Thoughts on the Climate vibecession...

Where’s all the money going?

Vibecession

We’ve been as confused as anyone by the headlines; “$4.8bn raised for 17 climate-focused funds this year, up 30% from 2023!” “Running Tide shuts down!” “Donald Trump quits presidential race, calls for Green New Deal!” We did make one of those up, unfortunately. 

Isn’t it all… a bit weird? 2024 has been the year of the vibecession; The stock market is booming, we seemingly see a new climate-focused fund cropping up every week, and yet so many people we know and admire in the space seem exhausted, under-resourced, and report climate companies either selling assets and laying off workers, or preparing for a quiet and dignified shutdown. 

So, where is all the money actually going? 

Funds

The Venture Capital Journal published a great rundown of those new funds, complete with a list of prominent anchor LPs. Take a look. The largest LPs in our space are, in some order; Blackrock, Temasek, Allstate, a number of Asian banks, TotalEnergies (an oil company, for those unfamiliar), Chevron, three sovereign wealth funds, a bunch more banks and insurance companies, etc etc. To our eye, the first instance of catalytic or mission-driven capital among all the funds occurs with ninth-ranked Clean Energy Ventures, which raised an oversubscribed $305m fund on a $250m target in May 2024, primarily from the family offices and charitable networks of a few outrageously successful financiers. 

Oh. 

Look, we have written many times that we’re fundamentally capitalists. This remains true. Money is leverage to create impact in the world, there’s nothing wrong with impactful enterprises actually charging for their products, and the money coming from institutional investors with a bank logo on their business card is just as green as any other. We don’t hate institutional investors and have little patience for those who do. 

The problem, as always, is one of incentives. The capital allocators employed by insurance companies and banks are, as they are paid to do, looking for low-risk S&P-beating return profiles (we’re not even mentioning the oil companies, lest we start completely ranting). They are not in the business of moonshots, science projects, or long gaps to commercialization. Oh good, more SaaS companies. 

This is the vibecession. There’s a metric ton of capital flowing into climate, but it’s incented and managed wrong to give the world what it needs; Ambitious-bordering-on-crazy founders doing hard science, with a fraught pathway to commercial success, and a slim-but-real chance of a trillion dollar enterprise on the other end. 

We’re asking for pocket-sized fusion reactors, and getting tools for the calculation of Scope 3 emissions.

Education, Regulation

To the institutional allocators in the top 8 funds entering climate, we say this; Come on in, the water’s fine. Just maybe, when designing your portfolio strategies, model out the impact of a trillion dollar multi-fund returner in your portfolio, then carve out a chunk of capital to go out and look for those companies. It doesn’t have to be much. We would bet anything that writing $10m checks into a half-dozen companies tilted towards science rather than execution risk will do extraordinarily well, and you can afford it. 

Go out and hire science-literate scouts. This is where we see you missing the boat, honestly. Get educated, and hire proper startup operators who know how to run lean and fast. Send them to compete straight up with name-brand VCs to get into deals. You and your LPs have the huge resources to lead follow-on rounds, platforms to skyrocket publicity, connections and expertise. Introduce your relevant LPs as pilot customers. 

And then, for your lower-risk investments with a 3-5X, 3-5Y return profile? At least focus your efforts on areas where you can help the ecosystem along with making a buck. Your LPs are great at working with regulators and standing up new businesses in heavily regulated areas. Startups generally suck at this. Add value to your portcos by giving them this critical skillset, and you will have done good as you’re doing well. 

Thank-You, Next

To the next crop of fund managers, those announcing hopefully colossal raises in H2 2024 and beyond, we say this; Stop being lazy and broaden your LP base. Venture is a game of outliers, misfits, and magicians. So why are you all chasing the same pool of fundamentally conservative money? 

Seriously, did you all get into this space so you could shove capital into SaaS companies with a climate sticker on them, financial engineering bullshit like Running Tide, or offset brokers who turn out to be frauds?

A free idea; Team Coral is based in the PNW, home of Starbucks, Peet's Coffee, and Dutch Brothers. All of these businesses own material parts of their coffee supply chains stretching back to the point of origin of the individual beans. Why on earth has nobody called Howard Shultz, offered to add a science and allocation layer to his tremendous financial interest in modernized agriculture, refrigerated transport of perishable goods, food processing, and logistics, then raised a quarter billion on the spot?

This is but one example. There are dozens more. We’re working on several ourselves. Please (please) steal all our ideas and jump in. We need everyone. 

Please consider forwarding this piece to a friend or tossing it on the social platform of your choice. Coral Carbon is free and always will be, and every subscriber helps us keep doing this. If you want to work with us directly, stop by our new online home;

https://www.coralcarbon.io/