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April 21, 2023

Green Start-up Will Outperform the Market in 2023-2024

There’s no part of the economy untouched by sustainable innovation and investment. This includes the proliferation of green or climate tech early-stage ventures. In recent years, some of the fastest growing companies are climate tech, including plant-based proteins, renewable energy, low-carbon steel, green concrete and coal, and electric batteries. Climate tech accounted for more than one quarter of all venture dollars invested in 2022, according to recent data analyzed by PwC. In terms of the highest valued billion-dollar companies, according to HolonIQ (an industry leader), as of January 2023, there are 83 Climate Tech Unicorns around the world for a total value of $180 billion. This is an impressive growth compared to 2022 when we had only 44 Climate Tech companies valued at 1 $ billion or more. Despite the market challenge and recent crisis, Green Unicorn will continue to scale and create value. They will likely continue to reach unicorn status much faster that the startup in other sectors as witnessed recently. Based on my analysis, green startups have taken an average of 4 years to reach Unicorn status (the billion-dollar valuation), as opposed to the 7 years for startup in more conventional sectors.

Tough time for capital raise: Better to have a Green Growth Angle: While there continues to be momentum around sustainability start up investment, higher interest rates could stall investment flows in riskier early-stage companies. As money have becomes more expensive throughout 2022 (with 7 interest rates raise in the US alone), early-stage projects may not be able to raise capital to fuel their growth as investors become more risk adverse and selective. There are in fact signs that investors are seeking opportunities with higher credit worthiness and more experienced executives. Early-stage disrupters will have to adjust to the new market constraints and must sacrifice higher valuation and give away more equity to attract investors with robust liquidity profiles.

Capital Will Flow Towards Sustainability Focused Companies: On the green start up front, we will continue to experience accelerated capital inflows toward these types of deals, even though doubts persist about the unproved economical profitability of green-tech startups. Rest assured though, we are in a strong market for sustainability investment and the regulators will continue to provide the market signals that will allow climate investment to thrive.

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Andrea Zanon  |  Contribution: 31,070