Why Family Offices Fail at Climate Investing — And How to Fix It!
In the last several months I met TONS of LPs and family offices either investing in or looking to invest in climate tech.
Which is great news! There are finally larger pools of capital starting to enter the climate space.
There’s a problem though… almost all of them want to do direct (ie. invest directly into the companies as opposed to investing via a syndicate or fund).
From a returns perspective, that makes sense — at least on the surface (ie. they don’t want to pay management fees or carry — for more on economics of VC, see this post).
The thing is, family offices DON’T have access to the best deals or the top founders. Investing in climate tech is RARELY their “bread and butter.”
Instead, they made their fortunes in oil, minerals, real estate, the markets, corporate M&A etc… and think they can win at early stage investing.
Or maybe, they’ve been active in startups and VC and want to add climate tech to their portfolio — which makes sense as it’s arguably the largest opportunity (from an impact and ROI perspective) in history.
Unfortunately, investing in climate tech is NOTHING like investing in simple software or consumer:
- There aren’t proven metrics like CAC, LTV and churn
- The tech risk is MUCH higher
- The sales cycles are often MUCH longer
- It often takes tons of cash to reach scale
Add to that the fact that EVERY climate technology and startup is TOTALLY unique and requires a different level of expertise to understand and assess the opportunity and you can see why climate tech investing isn’t for the occasional investor.
Source: Blue Future Partners
To make matters worse (at least for your typical family office types), the founders aren’t your typical Silicon Valley boys either. Many top climate founders are university spinouts and or researchers looking to commercialize incredible discoveries/tech.
And be honest, as a family office or LP, how often do you meet those types of folks?
Even if you wanted to, how would you do direct investments? It’s not like world class scientists are stomping down your door for funding…
Which makes sense: You’re not a value-add investor. You don’t know the top climate tech funds, the big sustainable corporates, the installer networks or the energy & infrastructure agencies that could help the company with rolling out, qualifying for grants and ultimately succeeding.
The hard truth is, if you’re an LP or family office looking to dip into climate tech, you’re probably just money (dumb money as we say in the industry). Which is totally fine.
But if your goals are to fund the future, drive massive ROI and complement your existing operations/assets/portfolio etc…, is it really the best idea to take climate tech into your own hands?
Because you can’t effectively evaluate the deals
You can’t help the founders grow & scale
And you don’t even meet the right teams…
That’s why the smartest family offices and LPs invest into early stage climate funds and accelerators — to unlock deal flow, access, connections and expertise for their later stage direct investments.
You don’t need to be an expert to win at venture or successfully invest in climate tech — you just need to have an “unfair advantage” in the form of access and information.
And if you can’t get that edge on your own, there’s a good reason why so many top LPs invest in great fund managers…
Just food for thought.
For more information on 4WARD.VC and how we’re disrupting the entire climate tech ecosystem with our networked growth hacking approach to climate investing & acceleration, shoot me an email: matt@4ward.vc
