The Net-Zero Future: How We’re Getting There
Tackling climate change and creating a more sustainable future is an enormous and overwhelming challenge—but our team at Menlo is motivated and optimistic. We want to do our part: we see clear opportunities for new technologies that will move us in the right direction, and we know the time is now.
At Menlo, we believe that we should all be custodians in reaching a sustainable economy—consumers, businesses, and investors alike. And as investors, we have the unique ability to deploy capital and support technologies that make progress toward that goal. We are at a pivotal moment: there is momentum from all stakeholders in society to make a long-term commitment toward a net-zero carbon future. The economics make sense for businesses to do so, and the technology is available to get us there. As a result, we expect there will be a tremendous demand for products and services that 1) help businesses better understand their impact on the environment and 2) help them take action to reduce it.
As a result, Menlo will prioritize investments in B2B companies that move us closer to net-zero and are focused on:
We are still in the early days of tracking carbon emissions. Increased regulation, compliance concerns, and market pressure will accelerate the need for better carbon accounting and data. It’s a two-step process: The first step is to capture a baseline and analyze the data, and step two is building out a strategy for reducing emissions. Carbon accounting and decarbonization software will be foundational to this process as businesses look to automate the tedious, manual process of collecting emissions data and prioritize planning and tracking goals using this evolving data set. There are already companies working on this such as Watershed, Persefoni, Emitwise, Plan A, Greenly, Sweep, Normative, and Actual (just to name a few), as well as platforms tackling the broader ESG reporting challenge FigBytes and Novisto. Supply chains have been the long pole in the sustainability tent, so it’s encouraging to see startups like Sourceful and Novi helping companies manage and source more sustainable suppliers.
As this market matures, companies will hone in on their ideal customer profile (ICP), whether that is light vs. heavy carbon footprint customers or focusing on specific vertical markets (eg. pharma, energy, manufacturing, etc). This way, they build a growing data set and develop data advantages and/or network effects that create a growth “flywheel” (more on this in our SaaS trifecta framework). In addition to these new entrants, we should remember that tech giants, including Microsoft and Salesforce, also have sustainability initiatives underway. It’s game on in sustainability SaaS.
Some activities naturally release carbon, making it impossible to eliminate carbon emissions entirely. But governments, businesses, and individuals can reduce their carbon footprints by purchasing carbon offsets that compensate for their emissions.
Technology will play a key role in facilitating this process and making it mainstream; we’re encouraged by the emerging opportunities. Offset buyers at scale require a streamlined purchase experience, as delivered by the carbon offset infrastructure vendors such as Patch, and Clovery. It will also require carbon exchanges like Xpansive to help clear carbon at a global level while providing better carbon verification, and perhaps an independent rating company such as Sylvera and BeZero. Lastly, it will require investment to expand the supply of offset projects. Pachama, NCX, and Perennial, for example, are solving the carbon supply issue by leveraging software to introduce new carbon offset credits to the market. We are excited by companies that can scalably increase the supply of high-quality carbon offsets and provide verification and liquidity solutions to enable natural asset protection.
We are optimists
The clear and present need to address climate change can feel daunting, but we are encouraged by a broad-scale commitment to change. Increasingly, consumers demonstrate their preference for sustainable businesses with their purchasing power. Businesses have responded in kind, increasingly signaling their commitment to do better. Already, more than 300 companies have signed the Climate Pledge to reach net-zero by 2040. And household names like Apple, Tesla, Procter & Gamble, Shopify, Allbirds, and Salesforce publish regular sustainability and climate reports detailing their efforts. In the background, the falling costs of hardware, software, lithium-ion batteries, IoT devices, and renewable energy make sustainability more affordable and therefore more achievable.
We believe in the transformative power of technology and the ingenuity of humankind. From open-heart surgery to gene-editing technology, to linear accelerators for particle physics research and novel cancer treatments, there have been some incredible contributions to improving society. The path toward net-zero is the most significant and pressing endeavor we face. More than ever, we believe that there is an essential role for venture capital and the startup ecosystem to play. Menlo wants to do its part.
We want to hear from you
If you are a founder working to address climate change, we’d love to get to know you. We are grateful to be able to deploy capital to companies that have the potential to change the world.
Special thanks to Nihar Neelakanti who, during his tenure at Menlo, contributed to this piece.