Hello Rico,

Earlier this week, I toyed with the idea of putting a red cross over ‘climate’ in this newsletter’s logo. As you can see, I didn’t. 

But it all started when I took a plane to Malmö last week. The days of flight shame are officially over: the Norrsken and Blykalla teams were on the same flight, heading to the same event I was: The Drop.

Speaking to people there, it’s clear it's become one of the most popular climate tech conferences in Europe. With no panels or traditional keynotes — apart from a brief welcome from Pale Blue Dot partner Hampus Jakobsson — the event hosted a huge number of roundtable discussions on a variety of topics.

But the question I left with is more an existential one: Have LPs and VCs completely given up on climate? More on that below.

Elsewhere:

• VCs pile into companies squeezing every inch of performance out of compute 
• What VCs think is overrated — and overlooked

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Sustainable scale needs smart payments

For climate founders, impact depends on speed and expansion can’t come with added friction. Hear how today’s most ambitious companies are streamlining financial infrastructure, hiring across borders and scaling seamlessly, without losing focus on their mission.

🤑 A growing number of investors are funnelling money into startups working to make training and running AI models cheaper and more efficient, which ultimately means making them greener.

• Capital to startups in the AI hardware, data centre, semiconductor and photonics sectors has already doubled this year compared to last, according to Sifted data; so far they’ve raised €4.8bn across 120 deals. “It's busier than I've ever seen it in this sector,” Dave Grimm, partner at AlbionVC, tells Sifted.
• The impact of using AI models is still unclear, something we wrote about in this newsletter last month when we asked, how green is your compute? And despite companies working on solutions that could make the use of tools like ChatGPT more energy efficient, that's not necessarily what the hyperscalers — Big Tech companies such as Amazon, Google and Microsoft which dominate the cloud market — want.
• “They’re constrained by the amount of power they can get into a data centre [...] they like to use all that power, but use it for more bandwidth,” Grimm says. “By increasing efficiency what you’re really doing is increasing capacity. And so that's driven all of this interest in this area.” 

🪨 What VCs think is overrated — and overlooked. All VCs seem to want to talk about right now is defence tech and AI — but where else do they see promise? One area in particular that's being overlooked is critical minerals, they tell Sifted.

Climate tech out, dual-use in at The Drop

Last Wednesday I joined investors, startups and quite a few corporate venture people at climate tech conference The Drop in Malmö. Some of them I’d bumped into on the plane from Stockholm the day before; others had flown in from as far as California.

Now in its fourth year, The Drop has become a good barometer of where climate tech investors are looking. This year, the focus was clear: “Defence, Dual-Use and Climate Resilience”.

One of my first roundtables (which were without tables, had boxes instead of chairs and reminded me more of sitting at a campfire without a fire than being at a conference) was with Alex Bakir from Norrsken’s Evolve fund and Chris O’Connor, formerly of NATO’s Innovation Fund. The headline: “Guns or Climate: Where is the Red Line in European VC?” 

Who could resist that?

Bakir said that although “the core of what Norrsken does has always been climate tech,” deeptech for climate has always been about resilience — and that we have to invest in things that “are critical to our way of life,” to preserve Western society as we want it. In a world where geopolitical tension is increasingly top of mind, perspectives like Bakir's have opened the doors for climate investors to put money into areas like supply chains.

During the same conversation, Joost den Haan, the founder of PlanBlue – a spinout from Max Planck Institute which has developed seafloor monitoring technology – mentioned that while his company’s software had been created to extract key environmental metrics, it realised it could also be used for security and defence, delivering decision-ready data on habitats and sensitive infrastructure corridors such as ports, cables and pipelines.

This is dual-use in action. Drones once meant for agriculture or forestry can now be repurposed in ways that have little to do with climate but a lot to do with revenue.

Other roundtable sessions discussed AI and deeptech as a way to “kick off a new tech supercycle,” whether “dual-use tech is climate-tech 2.0,” and climate tech founders’ future focus on “physical AI.” No wonder climate tech VCs are keen to broaden their investment case.

Nina Wöss, partner at Fund F, pointed out that one problem that climate tech funds run into when trying to extend their focus is whether their current fund is classified as either Article 8 or 9 — in other words, their funds has agreed to invest in startups with a positive environmental or social angle. She wasn’t too worried about Fund F though, since it was thankfully an Article 6 fund, which means it lacks those constraints and can invest freely in any sector. 

One PR working with LPs and VCs told me that for the VCs who are more easily able to broaden their theses, the answer lies in the story they tell LPs — much as it does for startups when they’re raising either from a generalist fund (emphasising the dual-use case) or from a climate tech fund (emphasising the climate aspects of their product).

The only attendees at The Drop who seemed to come for the climate tech were the CVCs. Chunchun Yao, an investor at Beiersdorf Corporate Venture Capital, told me she was looking for startups working on new materials discovery that could replace fossil fuels in her corporate’s products.

Apart from that exchange though climate tech in the ‘save the environment' sense was largely missing from the agenda. One Danish solo GP admitted she was in “an existential crisis,” doubting whether climate VC can turn the tide at all. 

I tried to be positive, saying she should just focus on what could be changed, and she looked at me and said: “yes, of course, but I think it may be too late.”

As sobering as that was, I found it a more compelling point than the ones made by the many investors hyping the next big bet, whether in climate or dual use. 

So what do you think readers: Is it worth treating climate tech as its own category? Is dual-use climate tech’s next chapter — or a face-saving exit strategy for generalist VCs who once flirted with climate? Let me know.

— Mimi, Europe editor

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