Small is the new black in climate tech VC

VC on fire

Bill Clerico was an early figure in fintech, co-founding WePay in 2008 and selling it to JPMorgan in 2017. A few years later he left JPMorgan.

Now he’s back in a very different market: wildfire tech.

After he sold WePay, Clerico spent time in Mendocino County in Northern California where wildfires had been getting much worse, just like in many other areas. He even joined the local volunteer fire department in order to learn more about fire prevention and fire safety.

He made some angel investments in the sector, and decided to raise a $34 million fund for his firm, Convective Capital, focusing specifically on startups addressing wildfires. And when investing in companies trying to address climate change, wildfire is “the tip of the spear” that has wide ecological, financial, and health impacts that are only growing, he said.

“I just eventually realized that there’s a really big opportunity to invest in early-stage technology companies trying to solve this problem,” he said. “I gained an appreciation for how big of a problem it was and also how little it was resourced on the technology side.”

He invests in three areas: landscape management so that forests are more resistant to extreme fires, protecting communities or houses, and technologies for rapid interventions in fires.

His investments include Rain, a drone company that aims to contain fires within 10 minutes; Pano, an AI startup that puts cameras on mountaintops to detect fires so that they can be more quickly contained; and Overstory, which uses AI and satellite images to help utilities manage vegetation to prevent fires.

Niche works in climate tech investing. That’s because climate is such a broad category, covering everything from carbon capture to smart energy software. And each area can be quite different.

• Wildfire tech may seem too niche for a venture firm, but it covers a range of hardware, software, and other technologies, Clerico noted.
• While many venture firms are still cautious on climate after the VC clean tech debacle of years past, many large firms are adding at least one partner on climate and will likely add more.
• That person is typically a generalist, however, and just looking for the largest possible venture outcome. That leaves plenty of opportunity for firms like Convective.
• “I really thought that specializing was the best way in and that we could be really different and unique and pick an aspect of climate that I really believed in. So we went really narrow, kind of strategically,” Clerico said.
• For other investors who tell Clerico this is too niche, he reminds them of his previous gig. “Not to draw too much of a comparison, but it actually reminds me of fintech in 2008. When I was starting it was this weird new category, and a lot of VCs didn’t really understand it. I got tons of feedback, which was: ‘The banks are highly regulated. No one will ever build a tech company in that [area],’” Clerico said.

Unbundling VC continues. While some firms are raising ever-larger multibillion dollar funds, more investors are going small.

• With the “unbundling” of venture in recent years, there has been a proliferation of vertical firms focusing on niches from consumer brands to AI to hardware — in addition to longstanding firms focused on areas such as enterprise technology. This has also been fueled by more investors striking out on their own as solo GPs or small early-stage firms seeking to differentiate themselves from a sea of ​​new firms.

• While Convective invests in a wide range of companies, Clerico does not consider himself an expert on the technologies per se, but on the underlying markets. Those markets are surprisingly large: Customers include the government as well as utility companies that face massive liabilities for fires; insurance companies that also have large exposure to wildfires; and homeowners and companies.

There are a number of new funds in climate niches. Another climate VC specialist, Burnt Island Ventures, run by Tom Ferguson, invests in water startups.

• The firm, with a $30 million fund, focuses on making water more accessible through efficiency and reuse.
• Like Convective with wildfire, water tends to be overlooked by other climate investors who may not have expertise in water issues. “Water just usually goes on the ‘too hard’ pile of even climate investors,” Ferguson said.
• Ferguson has invested in companies like Shower Stream, a smart water system for hotels to prevent floods and other water waste; ZwitterCo, which works with industrial companies to filter their water without chemically intensive processes; and Cloud to Street, a flood tracking and monitoring company.

Expect these niche firms to multiply while larger firms start jumping into these emergent sectors as they build out their own climate practices.

Overheard

Money in the tweets. An enterprising founder has a side hustle: writing tweets for VCs for which they made $200,000 last year, Insider reported. This is another chapter in the growth of VC marketing since around the time Andreessen Horowitz jumped on the scene, which I wrote about here. Founders have more leverage than in years past — although not quite so much in this downturn — so VCs (think they) need to do everything they can to stay top of mind with founders. Apparently, thoughtful domain-expertise blog posts are out; Twitter jokes — or just being “annoying” — are in!

MBA not a track for VC? Social Leverage GP Howard Lindson was invited to speak to an MBA “Venture Capital” class at his alma mater Arizona State. “First thing I said to them was: The fact that ASU has a Venture Class is the reason venture returns will suffer for a while … switch to marketing.” He also has thoughts on how Apple caused inflation.