VCs alone can not solve climate change. We need global and purpose-driven entrepreneurial ecosystems

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Illai Gescheit, Partner, Siemens Energy Ventures, Siemens

• The planet is facing one of its most important challenges to get to net-zero emissions by 2050.
• Start-ups and Venture Capitalists (VCs) are adapting their missions towards planet-positive goals.
• Rather than focusing on building local entrepreneurial ecosystems, we must collaborate globally and unite our efforts to provide not only capital, but also mentors, policies and initiatives when connecting investors and entrepreneurs.
• UpLink’s Innovative Funds for the Future challenge targets VC investors to help scale up these solutions from beyond the exploratory phase and into the growth phase.

The world is facing one of its most important challenges – getting to net-zero emissions by 2050. Every year we are adding an unbelievable amount, 51 billion tonnes, of greenhouse emissions. We see tremendous support and momentum to solve climate change.

Big corporations and governments are announcing climate pledges everyday, committing to do everything they can to accelerate our progress towards net-zero. Microsoft, for example, has committed to becoming carbon negative by 2030, and we at Siemens Energy have committed to becoming climate neutral in our own operations in the same timeframe. Governments are also showing the way – Japan has announced it aims to become net-zero by 2050.

COP26 was extremely exciting and full of ambitious announcements on the entire spectrum of climate tech, from better farming to clean energy. However, the UN Emissions Gap Report 2021 clearly states that countries and businesses’ pledges bring us to a global temperature rise of 2.7C by the end of this century, 1.2C away from our target.

And while there is not one single player that can bridge that gap alone, innovation can play a hugely significant role.

We constantly hear about more capital and more Venture Capital funds emerging in the space of climate tech. We see new VC funds, such as Lowercarbon Capital by Chris Sacca, and Ycombinator, the most renowned accelerator in the world, investing in early stage start-ups with a focus on issues like carbon accounting and carbon capture. Meanwhile, large energy corporations are building new venture teams, including ours at Siemens Energy Ventures with our unique 3V’s model. Joint Venture Capital funds are also emerging, including Decarbonization Partners, the US$ 600m fund by Blackrock and Temasek.

Focusing on the growing number of VCs or the total capital raised to support climate start-ups will help us build part of the infrastructure and resources needed to accelerate the journey to climate neutrality. Founders and start-ups that are building climate solutions certainly need capital, but they also need partnerships, great mentors, frameworks, programmes and communities. In short, they need an entire ecosystem in place to support them.

Shifting from local to global ecosystems

When we talk about building entrepreneurial ecosystems, we typically refer to geographical ecosystems. Silicon Valley has built one of the greatest start-ups and entrepreneurial ecosystems, as has Israel, which is now recognized as the ‘Start-up Nation’, as it is described by authors Dan Senor and Saul Singer. Both of these ecosystems helped build an entire structure that supports founders to grow and scale new businesses and develop serial entrepreneurs.

However, the new reality of the COVID-19 pandemic, along with the rising house prices in leading tech ecosystems such as San Francisco, Tel Aviv and London, has changed where founders choose to build their new ventures, but also how Venture Capitalists are investing their money, and how they scout for opportunities. Many venture funds expanded their investment globally after being local for many years. Some founders now have a no-fly policy, where they refuse to go on a plane to meet investors in another country and instead prefer to do it online.

From previously supporting start-ups with a climate focus in the Bay Area only, VCs are now looking globally. Silicon Valley VCs are targeting European companies and joining forces with EU VCs – this change is shifting the needs of building local ecosystems to growing those that are global.

Why we should focus on purpose-driven ecosystems

Frameworks like Environmental, Social, and Governance(ESG) and the UN Sustainable Development Goals have been adopted by many big corporations, nations and non-profits. They have also created an urgency for investors to seek investments that support ESG and the Global Goals. Start-ups and VCs are adopting those frameworks as well, and we now see start-ups that have adopted the UN Sustainable Goals as a North Star which guides their vision, while VCs also look to evaluate start-ups for their ESG metrics and criteria.

But making this mindset shift towards investment and purpose-driven company-building is not straightforward. Many investors still view ‘impact-investing’ as a non-for-profit exercise and choose to divide high growth financial investments and purpose-driven investment.

To change this we need to build purpose-driven entrepreneurial ecosystems that will provide not only capital, but also mentors, policies and initiatives to connect investors and entrepreneurs with each other to share knowledge, experience, and most importantly create a different mindset within the ecosystem.

One initiatives that supports this is the Innovative Funds for our Future Challenge, launched by the World Economic Forum’s open innovation platform, UpLink. It brings together VCs who are keen to invest in purpose-driven start-ups that accelerate progress towards the SDGs. The platform allows like-minded VCs to connect with a thriving community of global and high-impact entrepreneurs working in areas such as the conservation and restoration of nature, improving the health of the ocean, climate action, circular economy, water, health and education.

These initiatives could help to create global mission-driven entrepreneurial ecosystems in different parts of the world, and as with the SDGs, each one will allow start-ups to lead the way to a carbon neutral world.

Taking a long-term view

When we talk about Venture Capital investments, we typically think of a timeframe of 7-10 years until the fund needs to return itself to the Limited Partners who invested.

Building entrepreneurial ecosystems takes time – it requires patience and resilience, especially when building a global and purpose-driven ecosystem. We must take a long-term view.

When we focus on purpose-driven ecosystems, another element where a long-term view is important is how we measure success. In the climate space, for example, some of the ventures built will require 10-15 years to be commercialized, whether they work in carbon removal or in hydrogen, to use just two examples. And the global impact of the ecosystem could be reflected in 20-30 years from now, when he find out if we hit the 1.5C goal.