ChatGPT is writing climate carols | How to secure real estate investment

Climate tech Twitter has been captivated by a slightly more light-hearted topic this week: ChatGPT, which has penned everything from a Shakespearean sonnet on carbon removal to a climate change Christmas tune. Ones to check out on a slow day.

This week I've been digging into the age-old question: how can venture capital, accustomed to software bets, learn to love climate hardware? Read on for data on who’s actually backing it — and tips on how to find funding.

P.S. We want to know what our readers think 2023 has in store for startup Europe. Share your thoughts (anonymously) on fundraising, hiring, diversity and inclusion — and a whole lot more, in our latest community survey.

— Freya 🌳

Software may have eaten the world over the past decade, but investors are waking up to the fact that they also need to back hardware if they want to solve climate change.

But hardware is a trickier bet for VCs. It’s capital intensive and the return timelines are longer. So who are the VCs out there actually willing to back hardware climate solutions?

We analysed the 20 largest hardware rounds in Europe this year.

Seedrs has developed a highly engaged community of sustainability investors — eager to support the next big thing.

🚌 Sweden’s Einride, which is developing autonomous electric trucks, raised a $500m Series C round split between $300m in debt and $200m in equity. The funding came from Swedish pension fund AMF, EQT Ventures, Northzone, Temasek, Norrsken and Polar Structure.

On our podcast this week, we spoke to the CEO of Einride (pronounced En-ride, we learnt) about how soon the great green trucking revolution could take place. Listen here.

⚡ Ostrom, a Berlin startup that runs an energy platform aimed at reducing power usage, raised a €9.3m in a Series A extension. It gives customers real-time feedback on their consumption and sells electricity at cost, rather than a marked-up fee.

🚀 Munich-based OroraTech, which is collecting data from space to track the Earth’s temperature, raised a €15m Series A extension led by Belgium-based climate fund Edaphon. OroraTech uses thermal infra-red measurements to track climate change.

🌳 TreeCard, a UK fintech that promises to plant trees when customers make payments, raised a $23m Series A round, led by US VC Valar Ventures, World Fund and EQT Ventures.

🌲 Morfo, based in Paris, raised a $4m round for its “reforestation” tech, which plants trees in degraded ecosystems using drones. Biodiversity restoration and protection is high on the agenda this week, as the COP15 biodiversity conference gets underway in Montreal — we tracked Europe’s other biodiversity startups here.

We all know we need to accelerate climate hardware development — but how do we do it?

Pauliina Meskanen, consultant on deeptech climate innovation and venture partner at Climate Capital Bio, says there are several key things Europe can do, from creating government moonshot factories to educating scientists about entrepreneurship.

Here are her recommendations.

Europeans made 100m trips on shared mobility transport in Q3 2022 — that’s shared bikes, ebikes, scooters, mopeds and cars — according to a new report by Fluctuo. The figure is 20% higher than Q3 2021.

Scooters remain the most popular option — nearly half of all shared mobility journeys are scooter trips. That said, it’s not the fastest growing mode. Free-floating bike ridership (as opposed to docked bikes) is up 180% year-on-year, whereas scooter ridership only grew 10%.

This year was a mixed bag for European tech growth, but was it really all bad for investors? Join us virtually on December 14 as we reflect on how the industry raised cash and deployed funds in 2022, and explore what challenges and trends 2023 holds.

Building climate hardware is a whole lot more capital-intensive than most VC-backed tech. Climate tech needs to tap into more diverse funding streams.

I spoke to real estate developer, investor and founder of SUB\URBAN WORKSHOP Martin Prince-Parrott about why startups should consider approaching real estate investors — and how to get their pitch ready.

Why should climate-tech look to real estate investors?

I’m always surprised when VC investors say that physical investments such as buildings, developments or anything physical at scale is "too risky".

If a startup is building battery gigafactories or energy hardware, they’ll need a lot of diversified capital. In real estate investment, we’re used to systematically balancing project execution with the priorities of different investors.

The mistake those in the climate tech space are making is that they're trying to follow the same trajectory as B2B SaaS startups. It would make more sense for climate-focused hardware/infrastructure startups to optimise their businesses, investment theses and roadmaps for post-Series B, real estate-minded investors.

I could see real estate investors being particularly interested in biotech labs, energy infrastructure and gigafactories. There's a whole range of financing models and partnership structures that could work. From leasing and fitting out space (like Arrival and their micro factories), to securing a real estate equity investor or raising a fund with a fund manager.

How does real estate investment differ from VC?

VCs are very good at understanding business models and what's possible, and they're good at making bets on the future of things.

Real estate private equity is the opposite. They make investment decisions based on how an asset has performed empirically and how a team has managed risks to date. They tend to heavily discount what "might" happen, unless it’s a risk. Any startup that wants to attract real estate investors needs to be able to tell the story of how it's grown, managed risks and plans to deal with potential headwinds.

So what do startups need to do to approach a real estate investor?

There are a lot of things real estate investors would want to see that you’d need to think about in advance. Companies need to prove that they understand how to manage development risks. Broadly speaking, development risk can be categorised into four areas:

Site risk: Identifying where you want to build, why and what the business model is. I think there’s a real opportunity here for a startup to use their imagination and create new revenue streams for themselves. For example, if they’re going to build something large, what stops them from teaming up with other startups, or even better, leasing the premises or tech to other businesses? It would require serious thought but it could be done.
Planning risks: If the construction is visible, you need to be able to demonstrate that you can manage the planning process. Startups should have a slightly easier time here because local authorities appreciate innovation and love sustainable job creation.
Construction risk: This is one of the largest, most palpable risks because it's very expensive. Managing this risk requires experience, effective controls, reporting, management and (ideally) a good, positive construction partner. If you can bind the construction partner into a deal or agree "pain and gain" terms you’ll be doing yourself a massive favour.
Financing risk: The key to succeeding at this is getting your (pessimistic) calculations correct in the first instance, partnering with capital partners that understand the scheme, respect the team and fundamentally understand what can go wrong — and trust you have the right strategies in place to handle it.

Once a startup team has properly worked out how they will address these risks they’ll be ready to approach a real estate investor.