Tom Kline is a Partner at climate-focused VC firm Climate Tech Partners (CTP). In June this year they announced a $50m raise for their Fund 1, which included $15m each from the Clean Energy Finance Corporation (CEFC) and super fund Australian Ethical Super, along with $15m in a joint investment by Airbus and Qantas. We spoke to him about CTP’s investment mandate and their unique model of connecting start-ups and industry.
How does CTP’s funding model work?
We’re a climate focused venture capital fund, but we focus on energy, transport, industrials, and mining sectors. And we invest across software, hardware, and deep tech. But what differentiates us from others in the market is our industry and corporate partnership model. We think that brings multiple benefits for us as an investor and for our LPs. We want to be investing where there's significant demand for new tech solutions, so our corporate partners go, “Where are the opportunities?”, and “How can technology help unlock and accelerate that?”.
From a founder’s perspective, we want to help our portfolio companies get better traction, faster trials, paid pilots, and ultimately contracts with corporate partners. Because we think if we can bring more focus from corporates around adopting newer technologies, that's going to attract more capital to help accelerate the deployment of these technologies.
Why the focus on those verticals?
That's where our — Patrick (Partner at CTP) and myself — background and experience lie, and where our networks are. Climate is definitely complex, so we’re focusing on where our specific knowledge bases are.
But we also think Australia has the longer term potential for low cost, low carbon energy, which then can unlock a whole bunch of green opportunities like green steel. But we also then need new technologies to help unlock the grid and drive the adoption of renewable energy. We’re also great at research, through universities, through CSIRO. Part of our goal is figuring out how we can get that technology out into the world.
What sort of climate problems do you think Australia is uniquely positioned to solve?
One area for us is in sustainable fuels. Australia uses a huge amount of fuel, and nearly all of that is imported. But we've got renewable resources, we've got feedstock, we've got the size, because these plants take up a significant amount of land. We're the eighth largest market for aviation fuel in the world. So the demand is there. And I think there's potential for Australia to step into that.
Why are you focused on investing in Series A companies?
We also invest in later stage seed, and early Series B or Series A extension. The reason for that later stage focus is given our industry partnership model — we want those technologies and companies to be at a stage where they can be directly interacting with their corporate customers, who then can drive and accelerate them. That's harder to do at the pre-seed stage. If it's say a software startup it potentially could be earlier, provided they've got a product that is in market. And it might not be fully built out, but it's operational.
What have been the challenges in raising the fund?
There's no doubt the last 18 months has not been the easiest capital raising environment. I’m sure many founders will relate to that as well. But our differentiated model, and how we're trying to de-risk the investment and accelerate growth has definitely appealed to investors. And the fact that we've now got Australian Ethical and CFC backing us, along with family offices and corporates, is helping to validate that model.
But at the end of the day, people are also looking through current political cycles, and are recognizing that decarbonization is not a trend that is going away anytime soon. If you look at where all the very large infrastructure funds are deploying capital, decarbonization is one of the key areas where long-term, 10 - 20 year investments are being made.
There’s now mandatory climate reporting in Australia for large businesses, along with all climate regulation for companies in Europe. What’s been driving that trend towards decarbonization?
There’s a number of elements to it. What we sort of saw 3 or 4 years ago was a lot of corporates announcing targets and goals for 2030 and 2035. And we spoke to over 100 corporates when putting together our corporate partners — of which we've now got 10 to 13 — and they're the ones who have moved from announcing to taking action, because 2030 is right around the corner.
It's definitely not all corporates [doing this], particularly now given the pressure coming off corporate reporting out of the US. But we’re seeing that some corporates view [decarbonization] as a competitive advantage in this space, because ultimately that's where they view their industry going. But it's also that people see these lower carbon solutions as over time being the lowest cost option too.
Advice for founders
In the current environment, it's about demonstrating the value that you can deliver from an economics point of view; then I'd talk about the climate benefits. Whereas going back a few years, people were often pushing harder on the climate benefits and less on the economics. And it’s explaining the value they're able to bring to their customers. Demonstration of traction and engagement is so important in the environment. At the moment, investors generally are a bit more cautious. So be prepared for probably a slightly longer capital raising cycle.
But the good news overall is there is a significant amount of capital in Australia and internationally looking for investments in the [climate] space, but it’s just a little slower than it has been.
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