Risky Business

Last week, Mike, Qhalisa and Sam attended Climate Week in New York City - a week filled with events, relationship building with great partners and lessons learned.

TL;DR - climate risk might be better portrayed as a risk to your current way of living - your home/coffee/wine/travel/skiing/appreciating nature/political stability will all be impacted. Humans have tended to be good at predicting the future by analyzing the past but in this case, we will have to be better at understanding what our already determined future climate is, so that we can focus on quickly adopting the available and already viable solutions.

We also wanted to share some key learnings from an event we co-hosted below:

1) A lot of value comes from intimate discussions with smart people that have different viewpoints. Our topic was electricity grid challenges resulting from the rise of AI’s energy consumption, and how AI could actually help navigate the surge in demand. While fundamental changes to the grid are required, many feel that the safety and dependability that our utilities provide must continue to be priority #1.

2) Several large utilities are feeling pressure from their Public Utility Commissions (PUC) to improve grid flexibility, which means less peaker plants, decreased emissions and more innovative ways to shift when people consume power. They are looking to adopt tools that can safely and reliably provide more visibility into decision making. There are several startups doing this well, such as ThinklabsAI in our portfolio.

3) The energy transition has an uncertain short-term outlook, but the long term looks very strong. Later stage investors, and those that invest in infrastructure, are cautiously deploying capital into solutions. They hope to see more first of a kind (FOAK) facilities successfully built and more evidence of strong outcomes for climate companies in public markets. Fortunately, we heard repeatedly that the significant risks for society need to be addressed urgently, and the corresponding upside for those that have strong solutions could be huge.

4) Recognition that the Active Impact Investments brand is growing globally. Over the course of the week, we had people from around the world congratulate us on progress, exits, fundraising and share their excitement for our new investments. Our event only had space for 25 people and ended up with over 700 people registered! In VC, brand matters, and it was nice to see peers recognize the work we’re doing on both sides of the border to help move the needle on climate change.

---

I tried to make a joke about measuring, but it was too short

Active Impact entered the market at a time when there was a huge gap at the seed stage in climate funding, where we felt our skills were particularly well suited to help. Since the beginning, we have been searching for solutions that will create the most positive impact moving forward. Our mission is to “provide funding and talent to accelerate the growth of early-stage companies to achieve venture scale profit, while solving the most urgent environmental issues.” To evaluate our success, we measure our progress on impact in addition to financial metrics. Earlier this year, we proudly celebrated 1M tonnes of GHG emissions averted via our portfolio companies.

But after we spoke to much larger funding entities, we began to rethink how we represent our impact and decided to update our ‘Theory of Change’. We now also measure progress using a metric of emissions reductions per dollar of revenue. We realized that if you simply look for the highest GHG emissions reductions realized during the investment period, then you could invest in a single late stage company and immediately claim 1M tonnes of emissions averted. However, our assertion is that this pales in comparison to the potential within the 37 investments we have made so far. We believe the compounding effect of the growth of our portfolio companies will lead to cumulative GHG reductions far beyond 1M tonnes. We challenge others looking to maximize impact to consider a similar approach, and get comfortable with the fact that the highest total volume of emissions reductions may happen after your investment period.

---

Walk this way, talk this way … like this

“We Put Founders First”. There were several situations over the course of the last month where we had an opportunity to put this core value into practice. While it takes a little more time and thought, we think it's worth the effort:

• It's important that founders we partner with have similar values to us, and that we build this alignment early on. When we write a term sheet to lead a new deal (as we did this past month), we don’t just send a legal doc, we include language that encapsulates our brand, shares our values and discusses how we like to partner with founders. 

• There can be incredible value in post-investment support. We onboarded two new portfolio companies in July, done not with an email saying ‘welcome aboard’ but with a meeting where all 10 members of our team introduced themselves and shared how they can provide support. We lean in every month in coaching calls to help with sales, hiring, fundraising and any other thing that is needed. 

• We like to celebrate wins. Last month we added our newest process to recognize our founders with exits, not with a bottle of champagne but with a custom award citing the things they did best, accompanied by a personal letter expressing what we admired about our time working together. 

It’s much easier if you only deploy capital, it’s hard to build lifelong relationships and a brand that stands out.

---

Scoring a “Tofurkey”!

Any bowler out there knows that scoring 3 strikes in a row is called a “Turkey”. Well, what do you call it when a climate fund announces 3 exits in a week? Maybe a “Tofurkey” since the carbon footprint is lower? 

With just 32 investments in our first two funds, we had the great honour and pleasure of announcing 3 exits in the second last week of June. Now, there is some fineprint here. The Sustain.Life and Pantree exits officially closed during that week, and Keela closed a while ago but we were waiting to make a coordinated announcement with their acquirer. Similarly, Pantree’s buyer requested that exit details are not shared on social media. In a time when many investors and LPs are looking for liquidity/DPI, we are happy to share this good news and lock in some returns. And of course, we are thrilled for our founders, who were able to execute on a plan that secures the long term funding needed for their businesses to continue scaling. We feel our biggest potential winners are still operating in the portfolio so there is still much work to be done. 

---

Dilly of a Pickle for the Green Transition

Drastically reducing GHG emissions demands a massive economic shift–across industries, geographies and roles. The problem may seem insurmountable, but we know that every challenge comes with opportunity. To seize it, we need the right people working to keep our planet inhabitable.

This is easier said than done. Globally, hiring slowed between 2022 and 2023, but climate-related roles bucked the trend. The share of green talent in the workforce rose by 12.3% across 48 countries. The jobs requiring green skills grew by 22.4%, but here’s the thing: only one in eight workers in the market have these skills. We need to address the supply and demand issue, which will require a multi-pronged approach to upskill and reskill people from legacy industries to green jobs. For example, the percentage of auto workers that need EV skills rose to 61% in 2023. The Conference Board of Canada predicts that just one year of training can enable a green transition for 99.7% of high risk, low mobility workers, such as those in oil and gas jobs.

With a growing "green skill" shortage, choosing top talent within climate tech is increasingly important. While many choose to hire based on experience, we work with founders to go beyond experience and hire for high potential. We work with our portfolio companies to identify a candidate’s ability to adapt and learn, problem solve, take accountability consistently and most importantly, align with the mission of an organization. If you're a high potential candidate with a passion for climate tech please reach out. We'd love to get you into the right role within our portfolio!

Source: Impact Economist

---

DD, or not to be…

That is the question. We are doing our next close soon and we have several institutional entities that are in due diligence (DD). At this point, "maybes" are tough (there are over 300 of you!). "Yeses" are great as they reduce our time in market and "nos" are helpful as they allow us to prioritize our time for investors that still have questions. Please reach out and let us know what you need.

If you are a capital allocator, you might wonder why fund managers are pushing for a faster timeline and looking to increase committed capital to a fund (including us, sorry for all the emails). Here's our take, worded simply from our perspective at this moment in time. On amount, we already have enough money to run our third fund. But we are seeing a lot of amazing, well-timed climate deals that we want to take large ownership stakes in and we have incredible talent pounding down our door to work with us–so the only constraint is access to capital. On timing, fundraising is the only thing we do that doesn't serve our current investors or founders. It takes time away from deal sourcing, picking winners and providing post investment support. Those are the things that drive our returns and impact, so we try hard to contain fundraising into short periods once every 3-4 years.

We're grateful to have had success with our Fund III raise so far. Now it's the most important part–time to finish strong. If you’re interested in what we do, take a few minutes in the coming days to look through our data room and get to know us better. If you don’t have access, let us know and we can share it with you. With our Fund II companies growing quickly and our first two investments out of Fund III under our belt, we're ready to direct 100% of our attention towards creating the fastest growth possible for climate positive solutions.

---

Better together like tacos and tequila

Last month we shared that our portfolio companies mitigated one million tonnes of CO2e! This is a big milestone, but it’s also a small fraction of the 50 billion tonnes of CO2e our society is producing annually. We … both the global ‘we’ and the Active Impact portfolio of companies … need to grow our emissions mitigation number aggressively to address our changing climate and keep global warming below 2.0 degrees.

During our diligence process, we scrutinize the strength of the link between emissions reduction and revenue growth. If the link’s not clear, we don’t invest. Enterprise revenue growth is a key area of support we provide our management teams post-investment, which in turn increases impact. We provide everything from one-on-one advice to founders who are navigating their first enterprise sales conversion to actively placing key talent in revenue generation roles. In February we placed Mike Watson as CRO of Flair, who previously built a $100M smart lighting and electrical products business—very analogous to the work he’ll be doing at Flair.

This graph is pulled from a recent investor report to illustrate the revenue/impact link in action. The company name is redacted for confidentiality.

In venture capital, doubling revenues year-over-year in early days is a strong representation of demand, and tripling year-over-year is seen as a benchmark for exceptional growth. Exponential revenue growth demonstrates real customer demand and shows that a given company has the operational skill to execute on that demand. While Fund II is early in its performance and emissions mitigation journey, the 2023 numbers are in and they are strong. 37% of our Fund II companies grew revenues at least 3x over last year and almost 70% of our companies are at least doubling YoY. This certainly gives us confidence that our companies that come to market will find receptive audiences for financing and significantly increase share prices. It also makes us particularly excited for our impact numbers as those revenue growth numbers translate to real emissions reduction.

---

They say the first million is the hardest

We are so excited to share that we recently crossed one of many major milestones to come—our portfolio companies have now mitigated a collective one million tonnes of carbon dioxide equivalent emissions. On Feb. 13 our whole team hosted ~50 investors and four local founders at our second in-person Annual General Meeting (AGM) on Grouse Mountain and we used this important milestone as the theme of the event. Investors flew in from Toronto, Montreal and Ottawa (representing our largest institutional investors) to see presentations from our team on 2023 performance, learn about the macro VC and climate tech market from RBCx and see what founders from Clir, Railvision and Othersphere are building.

Funds are expected or required to hold AGM’s, but like everything we do, we first satisfy the need but then always try to add elements of surprise, personality, togetherness and joy. Our 32-company portfolio (including four exited) provides a model of how early-stage companies can drive meaningful climate progress and venture scale. In the global scheme of things, one million tonnes of CO2e is tiny, but we’re just hitting our stride and these companies (and many more like them) have millions more tonnes of potential in their near future.

---

Gimme gimme never gets

January isn’t just for trying new workout routines, going vegan or taking a booze-break—in the world of venture funds, it’s also the beginning of reporting season. The start of the new year means that we, like every other fiduciary, are looking back at the prior year to see how we did so that we can report to our stakeholders. And by how “we” did, we mean both us and our portfolio companies.

It’s obvious that we rigorously measure both financial and impact performance, but what’s not as obvious is just how much work that is … for us and also for every company we invest in. When a company takes money from investors (just like when we take investments from LPs) they agree to a layer-cake of reporting obligations. For the most part, those obligations are satisfied by simple accounting systems—but in the case of impact measurement there isn’t one ‘Generally Accepted Accounting Principle’, so often each investor will have their own requests based on what they care about

Here’s a little peek under the hood of what we collect at year end:

• Financial statements, cap table and budget  

• Company specific unit economics and growth performance indicators

• Company specific impact metrics to assess the tonnes of CO2 equivalent, clean energy generated or waste mitigated, plus any secondary impacts created by the product

• Workforce diversity data

… which informs our deployment strategy, post-investment support and reporting cycle, shown (simplified) here:

We know it’s a lot, but that’s why we take a lot of effort to both ease the burden on companies AND make the exercise as valuable for them as it is for us. Everything listed above comprises our annual investor reports, our public Climate Impact Report, our internal post-investment support strategy, the content of our AGM and the baseline for our quarterly investor updates (not to mention this newsletter). We manage people’s money—we make sure they’re informed.  

And, to keep things interesting for our investors we switch up the AGM format every year. Last year we held a large event concurrent to our first Founder Summit and had noted climate activist Bill McKibben speak. This year, we’re creating a showcase of our portfolio companies by compiling a video that features an insider look at each company’s product, the challenges they’re facing and how they’re positioning themselves to win. We are so excited to put the spotlight on our amazing founders so that our investors can better understand the underlying health and value of the portfolio. Many are also joining us and our investors live for both in-person and virtual events.

So this month we don’t have a Founder Spotlight for you. We’ve asked enough of our founders, and our team is busy cooking up a year’s worth of exciting news to share. We will get back to your regularly scheduled conversations with Mike, but for now we’ll just tease that we have an exciting announcement coming up next month.

---

We haven’t been this excited about a New Year since last year

Happy New Year! By almost all measures, 2023 was a tough year for the climate and for venture capital. Venture funding dropped significantly along with deal count and average deal size. We focused our company support (particularly at the beginning of the year) on healthy revenue pipelines, extending cash runway and reducing expenses in order to decrease the reliance on follow-on financings given the foreseen dip in investing activity. Though, we didn’t foresee a banking crisis with SVB that would shock the entire sector.

Happily, most of our companies continued to grow and several countered the fundraising slump with successful up-rounds, adding new investors. Fund I companies have grown revenue an average of 11X since our initial investment, Fund II companies grew revenue 12X in the past year, and seven companies closed financings at increased valuations with only one down round. We also bucked the downward VC fundraising trend by launching Fund III in April and announcing the initial close with $70M committed in October. 

Climate change doesn’t care if markets are down or if it’s a tough economic environment for raising capital. In 2023 the whole world felt climate change—heat, fires, drought, floods—the urgency of deploying every viable climate tech solution was more acute than ever. So in addition to our annual round-up of our fund’s activities below, we’ve also included a selection of ‘holy shit’ moments in climate AND some important progress. Just as many of our companies and our fund showed meaningful momentum in the face of a stark reality, there was real, collective climate progress that we hope will motivate you like it does us.

---

January 

• Fund II investment #13 in Dispatch Goods  

• 55% of the continental US is experiencing a drought

February 

• Launched our Earth Month Challenge with Genus Wealth Management, Spring, Pace Zero, Fulmer & Company and SVX

• Antarctic sea ice shrank to a record low with only 66% the amount usually detected

March 

• ChopValue Series A 

• Run on Silicon Valley Bank triggers a cash emergency for multiple portfolio companies that Active jumps in to help, no companies suffered any permanent losses

April 

• Hosted our first in-person AGM and Founder Summit featuring Bill McKibben as a guest speaker

• Earth Month Challenge collectively raised $22K for the Nature Conservancy of Canada

• Canadian GHG Disclosure Standard comes into effect that requires government procurement to be in line with the Paris Agreement

May 

• Fund II investment #15 in Othersphere

• Metafold follow-on investment 

• IEA reports that for every $1 invested in fossil fuels, ~$0.017is now going to clean energy

June 

• Released our 2nd Climate Impact Report 

• Future follow-on investment 

• Jaza follow-on investment 

• Clean Crop follow-on investment

• Canada passes the Strengthening Environmental Protection for a Health Canada Act, enshrining the right to a healthy environment for the first time

July 

• Fund II investment #16 in Relyion

• Sustain.Life follow-on investment

• Hottest month ever recorded! 

August 

• Carbon America follow-on investment

• Optiwatt follow-on investment 

• One year anniversary of the Inflation Reduction Act that catalyzed 265 clean energy and manufacturing projects worth $100B+ in investment and 170,000 clean energy jobs

September 

• Encycle acquired by Instone Capital Partners

• Lahaina wildfire is the deadliest wildfire in US history

• 6765 fires have burned 128.5M hectares across Canada–the worst wildfire season ever recorded

October

• Fund III initial close with over $70M committed toward the $120M goal

• SWTCH follow-on investment 

• IEA reports that 500 gigawatts of renewable energy capacity was added in the first half of the year accounting for 25% of all US electricity–a new record

• California, the world’s 5th largest economy, mandates that companies make public disclosures of their scope 1, 2 and 3 emissions–Sustain.Life and Manifest Climate quickly feel the benefit from increased demand

November 

• Fund I exit #3 (still confidential)

• National Automobile Dealer Association announces 1M EVs were sold in the US in 2023, up 50% over 2022. 1 in 5 cars sold is now an EV

December

• Fund II investment #17 in JulesAI (our final company to be added to the Fund II portfolio)

• COP28 agreed to ‘transition away’ from fossil fuels for the first time

---

Getting the right people on the (electric) bus

Hot off the heels of our Fund III initial close (more details below), we posted an open call to add another person to our investment team. The position is purposefully general—open to candidates across career stages. One might wonder why a VC that prides itself on its (unconventional) rockstar team, recruitment and hiring would put out such an atypical call to grow the team?

Our talent philosophy is curated over decades of professional recruitment and HR experience. Here is an inside look into our recipe for successful hiring: 

• Cast as wide a net as possible in search of the right persona, rather than looking to fill the tactical bullets of a job description.

• There’s no such thing as a perfect candidate—the secret sauce is curating a team where personalities and intelligence coalesce to make each person the best they can be.

• Create an avatar of the perfect person including the tendencies that align with the values of the organization and the skills gaps within the team.

• Place a stronger emphasis on potential to create future value than prior directly transferable experience.

We apply a similar process for hiring our internal team as we do for identifying founders we think will win. To assess if a person has the five attributes of an ideal candidate, we ask situational questions and always drill into what the end result was. We look for answers that are direct in their quantification of performance. 

If you or someone you know with investment experience embodies our five ideal attributes, we want to meet! We’re being conscious about running as inclusive a process as possible, so we ask that everyone expresses their interest through our talent page.

---

In climate, deadlines matter

We announced in June that we were going to raise our third fund targeting $120M. Shhh ... there will be a formal announcement in the coming weeks but we want our newsletter subscribers to be the first to hear. For now we can share that we exceeded our goal of 50% toward the final amount and have welcomed an absolutely incredible group of new institutional investors among many returning LPs.

Many of our peers and potential investors thought that we were nuts for attempting to raise money in this market. This is the worst time in 10 years to raise a fund—many allocators have stopped deploying funds or cut budgets significantly, and individuals/families are feeling the economic pinch. But our response was (and is) pretty simple:

1. What better time to have fresh, dry powder to invest than when other funds aren’t deploying? From our investors’ perspective it is beneficial for us to have access to more deals at better valuations, and from the founders perspective it makes a bleak environment more hospitable to growth.

2. The climate doesn’t care that markets are down! Climate change is accelerating faster than ever and funding solutions is both necessary and a huge opportunity. Shying away from a challenge is not in our DNA. Just because something is going to be hard doesn’t mean it isn’t worth doing. There are many key qualities we screen for in building our team—grit is near the top of the list.

Stay tuned for the public announcement and detail in an upcoming newsletter. For now, we’re immensely grateful to our community of investors, founders and supporters that have helped us reach this milestone.

---

Don't call it a comeback, I've been here for years

We are fully in the Climate Tech 2.0 era and things are vastly different from the first Clean Tech boom of the early 2000’s. We, like many investors raising funds to deploy into climate companies, spend considerable energy distinguishing the confluence of tailwinds in the current climate tech moment from the pitfalls of the previous era. Between 2006 and 2011, $25B in venture capital was invested in climate/clean tech companies and most of it did not generate the desired financial return. Clean Tech 1.0 was largely characterized as overly R&D and capital intensive with poor unit economics that took longer to materialize returns than investors could bear. But the investments of 1.0 helped create the positive conditions for our current climate tech generation.

Climate Tech 2.0 is buoyed by multiple factors that are all pushing the cost of climate tech adoption down … which is driving demand and the potential financial outcome up.

• Technology and business models have advanced beyond science experiments. There are market-ready solutions across every sector from energy, agriculture, building electrification, and industrials (among others), that are both greener and deliver economic ROI to customers. This isn’t environmental altruism—it’s business efficiency.

Talent is migrating to climate en masse. 64% of millennials say they will only work for a business that has a focus on sustainability and impact. Nearly every day our team speaks with someone who is a superstar in their field that wants to apply their talents and experience to climate (and we work hard to place them in our portfolio companies).

• Governments are using both carrots and sticks to drive change alongside economic growth. The USA's Inflation Reduction Act alone has ~$380B in incentives to drive over $1 trillion in economic activity. Since 2015, 53% of the world’s GDP has legally committed to net-zero by 2050, with many already implementing carbon pricing.

• Consumers are voting with their dollars and companies are listening. More than 63% of Fortune 500 companies have set net-zero by 2050 targets, which is further driving a surge in demand for technologies that measure, reduce and report emissions.

• Private capital recognizes the opportunity and exits are starting to accelerate. Since January 2021, $121B has been raised to deploy specifically into climate tech businesses across 207 new funds. Almost concurrently there has been a 70% increase in climate tech exits each year that have disclosed $400B in enterprise value.

Clean Tech 1.0 gets a bad rap for being a dismal failure that most investors try to forget. But the reality is that much of why the circumstances today are so favourably different is because of the gains (particularly in technology and cost) of the predecessor period. We are grateful for the OG generation of Clean Tech because without it we wouldn’t be so well positioned to take on the climate challenge. But this time isn’t a trial run—this time we have to get the job done.

---

Learning from the VC past, betting on our climate future

The venture capital ‘power law’ describes how a small number of successful companies in a venture portfolio deliver the majority of the fund’s returns. ‘Eight die and two fly’ is the same concept—that most venture investments won’t survive, but very big wins can make up for the losses and generate outsized fund returns. Of course in reality, investors don’t know for certain who those winners will be at the outset. We believe in the quality of the team, the size of the market opportunity and the need for the product/customer value proposition for every investment we make—but we don’t go all in on any given company at the initial investment—we wait, observe and support as companies grow and then make follow-on investments when we have conviction that the company is a winner.

Five and a half years into Fund I and two and a half years into Fund II, Active Impact is faced with a relatively unique ‘problem’ for a VC manager: every company we’ve invested in is still operating. We set the big hairy audacious goal that we wouldn’t let any startups fail. We provide active post-investment support (pun intended) to every company and we don’t give up on companies even when times are tough. So how do we continue to serve all founders and important climate solutions in our portfolio while maximizing potential fund financial outcomes?

We’re being strategic about increasing our ownership in portfolio companies as early as possible when we have conviction that the company has unicorn potential. Our average ownership across Fund II companies has increased steadily over the last few quarters and is now 7.4%, and with Fund III we are targeting 10%+. Over the last 3 months, we’ve chosen to be aggressive with three of our portfolio companies and proactively increase our ownership percentage. By being proactive with follow-on investments we are doing everything we can to ensure that when/if a company is a big winner that our investors have enough ownership of the outcome to generate huge returns. As they say, you lose in VC not by having losses in the portfolio, but by not having enough of your big wins.

It’s a challenging economic market, but it’s a more challenging climate reality. The present moment requires guts and rigour. We are confident that we see the best seed stage climate tech deals in the market, and when we see teams with a unique solution gaining momentum we’re leaning in. With over 50% of Fund II still to deploy as follow-on capital into the existing portfolio and the first close of Fund III upcoming, we are being disciplined about how we allocate dollars to ensure we achieve the best financial and impact return possible while also being unapologetically bullish about supporting scalable climate solutions now.

---

Dirty Talk

If it seems like the recent issues of this newsletter have all relayed some heavy climate news … they have and unfortunately this month is no exception. But, we hope that amidst the alarm, you also glean optimism from the solutions and positive progress being made in climate tech. 

July was the "hottest month ever recorded on Earth and likely the hottest in about 120,000 years". July’s record-breaking heat waves in the US Southwest, Mexico, China and around the Mediterranean follow the hottest June ever recorded, and it’s likely that the rest of the year will continue to break records. Climate change is currently mingling with El Niño, which has shifted the Pacific Ocean from a cooling period (La Niña) to a warming period—which is amplified by human-caused warming. So the stark reality is that while July was the hottest period ever recorded, it may actually be the coolest period of what’s to come. 

Now for the solutions part. Our portfolio includes (and is seeking) companies that are capable of having a massive, positive climate impact. Our goal is to mitigate 1 million tonnes of CO2 equivalent by the end of this year. But climate tech is only part of the solution—the Earth’s natural systems are the original defense. So let’s take a moment to appreciate soil, which stores 2500 billion tonnes of carbon. 

We are actively seeking companies that improve soil health or that catalyze high quality carbon credits (or other incentives to preserve ecosystems), but in the interim we want to do everything we can to keep carbon in the ground, preserve nature and halt record-breaking warming. Earlier this year we launched an Earth Month Challenge to galvanize a donation to the Nature Conservancy of Canada and we’re proud that we catalyzed a $22,000 with Spring Activator and Genus Capital Management. The gift goes towards NCC’s Hastings Wildlife Junction, a 10,000 hectare forest and wetland ecosystem in Southern Ontario that stores 11 million tonnes of CO2e and sequesters an additional 28,000 tonnes every year. It’s a drop in the proverbial bucket, but while heat records continue to be broken we think it’s important to do everything we can and celebrate even a little progress. 

---

Everybody's shufflin' ... North

This past weekend marks celebrations of both Canadian Confederation and American Independence, and while we share good times with family and friends we’re also reflective of the climate forces that don’t give a hoot about flags or national borders. Right now, 80M people in the Midwest are under severe storm threat with many already displaced from flooding, 36M people in Texas are under an extreme heat warning that is putting major strain on electrical grids, and the record-shattering Canadian wildfire season has burned 20M acres and affected hundreds of millions.

Fires and floods displace people and destroy homes. Although these events can be completely devastating, mostly those communities return and rebuild. So what about when the disaster isn’t just a one-time event but a permanent change? Around the world and throughout history, resource scarcity has led to geopolitical upheaval and mass migration–for example, the climate-accelerated stress on freshwater resources that contributed significantly to the sociopolitical conflict in Syria, that has displaced almost 7M people so far. Imagine that, but on a global scale throughout the equatorial region (which happens to be most populous).

The ‘climate niche’ is the set of temperature and precipitation conditions where humanity flourishes. This map shows the temperatures we’re headed towards on our current 2.7 degree warming trajectory, with the shaded area representing temperature rise well above the climate niche. The business-as-usual scenario is 3.5 BILLION people from over 19% of the earth’s surface being displaced by 2070.

PNAS: Future of the human climate niche

But remember, this isn’t an inevitability … yet. Seizing the opportunity to scale climate technology NOW will have the dual benefit of making communities more resilient to extreme weather events, while also keeping the extremes limited to events rather than permanent displacements. The weather news, warnings and broken records are alarming—think of these events as the warning rumbles of what could come in a not so distant future.

---

50B problem, 50B opportunity

Climate change is at once the most urgent existential threat and the largest opportunity humanity has ever faced. Whether viewed from an economic, geopolitical or scientific perspective, the conditions are present for climate technologies focused on reducing GHG emissions to outperform. There are policy, capital and demand tailwinds that are increasingly driving the adoption of climate technologies. The private investment capital allocated to climate tech companies and the government policy incentives amount to hundreds of billions … and continue to grow. Technologies to mitigate past, present and future emissions exist and are ready to scale.

Humanity emits ~50B tonnes of CO2 equivalent into the atmosphere every year, but in the truest spirit of venture capital—the opportunity is equal or greater than the problem. That’s why we’re excited to announce the launch of Fund III. As Fund II nears a full portfolio, we are preparing for an October first close for Fund III. While the size of the fund will be significantly larger, with a target of $120M, the strategy will be the same. We will continue to find and nurture the best seed stage climate tech companies in North America to facilitate the transition from finite to infinite sources of energy, food, water and products.

---

Geothermal … so hot right now.

In the world of climate, there are a lot of giant, hairy problems and a lot of “wtf!” moments—but there are also moments when ancient methods meet modern advancement to create opportunities with huge, important potential to mitigate climate change. So let us tell you a little about geothermal energy. 

Geothermal harnesses the heat from the Earth's core to generate electricity. The stable, reliable energy is ubiquitously available, requires relatively few resources and has a smaller footprint than other renewable energy sources (3X less than solar and 10X less than wind). 

And geothermal is versatile! From electrical power plants, to industrial processes like cement or hydrogen production, to residential heating and cooling—our endlessly giving Earth can provide zero-emission energy on a variety of scales to serve different purposes. 

The geology of the Earth's crust can vary greatly from one location to another, and not all areas are suitable for economically feasible geothermal energy production with currently available technology— which makes financing large projects a challenge. Today, only 0.5% of renewables-based installed electricity generation capacity comes from geothermal. But, through the magic of scientific innovation and entrepreneurial guile, recent advances in data analytics and machine learning have made it possible to identify suitable sites more accurately to reduce risk and unlock project financing. 

By analyzing data on geological features, temperature, and other factors, companies can make more informed decisions about where to invest in geothermal energy. If companies can unlock a data-based approach to site and technology choice, then we can solve the finance problem and develop geothermal at scale. If you or someone you know is building a company that can advance geothermal, please reach out!

---

What’s more important than a habitable planet?

The United Nations Intergovernmental Panel on Climate Change released their sixth assessment report in March with a shockingly stark visualization of how different levels of warming will affect those who were born in 1950, 1980 and (importantly) 2020. Mayday! This is not a drill! 

To add to the alarm, scientists reported “abyssal ocean overturning slowdown and warming driven by Antarctic meltwater”. Remember the cheesy disaster movie The Day After Tomorrow where an ice age happened over a weekend? It’s that scenario. The Antarctic is melting so rapidly that it is diluting the salinity of the ocean and slowing down the overturning current. This is one of those ‘tipping points’ that scientists have been warning us about—rising sea levels, different weather patterns and mass extinction. If today’s emissions continue, the ocean current will slow down by 40% in only three decades. 

You can be forgiven for mistakenly thinking that the darkest scenario depicted in the above infographic is an alarmist worst case scenario. However, it is actually the trajectory we’re on. What is needed, starting today, is a rapid increase in the pace at which new climate solutions are developed and existing climate solutions are deployed. That is the only way to bend the trajectory and reduce (not eliminate, that ship has sailed) the adverse effects of climate change. It is the greatest challenge humanity has faced. It can be done, and must be done if the people alive today are to have a habitable planet. That includes you, your loved ones, and the less privileged people in our global community across the world without the means to cope with even the least drastic changes that are already happening at current warming levels.

We at Active Impact plan to do everything we can to be a part of the solution.

---

trillion with a “t”

We are climate tech venture capitalists—we invest where technology can transition the world’s resources from finite to infinite. We see opportunity in the decoupling of economic growth from environmental degradation. We believe in markets—in capitalism. So we have to question whether it is fundamentally non capitalistic to subsidize oil and gas to the tune of over one TRILLION USD during their most profitable year ever. 

Source: We Don't Have Time

We understand the merit of and celebrate industry profits. Prices went up during a time of lessened global supply and demand remained high. Take climate change out of the equation and it makes perfect economic sense. Last year the largest oil and gas companies made $219B in profit and paid out $110B in dividends and share buybacks. So why is it that during 2022’s record-breaking profits did subsidies (including tax breaks) double … and increase 5X from 2020? 

At the same time, many of the largest oil companies reversed their pledges to cut production, transition to renewables and decarbonize. The surge in profits has removed the incentives for the industry to make a clean energy transition. Government subsidies are supposed to be the lever that creates incentives aligned with the public good—not inflating the profits of an entrenched industry whose interests are in conflict with a habitable planet. 

What could be further from free market capitalism AND contrary to social/environmental welfare than subsidizing fossil fuel companies during their most profitable period … while at the same time incentivizing those companies to reduce their role in the clean energy transition? Did all that make your brain spin? Us too, because it’s nuts.

---