Climate Ventures are a unique category

For definition purposes, digital ventures primarily leverage an application layer to conduct most of their business without physically affecting the world (though they might interact with it through logistics, etc.). Climate ventures, on the other hand, have a direct and measurable impact on the physical world as their primary business activity. This often means that hardware technology (such as carbon capture devices, energy storage, H2 electrolyzers, and similar) is central to their value creation.

There are overlaps between digital and climate-focused ventures, such as carbon credit trading platforms, renewables location scouting tools, ESG reporting platforms, and more. Yet the spaces that can be tackled with purely digital solutions are flooded with activity and, in the aggregate, may not significantly move the needle without the real deep tech venture needed to abate carbon emissions.

Venture builders often shy away from these areas because such technologies can be expensive to deploy, fraught with problems beyond mere software bugs, and harder to scale. But there are abundant examples of ventures successfully overcoming these issues to create valuable, impactful solutions.

Key differences to note

So what are the key differences between the “normal” digital ventures we imagine and the ventures we need to build and scale to fight climate change? And when we build, how can we overcome the resulting challenges from building such ventures?

1. The Profound Significance of Purpose-Driven Ventures

2. Navigating Commercial Challenges Through Diversification

3. The Regulatory Landscape and Strategic Partnerships

4. Hardware Integration and Piloting Agility

5. Time Sensitivity and Expedited Exploration

6. Fostering Interdisciplinary Collaboration for Holistic Impact

7. Scale of Investment and Scaling

8. Social and Community Engagement

That is quite a lot; let us explore each one in order:

1. The Profound Significance of Purpose-Driven Ventures

The most fundamental departure between climate ventures and typical digital enterprises lies in their overarching purpose. While conventional digital ventures primarily pursue profitability and scale, climate ventures are propelled by a dual mandate: securing a sustainable future for generations to come while exploring novel business frontiers. This distinctive mission necessitates an adaptive and open-minded approach to venture building.

In order to manifest this purpose, it is important to not just identify value pools early on and focus on business planning, but to also identify e.g. GHG pools that are addressable and anchor the target impact in the value creation and capture model as much as the financial side of things. The impact mission will have to be top of mind for founders coming into this space to lead the venture.

WPML Example:

We recently worked with a corporate partner highly focused on the energy transition. When looking for opportunities and aligning areas, besides aligning on market sizes and value capture potential, we always made a point to highlight the carbon abatement potential and set a minimum threshold of carbon impact for spaces we would be interested in to jointly venture into.

2. Navigating Commercial Challenges Through Diversification

A common misconception surrounding climate ventures is that prioritizing impact and sustainability comes at the expense of financial returns. However, investors seek competitive returns regardless of a venture’s impact mission. Balancing these dual objectives requires a nuanced approach to revenue generation and financial sustainability.

Traditional attempts to support climate initiatives often focus solely on revenue streams related to carbon credits, a strategy that can introduce volatility due to the nascent nature of carbon markets. Climate ventures must transcend this limitation by diversifying revenue sources, ensuring resilience and long-term economic viability. By crafting value-added revenue streams beyond carbon credits, these ventures secure their financial future while upholding their environmental commitments.

WPML Example:

A long-standing collaboration between Wright Partners and a corporate partner exemplifies this approach. An in-depth exploration of the biochar market revealed that building a diversified business model beyond carbon credits will be challenging today. We have gone back to the corporate partner and postponed the venture. This comprehensive analysis underscored the importance of cultivating commercial opportunities that extend beyond traditional metrics of impact. (As a side note, as it is a corporate partner with significant work by us, we did not charge for the review, as we are not in the business of charging money for things we do not believe in).

3. The Regulatory Landscape and Strategic Partnerships

Climate ventures are inherently intertwined with regulatory frameworks, setting them apart from their digital counterparts. Unlike purely digital ventures that can adapt swiftly to regulatory changes, climate ventures are often subject to longer-term regulatory shifts that impact their operations. Navigating this intricate landscape necessitates strategic partnerships and an acute understanding of evolving compliance requirements.

Rather than focusing solely on circumventing regulations, climate ventures thrive by collaborating with regulatory experts with deep insights into evolving frameworks. These partnerships ensure compliance and empower ventures to proactively engage with governments, contributing to the evolution of regulatory norms over time.

WPML Example:

Our strategic collaboration with regulatory experts from Fairatmos (an Indonesian venture focusing on developing carbon projects which we partner with) exemplifies this approach. The venture effectively interacts with carbon markets by leveraging external expertise while prioritising its core mission of developing impactful solutions.

4. Hardware Integration and Piloting Agility

Climate ventures often introduce a physical component distinguishing them from conventional digital ventures. Hardware integration introduces complexities that can extend the development timeline beyond what is typically encountered in digital enterprises. This necessitates a flexible, milestone-based approach to accommodate potential delays in equipment readiness.

The commitment to successfully executing pilots remains unwavering, even in the face of hardware-related challenges. By strategically designing the venture’s development timeline, climate ventures ensure that the readiness of physical components aligns seamlessly with the broader mission.

WPML Example:

In our iterative model, intentional breaks are incorporated following the initial phase to account for potential equipment purchasing and deployment timelines. During these breaks, the team goes into hibernation mode to conserve cash while waiting for everything to be in place to ramp back up quickly. This strategic pause demonstrates our dedication to risk-aligned development and the rigorous pursuit of excellence in pilot execution.

5. Time Sensitivity and Expedited Exploration

The urgency of addressing climate change introduces a distinctive temporal dimension to climate ventures. Unlike traditional digital enterprises’ gradual growth trajectory, climate ventures must rapidly explore many ideas to expedite their impact. This imperative demands efficient resource allocation and a focus on expeditiously identifying high-potential concepts.

Minimising costs during the discovery phase enables climate ventures to allocate resources more effectively to the core design and development stages. This streamlined approach accelerates the identification of opportunities without compromising the financial stability of the venture.

WPML Example:

Our streamlined discovery process embodies this strategy, enabling the swift identification of high-potential opportunities. This approach aligns with the urgency of the mission, expediting the creation of impactful solutions. We have a bias to action, and once a space has been qualified we prefer to learn fast by building, piloting and going beyond interviews. From experience we learn that interviews are driven by opinions and only piloting scientific solutions and having paying customers is an indicator for success.

6. Fostering Interdisciplinary Collaboration for Holistic Impact

Climate ventures transcend the boundaries of traditional disciplines, necessitating a heightened degree of interdisciplinary collaboration. Unlike standard digital ventures that may involve collaboration across various aspects, climate ventures require a more comprehensive and collaborative approach to achieve their multifaceted goals.

Climate ventures often employ risk-sharing models with partners and collaborators to foster enduring alignment and commitment. These models, which may include equity sharing, incentivize a cohesive and collaborative approach that spans diverse disciplines.

WPML Example:

Our commitment to interdisciplinary collaboration is exemplified by our reward-sharing partnerships with collaborators. This innovative approach promotes cross-disciplinary synergy, ensuring a unified front in pursuit of sustainable impact. Through getting key collaborators and ecosystem partners into the equity we get in the venture, we make them partners in the truest sense and equitably share upside.

7. Scale of Investment and Scaling

Climate ventures, being more prone to involving physical and hardware solutions, often have a different cost structure and capital profile than digital ventures. Some equipment can be very expensive and might have to be financed through loans or SPVs that investors put money into, in order to minise the CapEx spend of equity investment dollars.

Digital venture rarely have to grapple with deploying and scaling physical infrastructure, while the scalability of climate ventures is regularly challenged by such concerns. Finding the right strategies to protect investable scalability is key to success in creating sizable impact beyond first POCs.

WPML Example:

In a recent venture design project, the team created a solution with a significant hardware component, amounting to large CapEx investments to get to a scalable business. Together with the corporate client we found a way to structure the funding of a first batch of this technology through an SPV they would invest in and get a return on, rather than suggesting to buy it with investment dollars.

8. Social and Community Engagement

Climate ventures may necessitate more intensive community engagement and social considerations, especially if they affect local environments or community resources. Digital ventures might not have the same level of social engagement, focusing more on user experience and customer satisfaction.

This can become especially complex in a pan-Asian context where different cultures and languages make such community engagement even more difficult. Successfully navigating and involving the local community means embedding the solution in a context that will foster it and help it grow.

WPML Example:

Sustainability and agriculture ventures have a strong relationship, both due to the fact that agriculture communities are some of the first communities to be affected by climate change, pollution and others, they are a part of the solution for a more sustainable work. Agri ventures also have a strong element of community that we know so well. We have great experience working with local communities, cooperatives and other agrarian structures in our ventures and leverage them well into our climate work.

Venturing with climate impact

In conclusion, the nuanced differences distinguishing climate ventures from traditional digital initiatives are pivotal to their success. Recognizing the profound significance of their purpose-driven nature, addressing commercial challenges through revenue diversification, navigating complex regulatory landscapes, accommodating hardware integration, expediting idea exploration, and fostering interdisciplinary collaboration all contribute to the unique fabric of climate venture development.

By embracing these distinctive elements, Wright Partners and MING Labs forge a path toward sustainable innovation, charting a course that promises a brighter and more sustainable future for future generations. The ventures we build exemplify not just the commercial value our corporate partners have come to expect, but more importantly, the fundamental values we imbue them with.

We are also pleased to be an appointed venture studio of EDB’s Corporate Venture Launchpad 2.0. CVL 2.0 is an expanded S$20m programme by EDB New Ventures, designed to enable companies to incubate and launch a new venture from Singapore, supported by venture studios experienced in corporate venture building. You can also find out more on our website.

Interested to learn more about investable ventures? Drop us a line: contact@wright.partners

Authors:

Tan Toi Ngee, Founding Partner at Wright Partners

Ziv Ragowsky, Founding Partner at Wright Partners

Sebastian Mueller, Co-founder at MING Labs