Author: Illai Gescheit
Site of publication: World Economic Forum
Type of publication: Article
Date of publication: June 10th, 2020
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.
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
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.
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.
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.
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
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.
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.
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