Module Description:
IdeaLab’s Bill Gross shares the immense opportunities and challenges in climate tech, highlighting its potential to reshape industries and drive sustainability.
Full Transcript:
- Welcome everyone to our Ubiquity University session on climate tech and why it's important. Ubiquity Ventures is a seed stage venture capital firm investing in software beyond the screen. That means that we back seed stage entrepreneurs who are solving real world physical problems by using smart hardware and machine learning. Today's topic, climate tech, is definitely within focus for Ubiquity, and we're very lucky to have Bill Gross of Idealab here today. Bill, welcome, and let's dive right in. Tell us a little bit more about what climate tech is defined as in your mind.
I feel that climate tech is one of the most important opportunities in all of history. It's a trillion dollar opportunity. It's bigger than the industrial revolution, bigger than the PC revolution, bigger than the mobile revolution. And it's basically anything that can address the warming planet, anything that can address reduction of fossil fuel use, anything that can address reduction of CO2 emissions, anything that can make the planet more sustainable, make civilization sustainable. And it's a big opportunity, but it's a very big challenge too.
So with the description you just offered, does it mean heavy industry and large CapEx, large physical plant and expense? Is that always part of climate tech?
It often does. It doesn't have to. There can be ways to address climate tech with great software, with great AI, for predictive control of plants. There's many, many different aspects and we need thousands of them to work. We need, basically, so many different shots on goal. I call it shots on goal, like attempts to do something that will make the planet more sustainable. And that means it's a big, big opportunity. We're basically remaking the entire energy industry, which is 10% of all of global GDP. So if you take something which is $10 trillion a year and you wanna remake that over the next decade or two, it means it's a staggering opportunity. It means every industry is affected. Energy is part of our life in ways we don't even imagine. It's all of our comfort and convenience. It's in all of our materials, it's in our buildings. So if you wanna come up with a way to remake all of that, there's opportunities everywhere.
So can you take us through a few of your own endeavors in the climate tech space and what the thesis was going in, and maybe if there's implications for future extensions for entrepreneurs?
Yes, so I've started 20 different companies over the last two decades that are in some way related to climate tech. And they range from transportation to make automobiles more aerodynamic and more efficient, to energy storage to find ways to hold on to electricity, made from renewables, more cost effectively, to carbon capture removal, to take CO2 out of the air with direct air capture, all the way to making solar energy from scratch with concentrated solar. So there's so many different opportunities, so many different avenues, and I really feel that it is a great scientific and technical challenge, but it's also a business challenge. It's finding a way to make these things pay back fast enough so people adopt them at a high rate.
So have you had endeavors that are in the capital light part of clean tech, the software only, or has it been more involved with physical hardware and physical-
I have personally veered more toward hardware because my training as a mechanical engineer, but I definitely feel that there is so much opportunity for software-only companies that really make a big positive impact. And those can scale faster. They don't require as much hardware, they don't require as much testing, and they can be deployed on a much larger scale much more quickly. So I think there's very, very big opportunity there as well.
I think of entrepreneurs as pulling together resources, people, and capital. In this regard, for the climate tech opportunities we're talking about, do you think that's a different set of people that are teammates and a different set of capital, or is it the same as mainstream SaaS and software and tech?
It is a different set of people, a different set of capital. First of all, for people, it's very easy to recruit people for this right now. Young people graduating from college definitely wanna work on this. This is a plus to be able to work on something that will have a positive impact on the planet. So it's really, really great to see how much enthusiasm there is to get people who are mission-oriented. Also, it's really powerful to have a company which is aligned around something that's doing something so good and so important. It gives the company a very good North star every day for what the work is going to be. On the capital, it does require a different kind of capital, probably a little bit more patient capital 'cause it's gonna take longer, typically, to make a payback, maybe five to 10 years instead of three to five years. It definitely has different metrics of performance. Techno economics matter a lot more than other customer satisfaction scores. So having the investor be able to understand those techno economics and help you evaluate it and help you improve those is a different skillset. Now more and more VCs are getting that skillset, so it's getting more and more common, but it's definitely different than prior internet-only or SaaS-only companies.
So Bill, something like the Inflation Reduction Act, the IRA, how big of a deal is that for climate tech? I mean, it seems like a huge accelerant, but what else has been happening the last 12 to 24 months?
I would say that after starting companies for 20 years in the climate area, I have almost always been facing a headwind for those last two decades, until last year when the Inflation Reduction Act was passed. The Inflation Reduction Act, or IRA as it's called, allocates $370 billion to climate tech related companies. And the actual amount will be much larger than that because portions of it are uncapped and there's matching dollars. So it's probably over a trillion dollars. It is the biggest tailwind to climate tech investing and climate tech companies in the history of energy. And this means that you have the capital available to help you drive down the learning curve. The whole point of the money that's devoted to this is not to be a subsidy that lasts. In fact, it ends after 10 years. But it's a subsidy that helps you increase your volume to drive down your price so you no longer need a subsidy. And this exact thing happened over the last decade with wind and solar, where subsidies from both the US, Europe, Germany, and others, helped manufacturing scale so that now solar energy is the cheapest energy in the world. It's cheaper than fossil fuel energy. It happens to be only during the day. So we need other technologies to solve the intermittency problem, but it's now the cheapest electrons in the world could be made from solar panels and from wind turbines. So that's exactly what the IRA is intended to do to help other technologies drive down their price so they're sustainable without subsidies to allow us to become a fully sustainable civilization.
Comparing this to normal tech, do the same principles apply? Is it still about asking customers what they want, listening and building it, or is there a different mindset? Because you were talking about the economics driving things, perhaps, more than customer input. So help us think through that.
In climate tech, many of the same rules apply. Your customer has to wanna buy what you're making. However, it's more on techno economics and reliability than on features and functionality. With SaaS companies, with internet companies, with consumer companies, you can win on features and differentiation of usability. In climate tech, it's all about the economics, it's all about the payback period, it's all about what am I replacing in the energy industry to make this energy transition happen, and is it affordable? Does it pay back in three years, in five years? If it pays back in 15 years, no go. If it pays back in one year, incredible. So it really is about understanding what the customer needs are, but then turning it into solving their techno economic problems. And that is different. In some ways it's liberating because it's very knowable. In some ways it's challenging because you need to do a lot of experimentation to make a proof point of your return, of your IRI. But it is different and valuable because the scale of the opportunity is so large. Never has there been something where there's trillions of dollars per year in spend that can be replaced if you can make the techno economics work.
Yeah, I want to fixate on that idea of perhaps, it's easier in climate tech because you can work the numbers. So for this, many startups fail, many climate tech startups have failed. For the ones that have failed, it sounds like it wasn't because of their selection of features in UI and button colors. Was it because they got the number calculation, the techno economics calculations wrong, or they had to estimate at where the curve would go and they got that wrong? What's driving climate tech failure?
A lot of times it is mis-estimating of the cost reduction rate. A lot of times there's technical setbacks in delivering your product, and you have a certain timeframe where you need to deliver the product before you run out of money. And because there are things that happen when you're developing things with hardware, there's supply chain issues, there's price changes of commodities, all kinds of things are happening in the world that are outside of you just making a product. If you're making a software product, you pretty much have control of it inside your own building. When you're making something which is touching the entire supply chain and energy industry, there are other things that could happen. Look what happened with Covid. Look what happens with wars. In fact, some of these wars that are happening make the price of fossil fuels go up, make you more competitive. But then the war ends and then things change again, and then containers coming from China are very expensive and then they drop in price. So everything changes very fast around you, in ways that you don't have control of inside your own building. It still makes it a huge opportunity, but there is new challenges that you have to face in this climate tech area.
Well, in the Ubiquity portfolio, we talk a lot about software being on the screen, but the companies we've backed, I think it's six or seven in the climate area are relatively diverse, in line with what you're saying, that it touches a lot of things. One has to do with improving fuel efficiency through aerodynamics. Another one has to do with installing EV chargers. Another one has to do with monitoring climate data, forestry. So I think there's a lot of different industries, and I don't like to use jargon too much, but the total addressable market, the TAM here is gigantic, I think you were describing in terms of energy as a $10 trillion. But all the other places that it'll filter through, I think is very exciting. Makes me salivate for the lucrative economic potential for my investors as well as for the impact for the world. And I agree, I don't think we've seen many things like this. So Bill, thanks for taking the time to take us through this introduction to climate tech. Again, Ubiquity Ventures, we'd love to hear from you. If you have ideas that are in this area, just getting off the ground, you can reach out at Pitch.Ubiquity.VC, and I'm Sunil Nagaraj, and I'm at Sunil at Ubiquity dot vc. Thank you.