Interview with Pippa Gawley, Managing Director of Zero Carbon Capital #33
Investing in hardtech climate startups
March 31, 2022
Today, we are going to hear insights from a climate investor that absolutely loves investing in hardware, Zero Carbon Capital! I had the pleasure to interview Pippa Gawley, their Managing Director.
You’ll hear about Pippa’s journey into becoming a climate tech investor, Zero Carbon Capital’s investment philosophy, technology transfer, and much more!
🌍Introducing Zero Carbon Capital
Zero Carbon Capital is a UK-based deep tech climate fund. They invest in early-stage companies on a mission to address climate change through hard tech innovation.
Pippa and Alex founded Zero Carbon Capital in 2019 with the mission of alleviating the lack of funding for deep tech climate startups. Now, their portfolio is full of amazing climate startups, such as Phycobloom and Lilac Solutions, that are tackling the climate crisis with science-based solutions.
The investment criteria of Zero Carbon Capital is three-fold:
- Big climate impact (>500 Mt of CO2 per year at scale)
- Exceptional team
- Hard science
Zero Carbon Capital’s first fund invested in climate startups based in the UK. Now, Pippa and Alex are raising the second fund, which will broaden the geographical investment scope to the whole of Europe. Zero Carbo Capital is also expanding its team!
🧠Wisdom from Pippa
How did you become a deep tech climate investor?
I studied engineering and have always been a practical and scientific person. When I graduated, I didn’t know how my engineering skills could help make the world a better place. At the time, climate change was not yet in the public’s eye.
I decided to start a job in financial services, which was a great introduction to business. After that, I worked for many years in internet product design and research and development. I was always working with scientists and interpreting what they were doing for commercial decision-making.
When my children were born, I took some time off. After a few years, I decided to dedicate my time to work again and started thinking of different options. I knew that I wanted to work and use my time and energy to tackle climate change.
Everything fell in place when I started angel investing in climate startups in 2015. At the time, Alex and I were living in California. I invested altogether in 10 climate companies based on scientific innovations.
When we moved back to the UK, we saw a funding gap in hard tech climate startups. Most investors were focused on incremental improvements, for example, in energy efficiency. We wanted to invest in ground-breaking climate technologies, and that’s how the idea for what became Zero Carbon Capital was born.
Could you tell more about the first steps of starting a fund and your investment philosophy?
We had two hypotheses when we decided to start building Zero Carbon Capital. The first hypothesis was that enough hard science climate startups exist in the UK to invest in. The second hypothesis was that we could raise a proof-of-concept fund from investors.
We were lucky to find out that both hypotheses proved to be true. We were able to set up the fund at the end of 2019 and start investing and continue building partnerships in the climate tech ecosystem.
Our investment criteria consist of three parameters. Firstly, the startup should be aiming to make a climate impact large enough (>500 Mt of CO2 per year at scale). The CRANE-tool offers great support in making this assessment. Basically, what we ask ourselves: “will not solving this problem stop us from reaching net-zero in 2050?”. Secondly, the team has to be exceptional having the right skillsets for accomplishing the mission of the company. Thirdly, we invest in solutions rooted in science.
How do you see the fundraising landscape for hard tech climate startups in Europe?
There is an ongoing major shift in climate VC, as more and more investors have started to invest in hard tech. In the end, climate change is a physical problem. While software has a role in tackling climate change, we need to build more hardware solutions.
VCs are notorious for investing in software startups. Even though VC’s roots are in hardware (e.g., Intel), the investment focus shifted to software for decades after several incredibly successful software companies. In addition, the cleantech 1.0 bubble also caused reluctance to invest in hardware climate solutions.
It is worth noting that there are also geographical differences. European investors tend to be more conservative and more reluctant to take huge risks than investors in California.
How could we better support science-based startups?
Firstly, we should find ways to educate scientists on science commercialization and business. We now have brilliant scientists to whom the possibility of building a company would never occur. The discussion is often around patenting and then licensing that patent to an existing, larger company. Universities should offer wider education regarding the possibilities of research commercialization.
Likewise, it would be helpful to educate the more commercially oriented people about deep tech and its commercialization. Sometimes, a scientist partners up with a co-founder that has a strong business background to help take the innovation to the market.
Other areas of support are IP management and lab space availability. Getting funding is the number one obstacle currently for science-based startup founders.
Supporting science-based startups comes down to building a highly supportive ecosystem that can teach the right skills, offer the right resources, and connect you to the right people.
What’s your experience with universities’ technology transfer offices so far?
[Note: a university’s technology transfer office (TTO) is responsible for commercializing technologies originating from university research. The TTO manages filing patents for inventions made in research and licensing and selling IP.]
We have not made any investments in university spin-offs yet. However, most of our portfolio companies have close ties to universities. They have managed to structure their IP so that the IP wasn’t under the university’s control. For example, if you work on a side project, the resulting IP from that project is free from the university’s control.
At one time, we were close to investing in a spin-off company. It fell through unfortunately due to significant difficulties in the IP extraction. Their IP extraction process was frankly dysfunctional. There’s been also lots of negative publicity around TTOs for taking too much equity (up to 30%) of the spin-offs.
Which areas do you think are the hottest and the most overlooked in climate tech?
It feels that most hardtech climate funds are definitely looking at hydrogen economy and direct air capture at the moment. Also, biotech approaches like CO2 to X (fuels, chemicals, materials, etc.) concept and biomanufacturing are attracting also a lot of attention.
In contrast, EV batteries and long-term energy storage seem to be falling out of favor. However, we are not even near where we would need to be in terms of energy storage solutions. In addition, we would need more solutions for the grid in general. We will need more solutions like smart hybrid transformers which our portfolio company IONATE is developing.
🌉Pauliina’s greetings from SF
I’ve now been in SF for 3.5 weeks. I feel weirdly a lot home here. It might be thanks to all those people who I’ve met who also work hard and love outdoorsy hobbies!
Learnings and observations:
- I was told again that a lot of money has entered climate tech and that VCs are competing for the deals.
- National security is a prominent discussion topic here. I attended Techonomy Climate conference this week, and one of the talks was about EV battery production. The fact that China dominates the battery manufacturing was framed as a national security risk.
- Stanford’s campus is gorgeous. I’ve biked now biked around the campus twice!
- The climbing community is amazing. There are so many people who do climbing here.
- Bars and clubs close by 2am (!).
If you liked this article, please share it with your climate friends!💚🌍