How to scale a climate tech — with a corporate

The need for climate tech couldn’t be greater, yet investment into startups has dropped. For the sector to reach its potential, it’ll require a broader base of support than venture investors alone can provide — including corporate venture capital (CVC) and corporate partnerships. 

But how do climate techs pick the right corporate partners and how can they best navigate corporate relationships? We asked experts including Sandra Steving Villegas, partner and head of sustainability practice at Founders Intelligence, now part of Accenture, a strategy consultancy that helps corporates find, partner with and invest in high-growth startups, Rachel Delacour, cofounder of carbon and ESG tracker Sweep, and Gilles Dreyfus, cofounder of agritech Jungle.

Where does CVC come in?

While some, such as Sweep’s Delacour, say that the world has changed for the better in the last 10 years in Europe, with VCs and investors in general now understanding they have to play their part when it comes to climate change, Steving urges that climate techs need more “patient capital” because the climate and sustainability investments that we need to see in the next five to ten years need to be for ambitious and largely untested technologies. 

“Most VCs are just not set up for those kinds of time horizons or for the uncertainty and the risk profile of the returns,” she says. 

Take vertical farming, for example. Dreyfus says that to understand vertical farming as a VC, “it takes a lot of time, and there are many other options which are much easier to get a grasp of rather than long-shot vertical farming, because it’s also capex intensive — we're talking about all the things that VC hates. So to fund this type of stuff, you need to be very, very creative”.

For Steving, this is where CVC is interesting: “It's not a perfect solution, and funding cycles are uneven, but CVC will typically have longer investment horizons and they will often be looking more for strategic returns as opposed to exclusively financial returns. I think the second big advantage of CVCs is the fact that they can provide market access that traditional investors can't.”

Making the most of the partnership

But with the benefits of corporate investment comes a need to approach the partnerships differently. Steving says that it’s key for climate tech companies to think from the corporate’s perspective when partnering with one and strategise on how the product or solution can be commercialised.

“At the end of the day, if there isn't clarity around the commercial upside, the reality of a corporate partnership is that things lose steam really quickly. So even if that commercial upside is pretty far out, have the conversation and help them understand how, over time, at scale, this is going to be economically viable or potentially cheaper,” she says.

“A climate tech solution, or a sustainability tech solution can actually help a corporate unlock a new kind of business model, or help them access a new kind of customer, or avoid huge costs somewhere in their value chain — so come in knowing how your solution serves their financial interests hand in hand with their sustainability targets.”

The red flags 

Steving says that there are certain red — and green — flags to look out for in potential commercial partners.

Climate techs should look for companies that they can scale with and get actual commercial returns and not just a proof of concept, she emphasises. “Look for some evidence that others have succeeded in doing what you're going to try to do with this company,” she suggests. 

She adds that startups must make sure their potential partner is a CVC that has “strong links into the business itself and can provide both capital and corporate access”. 

“Look for a CVC that has done the work to make value-add resources accessible to you, and the kind of mindset coming all the way from the top, from the C-suite, that this is a company willing to be experimental, with a view to long-term upside. Look into things like what has the CEO of this business said about the climate commitments of this business? What has actually translated into action?”

Climate tech founders should be cautious about generalist CVC funds, Steving adds. “If there's a lack of focus, they won't really understand the sector or make good choices. Look for a CVC that is either super industry-aligned to what you're building, or look for a CVC which may be more generalist but is completely focused on decarbonisation or circularity — something that's relevant to you as a business.”

Regulation driving corporate partnerships

Companies are now realising that investing in sustainability and climate is not just about "ethical necessity" but actually about turning their companies into competitive leaders for the next five to ten years, says Steving.

However, the pace and ambition is still not enough, she says, adding that regulation such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and other reporting frameworks are acting as an accelerant to the adoption of climate techs by corporates. 

“Huge reporting burdens can be cumbersome but they actually force companies to create real transparency in the value chain. We're seeing a lot more of it now in scope 1, 2 and 3 emissions, but there’s more to be seen across the value chain regarding impact beyond carbon footprints such as resources, biodiversity and water.”  

While some climate tech founders are also wary of new tedious regulations, Delacour says that entrepreneurs should be “the change we want to see”. 

“It's our responsibility to set up the foundations of what we are already building: we’re audited by KPMG and we’re also a B Corp. So it means that as an entrepreneur, you can also choose to use that playbook right away, when you’re building your company.”

Steving agrees, adding regulation will be a powerful forcing mechanism for companies to really scrutinise every component of their value chain — and collaborate more with startups and their own competitors because they’re going to need to create infrastructure that doesn’t yet exist, for example, for circularity, she adds.

“I can imagine more and more corporates turning to brilliant, ambitious founders creating next-generation solutions and supporting their growth from a survival instinct, as well as for potential long-term competitive and financial returns.”