It has been contended that humans have a tendency to over-value short term gains and severely underestimate long term potential.
Climate tech firms have come some distance given their deplorable status during their first avatar – when they were called cleantech firms (which makes me wonder if they should have called themselves climate tech right from start)
Globally, there are about 50 pure play climate tech unicorns. This is against the total of about 1100 unicorns worldwide, across all sectors – Climate tech unicorns are about 5% of the total.
If you thought 5% was small, it was 0% until about 2015, so that gives you an idea of the climate startup growth.
All the same, some numbers make me wonder if climate tech startups are getting valued their true worth.
Globally, climate tech unicorns have raised in all about $50 billion, and together valued at about $130 billion. The total worth of the global unicorn ecosystem is about $3.85 trillion – so, climate tech unicorn valuation is just about 3.5% of total unicorn ecosystem.
Currently, the most valuable climate tech unicorn, the Swedish battery startup Northvolt, is valued at about $12 billion. The world’s most valuable startup (ByteDance, TikTok’s parent) is alone valued at about $300 billion – more than twice the valuation of all climate tech unicorns! SpaceX (space exploration), SHEIN (fast fashion, JEEEEEZ!) & Stripe (online payment solutions) are each valued at around $100 billion.
When it comes to valuations, climate tech still appears to be a marginal sector for VC firms.
But I wonder if it should be.
Could it be a classic case of overestimating short term gains and underestimating long term potential? A ByteDance could be raking in money now, but a product like that could easily lose sheen given the teen market’s volatile mindset. Its entry barriers are few – we already see every large social media network have its own version of TikTok.
On the other hand, take batteries – an estimated $1 trillion global market by 2030 (split 50% between stationary and mobile). Batteries are the future with solar and wind power certain to be the largest contributors to renewables. Has only one major competitor for the transport segment, fuel cells, and there’s no reason why Northvolt will not produce fuel cells too in future. Cos such as Northvolt are deeptech firms with high entry barriers. End users cannot decide to move away from batteries (unless they wish to live in dark without AC) like teens can from TikTok.
VCs are bright fellows of course, and they are sure to have sophisticated models for valuations (which are still vulnerable to simple accounting tricks as BYJU’S has proved recently), but they may want to just consider including that K factor in their valuations to account for underestimation of long term potential – VCs are human too.
See my LinkedIn post on this topic