First in a two-part series. In this Part 1 we outline humanity’s failure to build category-defining businesses within planetary boundaries: the consequences, missteps and the lessons from the CleanTech 1.0 and ClimateTech 2.0 eras.
In 2015, the Paris Agreement bound 195 nations together with a series of measures to tackle climate change and avoid the worst consequences of globally rising temperatures, arguably humanity's biggest problem.
The aim was to prevent global temperatures rising by more than 1.5C above the “pre-industrial” levels of the 19th century.
Less than a decade later 2024 marked not only the hottest year on record but also the first calendar year in which annual average temperatures exceeded this limit.
The significance of this threshold should not be understated. It’s very likely humanity is now close to some critical tipping points of irreversible change for our climate system. If crossed, the impact both on our society and the natural ecosystem will be unprecedented.
Many of the systemic drivers of modern climate change accelerated during a golden age of neoliberalism (circa 1980s onward) when deregulated markets, fossil-fuel-driven globalization and weakened public oversight shaped the carbon-intensive global economy.
We have prospered greatly from the development of centralized and heavily polluting or carbon emitting industries. They have made us economically infinitely better off and far more productive, but the negative impact on our planet remains vast.
Many of these industries, from steelmaking to shipbuilding, have not fundamentally changed in years. The Hüttenwerke Dillinger Hütte steelworks in Germany has been in operation since 1685. And some of the machines at the ArcelorMittal’s Coatesville plant have been rolling steel for over a century. While obviously modernized over centuries, their core industrial processes (i.e. blast furnaces) remain fossil-fuel intensive.
Dillinger only recently began pursuing low-carbon steel via hydrogen-based DRI (Direct Reduced Iron) as part of the “Pure Steel+” program announced in 2021.
Rewiring these industries and solving these systemic problems requires patience and capital.
The venture ecosystem is uniquely placed to foster step-change innovation, and commercialising new technologies that have a ‘one-to-zero’ effect on planetary impact within industry (more on this in Part 2).
But, having lived two boom-bust cycles in the past 20 years, some VCs are treating climate-impact with caution.
Burned by losses in CleanTech 1.0 (~2006–2011) and ClimateTech 2.0 (~2015–2022) funding into the sector and the number of deals done has dropped for three consecutive years from $40 billion in 2021 to just $17 billion in 2024. “RIP ClimateTech” became the prevailing sentiment!
Climate disasters on the other hand, and their cost to governments and society, have nearly tripled in the last decade. Flooding, wildfires, and crop failures have become all-too-common headlines.
The need to mitigate and adapt to a warming climate remains a clear and present danger. But to invest in solutions to humanity’s biggest problem, we must enter a new era of “planet-focused” investing, taking heed from the mistakes of the CleanTech 1.0 and ClimateTech 2.0 cycles.
A postmortem: CleanTech 1.0
Both climatetech booms have coincided with periods of strong global GDP growth. During CleanTech 1.0, surging energy demand - driven largely by China’s industrial ascent - pushed oil prices above $100 per barrel, making alternative energy more viable. Low interest rates further enabled capital-intensive infrastructure projects, critical to scaling clean energy and manufacturing startups.
Al Gore’s An Inconvenient Truth catalyzed public concern, helping unlock generous subsidies such as the U.S. Production Tax Credit and Germany’s Feed-in Tariff, which accelerated clean technology adoption. Venture investment soared, growing over 50% annually from 2000 to a peak of $10 billion by 2008. But the boom proved fragile.
By the early 2010s, Chinese state-backed firms, armed with vast subsidies and export credit, flooded global markets with underpriced solar modules and wind turbines. Western competitors—unable to match the scale or pricing—were quickly squeezed out. Beijing’s industrial policy targeted dominance across key climatetech categories: solar, wind, batteries, LEDs, and more.
Some companies, like Tesla, proved that a full-stack approach to zero-emission technologies could compete with legacy industries. But most failed due to fundamental flaws in unit economics and commercialization. Added to that was a high capex requirement, antiquated regulation and fierce global competition (including from subsidized competitors abroad) in addition to a dismal wider economic climate.
Solyndra, a California-based solar provider that went belly up after receiving $535 million in federal loan guarantees from the White House, ultimately became the bad-poster child for this sector.
Critics piled on and investors piled out, deciding that climatetech was too risky.
Ultimately the sector provided subpar returns. Of the $25 billion that VC investors poured into CleanTech 1.0, more than 50% was lost by 2015. Climate investment rebounded briefly from the supreme financial crisis thanks to loan guarantees in 2009, but it was more of a dead cat bounce than it was a return to trend.
So while Climate 1.0 demonstrated the potential of clean technology, it also underscored that commercialization is more important than innovation alone (as remains true for most tech startups!).
Government support is not a substitute for commercial viability and companies must compete on price and performance to survive.
ClimateTech 2.0
The mid-2000’s saw a new class of investor enter the scene.
Corporate venture arms and family offices began investing alongside government-backed initiatives such as the Inflation Reduction Act (IRA), helping drive over $200 billion in capital into the sector.
Strong public sentiment and near-zero interest rates fueled widespread optimism that decarbonization would drive value creation - even when solutions remained 2-5x more expensive than fossil-based alternatives.
With abundant, cheap capital, climatetech companies scaled rapidly, even as many relied on fragile revenue models tied to voluntary carbon markets and corporate net-zero pledges.
By 2023, over 90% of corporate carbon offsets lacked credible verification, undermining confidence in these markets. Meanwhile, interest rate hikes, geopolitical shocks, and a surge in oil and gas profitability - ExxonMobil alone posted $56 billion in profit in 2022, its highest ever - stalled momentum.
Corporates and governments - key early customers - missed climate targets and reversed course on long-term goals. In March 2024, Shell scrapped its 2035 net carbon intensity target, citing “uncertainty in the pace of change in the energy transition.”
On the consumer side, customer willingness to pay more for environmentally-friendly products from bamboo toothbrushes to coffee keepcups saw a similar rollback. For example, Gen Z’s willingness to pay more for eco-friendly products has dropped ~5% since 2020.
ClimateTech 2.0 repeated many CleanTech 1.0 mistakes. Lacking revenue, startups leaned heavily on cheap capital, prioritizing scale and capex-heavy technologies over profitability. Venture capital misfires and the $100+ billion SPAC frenzy inflated valuations and distorted the market—SPAC-backed climatetech firms underperformed traditional VC-backed peers by over 50% within two years of listing.
SmartPlanet 3.0: Resilience and dynamism
There are seven key lessons we have drawn from the strategic missteps in CleanTech 1.0 and ClimateTech 2.0.
- Solid foundations
The best climate solutions will not win due to their climate impact but because they offer a step-change in cost, efficiency or performance to the end user of their technology. Climatetech must be thought of as horizontal, rather than vertical.
Case in point, Tesla (born during CleanTech 1.0) didn’t sell its early EVs on virtue alone; it made them aspirational and high-performing.
The Model S was a luxury sports sedan that “happened to be electric” built with an obsession over unit economics. Form Energy (ClimateTech 2.0) frames its multi-day battery not just as a climate solution, but as an energy reliability tool for grid independence. Greenjets, building electric propulsion systems, is asserting its leadership based on the fact that its engines are 10x quieter than other solutions, rather than by virtue of being ‘green.’
- A pathway to profit
Founders must have a clear route to scaling their business, without relying on large investment funding rounds.
Innovative partnerships and business models can be designed to conserve capital and navigate complex go-to-market barriers.
Where companies like SunEdison collapsed under debt in 2016 after expanding recklessly in 2016, Sunrun’s solar-as-a-service model meant that homeowners paid little or nothing upfront to enjoy lower monthly electric bills - unlocking mass adoption. By 2024 Sunrun became the first solar company to surpass 1 million customers, now accounting for one in five U.S. home solar installations. Crucially, Sunrun also leveraged partnerships (with installers, financiers, and even utility programs) to scale rapidly without heavy capex on its balance sheet.
- Cyclic resistance
Cleantech fortunes swing with specific, recurring triggers: U.S. tax-credit cliffs (e.g., the 2012‐13 wind PTC lapse), sudden subsidy cuts (Spain’s 40% FIT rollback in 2010), oil-price collapses (-70% from 2014–16), and commodity shocks such as polysilicon’s 80% price drop between 2008-12 (largely from Chinese economies of scale). Companies that outlast those shocks share three quantifiable traits - low product cost, balance-sheet strength, and revenue insulated from spot subsidies.
First Solar was the lone Tier-1 module maker still profitable in 2012: its CdTe thin-film panels cost $0.63/W versus $1.60/W for rival silicon, it carried $1.5 billion in net cash, and 70% of sales were locked in U.S. utility PPAs immune to Europe’s feed-in chaos.
Ørsted transformed from coal to offshore wind by 2020; fixed-price U.K. CFD contracts (>15 years, ~£140/MWh) gave it >DKK 18b EBITDA in 2023, funding expansion while peers cut capex.
Enphase kept gross margin >40% during the 2018-22 inverter price war thanks to an asset-light fab model and patented ASIC-based microinverters that remained the lowest-failure-rate option for installers.
- Bigger visions mean bigger impact
Big-picture vision matters. Companies should be built based on a deep conviction of what the world will look like in 20 years time.
The major shifts of today are electrification, supply chain realignment, and climate adaptation. Incremental improvements in legacy fossil-fuel technologies will not create generation-defining companies.
Redwood Materials, building a circular battery materials supply chain, is well timed with EV sales growing exponentially and nations wanting domestic, closed-loop sources of battery metals, such as lithium and nickel.
Those focused only on incremental improvements to the fossil-fuel tech stack, such as carbon capture retro-fits for peaker plants, will struggle with customer churn and shrinking market size.
Climate change is also just one of nine planetary boundaries that we are encroaching upon. The problem space is horizontal. These boundaries are interconnected, and the problem space is broad and cross-cutting, not siloed. Almost all areas of human activity have some impact on each of the nine boundaries.
In earlier waves of climate investing it was a mistake to treat the opportunity as vertical, narrowly focused on one area such as energy, or emissions, when in fact solutions must be horizontal, embedded across industries and capable of transforming systems that touch every part of the economy and society.
- No hammers in search of nails
Innovation is obviously essential, but scientific progress doesn’t follow a set timeline.
In the early cleantech days, brilliant scientists developed novel technologies such as new battery chemistries, biofuels from algae, futuristic solar materials, but sometimes without a clear customer demand or commercial plan.
Range Fuels, for example, built a process to turn wood chips into biofuel. But after burning through up to $156 million in federal loans and grants, it produced only token amounts of ethanol and was liquidated in 2011.
A recent analysis found that 35% of startups fail due to lack of market need, making it the #1 cause of startup failure.
Modern climate tech must start with the problem and market need, then tailor the science/engineering to fit, all while managing technological risk pragmatically. Companies like CarbonCure - which injects CO2 into concrete - started by working closely with concrete producers and builders to ensure their solution fit into existing workflows and delivered economic benefits (stronger concrete, cost savings), before looking to sell on climate-benefit.
- Beware the shock
Successful climate hardware companies will have to deploy technology at a global scale, and be resistant to inevitable disruptions caused by geopolitics and logistical interruptions. Vertical integration, where possible, can help establish resilience to survive supply shocks.
In practical terms, this means controlling key parts of your supply chain, manufacturing in-house when advantageous, diversifying supplier bases and building flexibility to adapt when disruption strikes. Companies that prepared in this way have endured far better than those that relied on single-source suppliers or just-in-time imports.
Vestas, the world’s largest wind turbine manufacturer, underscores the value of supply chain robustness. Vestas operates in over 80 countries and has installed 139 GW of wind capacity globally. The company manufactures critical components in-house or in close partnership. It brought blade production internally after issues with external suppliers. It also spreads manufacturing across multiple geographies, so that a trade tariff or local pandemic lockdown can’t shut down all output. Whether it is material scarcity (e.g. lithium, rare earth metals), manufacturing bottlenecks, or external shocks like wars and pandemics, a company’s agility can make the difference between meeting customer commitments or facing costly delays and losses.
- Raise, raise, raise
Climate tech ventures are capital-intensive, especially in early-stage hardware and infrastructure. Founders must be wary of long investment horizons and financing risk at each stage of the company’s lifecycle.
CleanTech 1.0 underscored that throwing money at a company does not guarantee success, and that companies cannot rely exclusively on altruism to scale. And while climate impact may be the mission, product market fit is still critical, to keep the mission alive.
Better Place, the Israeli EV battery-swapping startup, raised $900 million from investors in the late 2010s and spent aggressively on infrastructure and expansion. But consumer adoption was far lower than expected (it deployed less than 2,000 EVs on its network) and the company could not raise subsequent capital to maintain its growth and extensive infrastructure.
Similarly, in the 2020-2021 SPAC frenzy, EV and hydrogen startups raised >$20 billion in fresh equity; for example Nikola’s valuation peaked at ~$30 billion, Lordstown Motors at ~$5 billion, and Hyzon Motors at ~$2 billion - despite negligible revenue. Such overcapitalization bred complacency and steered many firms into ambitious yet unprofitable growth plans.
Having the right amount of capital at the right time can be the difference between life and death for a startup. Regardless of your stance on his politics, Elon Musk has proven himself as an exceptional capital raiser (across multiple companies).
When Tesla nearly went under during the 2008 financial crisis, Musk secured last-minute bridge funding and then a critical strategic investment from Daimler in 2009, which kept Tesla alive. In 2010, Tesla received a $465 million DOE loan under the Advanced Technology Vehicle Manufacturing program, which allowed it to open its Fremont factory and build the Model S – effectively jumpstarting volume production. (Tesla then famously repaid this loan early once it hit success).
The company also timed public market raises to its advantage: it IPO’d in 2010 when investors were intrigued but before needing to show large revenue, and later, after the Model S was well-received, Tesla raised nearly $1 billion in a 2013 stock offering. Again in the 2020 boom, Tesla issued new stock at high valuations, raising ~$12 billion that year – bolstering its cash reserves for factory expansion. Each fundraising was used to fund a clear next stage of growth (vehicle programs, new Gigafactories) rather than to paper over operating losses.
Despite a bearish investment landscape today, 7percent sees strong fundamentals behind our ability to decarbonize our economy and to build category defining business within our planetary boundaries.
Renewables have achieved price parity with traditional energy sources. The exploding demand for AI means that there is now an unprecedented urgency for the world's most powerful countries and companies to strategically guarantee themselves 24/7 access to low-cost power. Industries must retool and decentralize to mitigate Russia’s outsized control of energy prices and China’s dominance over climatetech supply chains. Our focus must not just be on mitigation, but adaptation and resilience as food supply chains become unstable and extreme weather events become more frequent and costly.
The failure of the CleanTech 1.0 and ClimateTech 2.0 waves to shift the world onto a fully green energy footing were perhaps inevitable. But it was also the necessary catalyst that brought us to the climatetech revolution of today.
Having experienced both cycles, at 7percent we do our best to apply these lessons of the past with boldness and optimism for the future, to find and support the truly world-changing startups of tomorrow.
In Part 2 (next month) we highlight the key drivers and opportunities for technology to enable a society that is both resilient and sustainable.
At 7percent, over 25% of our investments have been made as part of our Smart Planet thesis, focused on how we source, process, and move the essential resources we need, from energy and water to materials and information - with portfolio companies including Greenjets, Phoenix Hydrogen, Zeno Power Systems, Inevitable Tech, OSCP, Vosbor, and Aerovolt.