emerging industries such as direct air capture, carbon removal and utilisation.
What is the typical investment amount?
We’re early-stage investors so what that means is we go in at a point where the product-market fit has typically been established, i.e. post-seed series, which can range from around $500,000 up to $3 million.
For the fund managers fund, that is obviously different and generally higher. We are not looking to be a controlling shareholder, but rather to ensure that we have access to the entire climate tech universe.
As such also, we always invest together with other leads and for that the Net-Zero Circle provides a really strong network.
What are some of the companies invested in so far?
We invest primarily in Europe and North America but are also globally opportunistic thanks to our extended international network of fund managers through our All Stars Fund.
In Germany, we’ve backed mobility start-up Betteries, which is focused on improving the second life potential of used electric vehicle batteries, and Ineratec which has created modular plants that can generate green hydrogen and e-fuels, like e-kerosene.
Another is Bloom, which is the first company to create plant-based alternatives to petrochemicals. By using lignin, a wood component, from biomass, the company is looking to help to transform entire value chains in the aviation, shipping, fragrance, aromatics and plastics industries.
We’ve also invested in geothermal energy with GA Drilling in Slovakia, who have invented a drill bit that can dig through super hot crystalline rock using plasma (similar to lightening). This could potentially unlock geothermal energy anywhere in the world.
We have included well-known investors such as Sumitomo and Schlumberger and it’s exciting to see these as part of a breakthrough technology and testimony to its quality and helps us validate that we are betting on the right investment themes and the right tailwinds.
This story was originally published on Smart Energy International