What's the decarbonization technology investment case?

‍A brief note - You might previously know us as BCP Ventures. That's our first fund from our GP team. We're now Smart Society Ventures, based in Geneva and London.

When I tell people that we invest in decarbonization tech at Smart Society Ventures, there’s a common follow up question.  What exactly do you mean by decarbonization tech?

While the climate and decarbonization investment landscape generally includes a spectrum of  innovations and asset classes, including infrastructure, material science, energy generation, agriculture, hardware and software, we specifically define our decarbonization tech investment focus as AI and software-enabled technologies that help to recognize, reduce or remove global emissions. (We’ll share more on our “Three R Decarbonization Framework” in a subsequent post). These technologies can be AI/software alone, or AI/software integrated with hardware and/or energy generation.  But we always look for software, AI and data to provide a market, financial and IP advantage.

The case for software and AI-enabled decarbonization tech investment has grown dramatically in recent years, driven by the imperative to reinvent our economic economy in a low carbon way, and three resultant themes that we follow at SSV:

• The explosion of data in our physical world
• The decentralization energy generation
• The emergence of a sustainability financial market

Let’s take a look at each of these investment themes briefly.  (We’ll go deeper on each theme and share some case studies in subsequent posts).

The explosion of data in our physical world

The industries in our physical world represent 40% of global GDP and nearly 75% of emissions.  These include manufacturing, logistics, transport, real estate and utilities, among others. There are now more than 200 billion sensors spread throughout our physical assets -  equipment, buildings, trucks, cars, ships, energy grids and more - that capture tons of real-time data about operations and performance.  But today, much of this data stays at the sensor level and is rarely consolidated into a platform that can drive application-based use cases for things like predictive maintenance, safety, supply and demand optimization, and business and sustainability decision making.  Much of the last few decades in the tech world was about connecting the data in the network world - with API layers, business intelligence platforms and applications that used data across systems to drive business outcomes.  Trillions of dollars of value was created by connecting the network world in companies like Snowflake, Mulesoft, Splunk and many others.  We believe that over the coming decades we will see an explosion in value from companies connecting the physical world - and driving business and sustainability use cases from this data. Samsara (currently worth $19B) is a good example of this.  So is our investment in Pratexo, an edge computing technology that connects energy and industrial assets.

The decentralization of energy generation

At SSV, we believe that there is no way to talk about the renewable energy transition without also talking about a transition to decentralized energy.  We are moving from a world where energy was generated at large central ‘plants’, to a world where energy is generated at countless distributed points - batteries, solar panels, wind turbines and unused capacity across buildings, cars, infrastructure and more.  Correspondingly, we are shifting from a world where energy was distributed from a central point outward to consumers, to a world where each point can share and trade energy among themselves.  I can generate solar electricity in my house and I can buy or sell energy as I need with my neighbor.  My village can generate wind power, and trade capacity with another village. We can do the same thing with cars, trucks, ships, buildings, manufacturing plants, mines, data centers, telecom towers and much more.  This is dramatically increasing the complexity of energy management, maintenance and trading, and creating new software and AI use cases for tracking, auditing, managing and trading energy supply and demand.  It’s also creating a new revenue opportunity for countless individuals (often called ‘prosumers’) and businesses. Our investment in battery and energy management company Caban Energy is an example of this.

The emergence of a sustainability financial market

The third macro theme that we track at SSV is the emergence of a sustainability financial market.  The development of sustainability reporting standards and regulatory requirements, and the growing impact of frameworks like the UN Sustainable Development Goals and the Principles for Responsible Investment, has inspired growing innovation at the intersection of climate tech and fintech.  In our pipeline in Europe, we seen an explosion of early-stage sustainability accounting, reporting and auditing platforms, as well as an emerging market for software and AI platforms to update insurance underwriting and credit risk assessments to consider climate risks.  At the same time, we’ve seen early markets emerge for trading and valuing unused energy capacity, carbon credits and natural assets, as well as for identifying and recommending sustainability oriented investments to asset managers and individuals. Although we haven’t made a bet in this space yet, we do believe that over the coming years, we will continue to see the financial sector market reinvented in the same way that we will see other major parts of the economy, such as the energy, industrial, real estate, transport and logistics sectors, among others.