Our decarbonisation tech investment universe

When someone says they invest in AI or digital health or SaaS, people generally know what they mean and immediately understand that the opportunities are massive. But when you say you invest in decarbonization tech, there’s a lot of confusion.

Despite the fact that decarbonization tech attracted 30% of all VC funding in Europe in 2023 and nearly every major generalist VC allocates a good amount of their portfolio to the segment, many people still ask me if “there’s much deal flow.” Although Tesla is worth $570 billion, Samsara is valued at $22 billion trading at 22x revenue and Northvolt is expected to go public at $20 billion, others ask me “if there are big companies in the space.” Others believe strongly in the investment opportunity, but have widely divergent views on what it includes. Some think it’s only infrastructure and energy generation, like hydrogen and nuclear, even though the World Economic Forum, Accenture, Capgemini, Lazard and McKinsey have all published research in the last year pointing to the significant emissions and investment opportunity for decarbonization digital technologies. Others think the space is only for public companies and large asset managers, despite the fact that the World Economic Forum says that 75% of emissions reduction needs to come from technologies in the prototype or early adoption stage. This means that entrepreneurs, venture capital and growth equity investors will play a massive role.  So, with that context, let’s take a look at what exactly we mean by decarbonization tech at Smart Society Ventures.

We see decarbonization tech as one of the largest investment opportunities of our lifetime, driven by the need to reinvent much of our economic activity to operate with lower carbon and greater efficiency. So, by extension decarbonization tech touches a lot of global GDP.  Here are some numbers: Our energy, industrial, logistics / transport and real estate sectors account for more than 70% of global emissions and nearly 40% of global GDP.  These four sectors form the backbone of much of our world, and are often called the industries of our “physical world” or the “difficult to abate sectors.” Over the coming years, there will be many large technology companies created to help these industries operate with lower emissions and lower costs - offering customers a clear ROI and compelling reason to buy. These companies will leverage the best of applied AI, edge computing, blockchain, SaaS and smart hardware innovations to deliver this economic and environmental ROI to customers, and include parts of well-known sub-sectors like industrial automation, grid tech, proptech, fintech, supply chain tech, EVs and more. (Let’s be real. It’s highly unlikely that industrial, transport, energy or property companies will be investing in tech and automation without a decarbonization and sustainability benefit also). The tech companies that emerge as winners in these sectors will be difficult to create and sticky once they gain adoption, often with large deal sizes, high barriers to entry, land-and-expand business models and strong IP derived through data and technology. Our investments in network decarbonization scale-up Caban Energy, industrial automation technology Greyscale AI and industrial and energy management SaaS platform Pratexo are examples of this, as are European unicorns Octopus Energy and 1Komma5, and scale-ups Enspired, an Austrian AI-energy trading scale-up which recently raised a $26M Series B, and ZeroNorth, a Swedish zero emissions trade platform which recently raised a $50M Series B.

In addition to new technology companies serving these four industries, we also believe that there will be new companies created in financial services to trade carbon, energy and commodities, update insurance underwriting models, reinvent ratings and risk methodologies and direct capital to sustainable finance, among others.  Similarly, as the regulatory landscape evolves (led by Europe), we predict that there will be some big winners in carbon tracking, measurement and accounting, and in carbon removals and offsets.  Examples of these companies are French insurance scale-up Descartes, which is currently valued at $500M and backed by Eurazeo and Highland Europe, and UK carbon data platform Sylvera, which recently raised a $57M Series B led by Balderton.

At SSV, we break down this decarbonization tech universe into three thematics: technologies that help to recognize emissions (eg. carbon tracking and reporting), technologies that help to reduce emissions (companies operating across the energy, industrial, mobility, real estate and financial services sectors) and technologies that help to remove emissions (carbon capture and offsets).  So, overall our decarbonization technology investment framework looks like this:

In our experience, many people consider decarbonization or 'climate' tech as just our 'recognize' and 'remove' categories. But countless exciting opportunities for investment sit within well established technology verticals in energy, industrials, logistics, transport, property and and financial services, and for software platforms like Samsara ($22B on NYSE) that connect the data of the physical world. Let's take PropTech for a moment. AI and digital twin technologies are already significantly reducing energy use in large buildings (IKEA has cut energy use by 30%).

At SSV, we believe that, these industries form the backbone of global economic activity. The coming decades of decarbonization tech will reinvent them to be lower carbon and lower cost. At the same time, decarbonization tech will create two new massive industries for technologies that recognize and remove carbon emissions.  Combined, this creates an extraordinary investment opportunity over coming year