Full Speed Ahead
Happy Thursday!
Climate tech is continuing to witness significant tailwinds, spurring governments, corporates, and investors to allocate more funding to climate tech solutions. According to the IEA, for every dollar invested into fossil fuels, about $1.70 is going into clean energy. Five years ago, this ratio was one-to-one. Solar power generation in particular is set to overtake investment into oil production for the first time in history this year.
Global awareness and the need for urgent action are on the rise, with the IPCC and WMO reports confirming that average global temperatures will surpass 1.5 degrees by 2040, and likely before 2027, on an annual basis. Early 2023 saw the hottest temperatures ever recorded in South-East Asia, but also some momentous policy steps. The EU is working to counterbalance the IRA with a streamlined Green Deal Industrial Plan. And the US announced over $1bn of new funding available to scale up domestic biomanufacturing infrastructure.
Systemiq Capital’s investment thesis is very much centred on the three foundational technologies playing crucial roles in driving climate progress: electrification, biotech, and next-gen compute. Cost curves across all three continue improving, drawing in world-class talent with the ambition and technical expertise to build game changing companies, and the mission-alignment to do good for the world. We are seeing an influx of experienced founders pivoting into climate tech... please continue sending them our way! AI in particular has generated a lot of excitement recently as people have discovered what large language models (LLMs) are capable of – representing both a challenge and opportunity for the climate. These models are incredibly expensive and energy-intensive to train, leading to dire warnings and tempered expectations. But training costs are dropping quickly, down 70% since 2020, and are expected to continue falling at 70% annually1. We believe that AI will drastically improve energy optimisation, monitoring of environmental data and resource efficiency – getting us closer to avoiding the worst effects from global warming.
Yet, the market exuberance of the last several years has corrected also in climate tech, with deal volume dropping by 36% YoY in the first quarter, and valuations dropping even further. We expect this trend to continue and normalise to a structurally more sober economic environment linked to a higher cost of capital, limiting the excesses of the past years. This new economic reality, coupled with an incredible flow of talent into climate, favourable regulatory tailwinds, and falling technology cost curves, makes this the most exciting macro environment to invest in climate tech ever.
We’ve been busy since our last update:
We recently completed our 4th investment out of Fund II, leading the Series A in construction tech pioneer Qflow.
We welcomed Lydia Guett to the team as Head of Growth, and announced her and Matt’s joining earlier this month, with news of the announcement covered in more than a dozen publications.
We went deep into the fashion and textile category, with Amy Varney publishing some of our thoughts on opportunities for innovation in the fashion supply chain.
Finally, we’ve been on the road, meeting all of you, working with our portfolio, participating in industry discussions, and preparing for our first AGM. To our founders and LPs, we look forward to seeing many of you there in just a few weeks’ time.
Those are the highlights. If you’d like to learn more about what we’ve been up to, read on.
New investment: construction-tech pioneer Qflow
Last month we closed our fourth investment from Fund II, leading the Series A round in construction tech startup Qflow. The company was founded by two industry insiders who set out to use machine learning and computer vision to reduce construction waste and improve the quality of data available on the built environment. Over several years cofounders Brittany Harris and Jade Cohen (picture above) have generated rapidly increasing revenues helping customers including Landsec, Balfour Beatty, Bouygues, and HS2 to track the materials that arrive at their sites; identify dangerous, polluting, improperly sourced, or otherwise non-compliant materials before they’re installed; increase material recycling / reuse; and ultimately reduce waste across the industry.
At the core of our thesis is that you simply can’t get to net zero with a pencil and a clipboard: data-driven decision-making, based on what’s really happening on-site instead of what the architect’s plan was, is fundamental to transitioning toward a lower-carbon, circular construction ecosystem. Qflow collects, cleans, and verifies the as-built materials and waste data and makes it available to other key systems (finance, ERP, compliance, etc.) so that identifying real opportunities to reduce carbon and waste becomes simple and efficient.
We were joined in the round by construction and real estate heavyweight Bridge Investment Group, “proptech” VC specialists GroundBreak, Greensoil, and Gravel Road, and were particularly excited to welcome existing Qflow customer Grosvenor into the round. Quite the endorsement!
Matt has joined the board of the company, and is supported by our emerging “sustainable urbanism” expert Louis who championed the opportunity. Reach out to them if you’d like to learn more about Qflow or our work on the sustainable real estate and construction theme.
Lydia and Matt’s joining announcement
After a long search we were thrilled to welcome Lydia Guett to the team as Head of Growth in early April. Lydia’s experience as a Sustainable and Impact Investing Specialist at Cambridge Associates will be gamechanging for us, our LPs, and portfolio companies as we work to turn Systemiq Capital into the standard-bearer and quality mark for value-add VC investing in climate tech. Here she will grow and nurture the climate ecosystem—connecting investors, portfolio companies, and the wider community. She is also the last “piece of the puzzle” in our organisational design for Fund II, bringing entirely unique perspectives and capabilities to our built-for-purpose team.
Lydia joining was a great moment to also formally highlight Matt's role in the team. Matt has been part of the Systemiq Capital story since 2021 and is now GP alongside Irena. We were thrilled to formally announce his and Lydia’s news in a press release on 8 May, and grateful for the extensive coverage of the announcement in Fortune, Business Insider, Venture Capital Journal, TechCrunch / StrictlyVC, and Dan Primack’s Axios Newsletter. We are enjoying seeing Systemiq Capital and our portfolio companies’ names more and more frequently in the media and look forward to it being an ordinary occurrence!
Our portfolio has been busy
ZeroAvia (Fund I) made aviation history in January, flying the largest-ever aircraft to be powered by a hydrogen-electric engine. The 19-seat Donier 228 took to the skies, retrofitted with a full-size prototype hydrogen-electric powertrain on the left wing of the aircraft. The flight took off from the company's R&D facility at Cotswold Airport in Gloucestershire, UK and lasted 10 minutes. ZeroAvia will now work towards its certifiable configuration to deliver commercial routes using the technology by 2025. In May, ZeroAvia announced a partnership with Alaska Airlines to retrofit a 74-seater to hydrogen. Julian Renz, ex Systemiq-er and now head of government programs and impact at ZeroAvia, will be at our AGM in June and you can ask him more about the historical achievements of the past months (and years!).
Charm Industrial (Fund I) - Frontier announced its first significant commitment of $53 million to Charm Industrial. This is the first legally binding offtake agreement to remove 112,000 tons of CO2 from the atmosphere between 2024 and 2030, a huge step forward for the removals industry. In addition, JPMorgan announced a $200 million investment in carbon removal – including 28,500 tons of C02 from Charm over 5 years. Charm Industrial utilizes an innovative method to sequester carbon dioxide by converting excess organic material, such as corn stover, into bio-oil. This bio-oil is then injected into abandoned oil and gas wells, effectively storing the carbon dioxide underground.
Microbyre (Fund I) – the team reached a significant commercial milestone in Q1, signing their first joint development agreement with a multi-national chemical company. This project will see Microbyre and their partner jointly develop a process for scaling up production of a key chemical, using a proprietary bacteria developed by Microbyre. Sarah Richardson, Microbyre’s CEO, will be coming from the US to London for our AGM in June, and will be delighted to share more about the company’s unique data acquisition process for understudied bacteria.
Basecamp (Fund II) - a team of scientists from Basecamp took a trip to million-year-old underground caves and central Europe’s largest lake in central Hungary with a senior reporter from Sifted Climate Tech. The team demonstrated how Basecamp collects microbes to extract and analyse their DNA.
Ohme (Fund II) - Audi UK chose Ohme as their new official smart charger partner. Under the agreement, Audi will actively endorse Ohme chargers for all its EV sales. As part of this collaboration, Audi will showcase an Ohme Home Pro charger in its showrooms, allowing customers to observe and experience the product firsthand. Ohme has also expanded its range of home chargers with their new product, the ePod. With its untethered charging capability, the new ePod will offer universal charging compatibility for all electric vehicles. This technological advancement will not only broaden Ohme's market presence but also enable the company to effectively penetrate new markets, particularly those associated with new build environments.
Amy explored the state of play in textiles and fashion
Amy has been exploring textile innovation and how this applies to various industries including fashion, automotive, aviation and furnishings. She has particularly focused on the potential for innovation within the fashion supply chain. In her blog entitled "Textiles and Fashion Need a Serious Makeover," Amy outlines the four key tiers comprising the supply chain and articulates the pivotal functions fulfilled by each tier in the production and distribution of fashion products. Each tier, from raw material extraction (tier 4) through to garment assembly (tier 1), has the potential for disruption that could be transformative and have positive climate impact.
Everything else
We were excited to announce the launch of the Venture Climate Alliance alongside 20+ of our VC peers, under the GFANZ alliance. Together, we will work to drive progress towards net zero goals within our firms and our portfolio companies.
With our friends at Systemiq Ltd we’ve started preparing to co-host events around COP28, which is being held in December in the UAE just after the Abu Dhabi Finance Week. We expect we’ll have more to share on that soon, but do reach out if you’re planning to attend.
George co-hosted a Transatlantic Climate Tech Happy Hour in San Francisco with our friends at seed funds Jetstream and Starshot Capital. We hosted over 100 climate founders, CTOs and investors to share the latest from Europe, including discussing developments in Europe’s response to America’s climate manufacturing stimulus, and also greatly enjoyed meeting old and new friends.
Amy recently returned from the SynBioBeta conference in the Bay Area, where she connected with climate biotech startups and industry representatives and was part of a panel discussion about the UK’s path to becoming a synthetic biology superpower.
Lydia has hit the ground running, attending The Economist Sustainability Week and Google Cloud Climate Tech Leaders Day in London in her first two weeks, and Summit in Miami last week. She will be at SuperVenture in Berlin in early June.
Irena has been busy, not only in the UAE in preparation for COP28. She was in California for the UCLA Climate Action conference in March, discussing company building and catalytic investments in carbon management. In May, she participated in Iceland Innovation Week at the “OK, Bye” summit hosted by our friends at Transition Global. And last month she spoke to Sherry on the Funding a Better Future podcast, where they covered a range of topics including:
Systemiq Capital’s origin, goals and visions
Opportunities and funding landscape for climate tech companies
Parts of the sector that are less hot and those that are more exciting/up and coming
Advice for founders who are raising series A/B rounds
Jessica spoke about impact investing and ESG alongside a number of emerging managers at an Emergent event, part of our commitment to ecosystem building.
Jessica on a panel with other emergent managers; Irena visiting the Orca DACC project in Iceland
Interesting reading
“Water, a Biography”, by Giulio Boccaletti, which proposes that our institutions are intimately linked to civilisation’s relationship with water and reflects on the incredible achievement of taming water that the 20th century delivered.
“Shoe Dog” by Phil Knight” – the insightful and inspiring story of Nike’s founding and growth.
Schmidt Future’s “The U.S. Bioeconomy: Charting a course for a Resilient Course for a Resilient and Competitive Future” Bioeconomy Strategy Report
BloombergNEF’s “Liebreich: The Unbearable Lightness of Hydrogen” thought piece by Michael Liebreich
ClimateHack’s “How Will Biology Help Us Achieve Our Climate Goals?”, a conversation with Edward Shenderovich, Co-founder and CEO of Synonym
The White House Office of Science and Technology Policy’s “Bold Goals for U.S. Biotechnology and Biomanufacturing”, harnessing research and development to further societal goals
Michael Demsey’s “The End of Narrative-Only Deep Tech Companies” which highlights the importance of solid commercial traction in deep tech.
Latest News from our Systemiq Ltd partners
The new, technology-driven, sustainable growth story represents the greatest investment opportunity since the industrial revolution: Systemiq and the WEF teamed up to articulate the impact of AI upon the transition to net zero, releasing this report in January. The extraordinary developments in large language models in the past few months, such as Meta’s LLaMA, are set to accelerate this further.
Electric vehicle batteries are driving low-carbon travel. A battery passport, as mandated in the upcoming EU Battery Regulation, is a digital record of its production and usage; it will be crucial for repairing, reusing and recycling batteries – and keeping the EV industry growing. The Battery Pass consortium, led by Systemiq Germany GmbH, has produced the first publicly available content guidance for the industry.
“How to Make the Money Flow for a Net-Zero Economy”? That’s the central question of the Energy Transition Commission’s report. Which puts the capital investment need at around $3.5 trillion a year between now and 2050. Two conceptually different categories of financial flow will be required for the transition – capital investment and concessional/grant payments – for early coal phase-out, deforestation and carbon dioxide removals.
Every year, Europe constructs more buildings, roads and infrastructure using highly energy-intensive materials – and they go under-used. Writing in BusinessGreen, Julia Okatz explains how more resource-efficient cities could cut 25% of their GHG emissions, and become more desirable places to live.
“Regenerative ag is driving food sustainability promises, but is it greenwashing?” Food Dive speaks to Theo Ewer of the Food and Land Use Coalition about how large companies in North America are engaging with regenerative approaches.
Thank You’s
A special thank you to everyone who went above and beyond over the last several months with introductions, diligence, advice and help:
Ahmed Butt, Elias El Mrabet and Mattia Romani for being great partners in COP28 conversations. Alex Iskold, for introductions and podcast recommendations. Alex Laskey, Andriy Mykhaylovskyy, and Jeremy Brewer for your partnership and impactful introductions. James Cameron for helping a portfolio company with strategic advice. Lian Michelson for the introduction to QFlow! The Mills Fabrica team including Dominic Deane and Gabriele Verikaite for hosting some great events and thought-provoking discussions. The Mundi Ventures team for welcoming us to their innovation day in Madrid. Sasha Vidiborskiy for being a wonderful sounding board and connector. Veronica Chou for several excellent conversations about fashion and founder introductions. Yassin Alsuroor for continuing to guide us in the Middle East.