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Monday, November 7, 2022

COP27 Summit: Net zero means big money for Aussie entrepreneurs

As the world’s leaders converged on the Egyptian resort town of Sharm el-Sheikh for the COP27 summit this month, for the annual progress check on the planet’s shared imperative to reduce carbon emissions and global warming, the growing ranks of Australia’s climate tech entrepreneurs were once again thankful for the spotlight.

In the shadows of whatever crisis or scandal is dominating the news agenda on any given day, the investors and entrepreneurs who want to solve the planet’s most pressing problems have quietly built operations that promise to grow an industry that shifts the national GDP dial.

Mick Liubinskas, the founder and CEO of Climate Salad, says Australia is at a crucial point, where it can either become a global leader in climate tech, or a consumer of products from other countries. 

Despite an undeniable slowdown in tech start-up investing this year, due to a global reappraisal of the value of cash-burning ventures, investors backing companies that promise to make a positive change to the climate crisis say times have never been better for building a company.

Phil Morle, partner at the CSIRO’s venture capital arm Main Sequence Ventures, says the fund has invested about $100 million to found or back companies with positive climate impacts since its establishment in 2017.

As of November, he says the companies have raised more than half a billion dollars in external funding, and that its portfolio is worth about 2.7 times the money it has poured in.

One of them is Samsara Eco, a start-up that uses plastic-eating enzymes to produce recycled packaging. It bucked the national funding slowdown last week by closing a $54 million round to build its first commercial 20,000-tonne facility in Melbourne.

“We are taking a long-term view on the technologies that will tackle Earth’s biggest challenges, many of which have been exacerbated and made more urgent by current circumstances,” Morle says.

“There’s no nice-to-haves in the portfolio. The problems our companies address are ultimately no-fail-missions.

“Main Sequence has shifted its focus from building businesses to building industries – investing early and leaning in hard where we see potential to transform or create a new industry. The current focus on sovereign capability is bolstering this approach.”

Although Main Sequence is the highest-profile backer of climate or planet-focused start-ups in the Australian market, it is not the only one.

Among a swelling sector: Artesian manages a Clean Energy Seed Fund; UniSeed is richly backed; Blackbird Ventures has funded numerous climate tech firms; ReGen Ventures operates out of Byron Bay ; the government-backed Clean Energy Finance Corporation provides big money loans to bankroll various innovations; agritech-focused investment fund Tenacious Ventures has been investing since last year; and Mike Cannon-Brookes’ Grok Ventures has a $1.5 billion green fund called Boundless.

Phil Morle says Main Sequence Ventures is already seeing good returns from investing in companies with globally significant goals. Dominic Lorrimer

Morle has been a mainstay of the Australian start-up scene for decades, previously running Pollenizer with Mick Liubinskas , which was instrumental in setting many start-ups on their way to long-term success.

He says there is now a surge of interest in the climate space from a new generation of entrepreneurs, who are looking to break down the siloed walls between industry, research and academia to collaborate and deliver deep tech solutions with an ambition for impact.

For these firms to succeed, they are banking on the fact that business imperatives have caught up with environmental concerns. Green initiatives are no longer viewed as tech theatre, designed for a quick PR win – they have serious benefits for the bottom line.

“Our approach to new investments is around catalysing the renewal of our traditional industries, while building the next industries for this country,” Morle says.

Australian opportunity

These include next-generation food production – such as v2food , Nourish Ingredients , The Every Company, and Eden Brew – which aim to deliver mass market products sustainably; and materials innovation that can turn by-products or waste into valuable commodities and products, such as seaweed plastic replacement start-up Uluu and plant-based packaging maker Varden .

“Australia is a world leader in research, and is now realising the need to turn that into commercial opportunities in line with the rest of the OECD,” Morle says.

“Organisations all over the world are making sustainability commitments for the next decade. They are leaning into products that get them there.

“We always have more pipeline than we can invest in, so there is room for more deep tech investors in the Australian system. Having said that, we are seeing a crunch at the ‘second valley of death’ where companies need increasing amounts of capital to build the infrastructure for scale, and often need to look overseas for support to do that.”

Cheryl Mack says she is confident there is enough capital available for Aussie climate tech firms, as long as it is appropriately deployed. Nick Moir

Morle’s former partner at Pollenizer, Mick Liubinskas, has also since focused on the potential for start-ups to shape Australia’s future economy while saving the planet.

He runs a network organisation for climate tech companies and specialists called Climate Salad and says the visible evidence of climate change, through frequent extreme weather events, has changed the commercial viability of climate-focused companies.

Serious business

He says the past two years in particular have resulted in climate-focused tech companies being pushed forward by a tailwind of bad news stories. These have materially changed many people’s attitudes, he says, which in turn has changed their behaviours, buying habits and work habits.

“This has grabbed the attention of corporates who are both worried about losing and hoping to gain by building products for this early adopter group, which is fast becoming the early majority,” Liubinskas says.

“All of this has changed the capital going into climate tech from only impact and philanthropy, to all classes of capital at all stages.

“From Blackrock, down through super funds, through VC, family offices and into angels – investors are all believing that climate tech is the new, $100 trillion growth opportunity.”

Describing the work done by Main Sequence Ventures’ portfolio among others as a “great start”, Liubinskas says Australia has a massive opportunity to turn research into products, and then into companies creating thousands of new jobs, and all having a positive climate impact.

However, he says more local funding sources will be essential if Australia is to create a local industry of global significance. In its 2022 industry report, Climate Salad calculated $1.4 billion was raised by climate tech firms, with half of that coming from international investors.

“Capital availability in Australia for climate tech is improving but too slowly,” Liubinskas says.

“The pace is driven by the time it takes for people with belief and expertise, like Sarah Nolet and Matthew Pryor from Tenacious Ventures, to raise a small first fund, prove it works and then raise more capital,” he says.

“Incentives for super funds to take more risk on climate funds would help, and while the bigger venture funds are building some capability, it is slow because there is still a focus on the cash cow of business-to-business SaaS (software as a service).”

Australian market conservatism

Liubinskas warns there is a risk to the Australian economy if an ongoing shortage of capital for climate tech forces companies to go overseas where the funds are larger, valuations are higher and oftentimes the support for growth is more directly linked to big markets.

He says that even though the significant industry growth in the past two years has been thrilling, there are still considerable risks on a few fronts.

“Our local market is small and businesses are very slow to adopt new technologies. The old adage in Australian tech is that to get an Aussie corporate as a customer, you go get an American customer, and then come back,” Liubinskas says.

“This is a missed opportunity for both climate benefits, but also keeping more companies based here which creates more jobs.

“Europe has been moving to a climate tech world for 20 years … USA is following fast … Both of these markets have scale to match the momentum. Australia has a few years to commit to leadership or take our place as consumers, not creators of climate tech solutions.”

Start-up adviser and investor Cheryl Mack, who is the CEO of investment syndicate firm Aussie Angels, is optimistic that there is a good supply of new entrepreneurs and investors coming through to help the Australian climate tech scene swim rather than sink in the global pool.

“I’ve definitely seen a drastic increase in the number of climate tech companies coming through my deal flow in recent times. In fact, I’d guess that I’ve seen more climate tech deals in the last 18 months than in the previous five years combined,” Mack says.

“I think as climate tech has shifted from just being ‘social good’ to an ‘impact + profit’ business model, in turn we’ve seen that these businesses are being conceived by founders who are striving for high growth and scale like any other tech start-up.

“There is plenty of capital available in Australia. The question is whether the capital is being deployed in a diversity of places or if we are still facing the challenge of capital being deployed in abundance in some niche areas and sparingly in others.”

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Paul Smith Technology editorPaul Smith edits the technology coverage and has been a leading writer on the sector for 20 years. He covers big tech, business use of tech, the fast-growing Australian tech industry and start-ups, telecommunications and national innovation policy. Connect with Paul on Twitter . Email Paul at [email protected]

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