“So I guess all that climate talk was really just another hype-fueled VC bandwagon”
I heard this from a founder this week. He was referring to just how much market conditions have impacted the narrative and actions of climate tech venture capitalists (VCs). He explained that, despite these funds raising and deploying billions of dollars and touting their impact credentials, with markets down, climate tech VCs are behaving just like everyone else: scared and low on conviction.
And I get it. Interest rates are skyrocketing. Russia has invaded Ukraine, throwing energy and food supply into chaos. Supply chains are still a mess. Fear and uncertainty are running high. So it’s human nature, and perhaps conventional wisdom, to want to hunker down and wait.
But I disagree.
In fact, I think there’s perhaps never been a stronger case for why early-stage, climate-focused investing, especially in food and agriculture, will unlock impact and returns right now. In the spirit of fundraising out loud, here are three reasons why.
It’s no longer just about how we will feed 10 billion people by 2050. It’s about how the food system, responsible for a quarter to a third of global emissions, will respond to shifting consumer sentiment and activist shareholders who are demanding greater accountability. About how new regulations and requirements from governments, investors, and financial institutions will shape access to markets and capital. About how climate impacts, from fires to flooding and extreme heat, are redrawing the boundaries for viable production on a global scale. And on top of all of this, it’s about the impact of an aging agricultural industry: over 70% of land is owned by 75+ year olds and over $500B of farmland will change hands in the next 10 years in the US alone.
Tectonic shifts are underway, driving adoption of new tools, shifting power dynamics in supply chains, and creating opportunities for new business models.
If the climate tech movement is invested in creating impact, we cannot shy away from the opportunities that exist within food and ag. Almost one-third of global GHG emissions are attributable to the food system, from production to consumption. And beyond emissions, agriculture accounts for 70% of the world’s fresh water use and half of all habitable land use.
Where food and agriculture stands apart from other sectors in climate tech is in its potential to not only decarbonize itself, but also offer solutions to mitigate emissions in other sectors. Nature-based solutions alone offer the potential to reduce emissions by 10 gigatonnes of carbon dioxide equivalents.
These opportunities are too big, and our global situation too urgent, to wait on philanthropic solutions. And even if there was time to wait (there isn’t), the problems are too large and diverse for philanthropy to tackle alone. The opportunity rests with mobilizing climate investment, even in the face of a down market.
The ag sector has demonstrated performance that is uncorrelated to most other financial investment vehicles, delivered good relative returns over long hold periods, and has outperformed during recessionary environments.
This strong, uncorrelated performance combined with the critical need for climate solutions sourced through technological innovation should make venture investment in agri-food tech an obvious investment opportunity. Yet, of the US $643B invested in venture capital in 2021, only 8% of this (US$50B) was invested in agri-food tech.
I got into venture because I believe in capitalism generally, and venture-backed entrepreneurship specifically, as a force that can be deployed to combat the climate crisis, especially right now in food and agriculture. I’m seeing this happen already with the 11 startups in our Fund I portfolio. I’m also seeing more talent available as people seek to shift into companies that are having an impact. There’s evidence everywhere of how impact and commercial success can go hand in hand along the value chain.
I’ve thought a lot about the current market conditions and whether it makes sense to hunker down– to not only stop fundraising, but also pause on investing.
I’ve decided that it doesn’t.
I’ve decided that it makes sense to do more. I don’t believe market conditions should change the outlook for climate investing.
To me, it’s not about discretionary spending or making "nice to have” changes. It’s about survival- for the planet, and for businesses. We *must* do everything we can to avoid scenarios that will be significantly worse that the 1.5C we already appear locked in to. And in agriculture and food especially, those who realize this and take action now will be in a position to reap the rewards and make an impact.
So, Tenacious is open for business and we’re raising Fund II. It’s going to be hard, but we’re tenacious. I believe there’s never been a more important, bigger opportunity. And the time is now.
To learn more about investing in Fund II and our vision for a digitally-native and climate resilient food system, get in touch here. Early-stage agri-food tech startups looking for funding, reach out here.
This is the fourth post in our “fundraising out loud” series. Catch up on the first here, second here, third here, and fifth here.
Disclaimer: The information in this post is not investment advice or a recommendation to invest. It is general information only and does not take into account your investment objectives, financial situation or needs. Before making an investment decision you should read the information memorandum and seek financial advice from a professional financial adviser. Whilst we believe Information is correct, no warranty of accuracy, reliability or completeness is given, except for liability under statute which cannot be excluded.
Tenacious Ventures Management Pty Ltd (CAR 001275760), Tenacious Ventures Management Partnership, LP (CAR 001298484), Tenacious Ventures Fund II Management Partnership, LP (CAR 001298483), and Tenacious Ventures Fund II Staple Co Pty Ltd (CAR 001298487) are Corporate Authorised Representatives of Sandford Capital Pty Ltd (ABN 82 600 590 887), Australian Financial Services Licence No 461981, and are authorised to provide advisory and dealing in connection with investments to wholesale clients only.