Devil is in the details when it comes to CCE investments
Switch has been turned on for Circular Carbon Economy - the pandemic has accelerated its status in our conscience from "nice-to-have" to "must-have". Leaders of the corporate world are now putting years of "lip service" into concrete actions, as evidenced by many examples and actions announced at the World Economic Forum on circular carbon economy (https://www.weforum.org/projects/circular-economy)
Should venture capital jump in? The VC community by-and-large still hasn't forgotten the cleantech boom-and-bust which saw billions of VC dollars poured into start-ups promising cleaner energy and cleaner water, but subsequently lost as those start-ups could not deliver commercially-viable product within the life-time of the VC funds. Are we at better time now to invest in what is socially responsible?
I believe that one key factor that contributed to the cleantech boom-and-bust, among many factors, is the mismatch between long, sometimes very long, term trends and the short VC fund life that is typically 10 years. For example, solar has grown dramatically and will still grow for decades to come, but many solar start-ups, have gone bankrupt when they could not achieve profitability within a few years of funding.
Long term trends, by-and-large, benefits large incumbent corporates who have time to play out the trend, resource and scale to reap meaningful-sized markets, and a capital investment hurdle rate of single-digit. As for venture capital, we need to look for opportunities in the minute details to find those few start-ups whose technology-market fit is good, market opportunity is meaningful, ROIC significant, and all done within a few years that our fund's life permits.
I was honored to be invited to speak at the Circular Carbon Economy Forum that SABIC Venture organized for the World Economic Forum. I shared CM's view on the challenges from VC perspective on each of the five business models in the "Circular Economy Valuer" (https://www.valuer.ai/case-study/industry/achieving-circular-economy-with-corporate-startup-partnerships) : sharing, product as a service (Paas), circular supply chain, product life extension, recovery and recycling.
There is no slam-duck that when a big trend becomes inevitable and must-have, start-ups would succeed. It is imperative to keep a cool head and look at the details of each business and find those few that would fit with a venture capital model. There may be different fund models needed, eg, longer-life fund, mezzanine fund blending equity-and-debt, but that is for a separate discussion.
Below is video of my talk if you are interested in listening.