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How to Approach the Carbon Removal Industry: VC Insights for Deep Tech Startups | Deep Tech Catalyst

A chat with Benjamin Schulz, Founding Partner @ Carbon Removal Partners

Welcome back to Deep Tech Catalyst, the channel byThe Scenarionistwhere science meets venture!

In this episode, we're glad to welcome Benjamin Schulz, Founding Partner at Carbon Removal Partners.

Together, we'll delve into the critical journey of aligning innovative Climate Tech ideas with real-world demand, highlighting the pivotal steps and considerations for success. From securing the early investments to establishing key industry connections, we aim to shed light on the essential strategies for early-stage Deep Tech startups.

If you're passionate about making a real-world impact with your scientific breakthroughs, you won't want to miss this insightful discussion.

Let's dive into it!

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🔬 Transitioning Climate Solutions from Lab to Market

Generally, venture capitalists and professional investors seek to back winners. In the United States, there's a prevailing mindset of striving to be the best, which naturally aligns with investor preferences. Conversely, in Europe, there's sometimes a narrative centered around providing a valuable service to society. While commendable, this narrative might not resonate as strongly with investors. US-based founders are adept at articulating their value proposition as winners, thus conserving energy and attracting investment. Teams that effectively demonstrate their capabilities tend to be more successful in fundraising endeavors.

Importance of Signals and Affiliations:

Moreover, specific credentials or affiliations can significantly boost a company's credibility. For instance, programs like the Breakthrough Energy Fellows or the Activate Fellowship serve as bridges between research universities and VC investment. Companies designated from these programs tend to garner more investor interest, making fundraising a smoother process for them. Consequently, for those without such prestigious affiliations, the fundraising landscape becomes more challenging.

It's crucial to recognize that investors actively seek out these signals of potential success. In a scenario where capital is scarce and multiple companies vie for funding, investors are naturally inclined towards those that show signals of being market winners.

Therefore, it's essential for founders to understand the significance of such programs and credentials. While everyone aspires to be part of prestigious initiatives like the Breakthrough Energy Fellows or Activate, it's crucial to realize that these affiliations can significantly impact investor perception and, consequently, fundraising success.

🤝🏻 Building Industry Connections

First and foremost, establishing connections with industry leaders proves immensely beneficial. Such connections not only validate your innovation but also demonstrate its endorsement by industry experts.

Moreover, being open to constructive criticism is crucial. While maintaining secrecy around proprietary materials might seem enticing, transparency and collaboration with commercial leaders often yield more substantial results.

Local Ecosystem and Strategic Partnerships

Location also plays a significant role, particularly in industries like automotive. Being situated in close proximity to major players can significantly amplify the credibility of your product.

For instance, if you're in Germany developing a new tire and it's adopted by Mercedes-Benz, it serves as a robust endorsement. Conversely, being isolated from industry hubs poses challenges in garnering recognition and acceptance.

Ultimately, forging connections with individuals and entities that boast commercial success and expertise is paramount. These relationships not only lend credibility but also provide invaluable guidance and opportunities for collaboration.

By aligning with industry leaders and leveraging their knowledge and resources, startups can navigate the journey from laboratory innovation to commercial success more effectively.

🎯 Market Validation in Early-Stage Deep Tech

Venture capitalists tend to prioritize tangible commitments over mere titles.

For instance, having a university professor from ETH Zurich invest a meaningful sum, even if modest, can hold more weight than a high-profile name with no financial involvement. It underscores the founder's ability to establish genuine connections and secure tangible support, such as funding for prototypes.

Similarly, early sponsorships can propel a startup forward. Whether it's a company covering prototype costs or providing valuable resources like lab space, these partnerships demonstrate a real commitment. Investors increasingly value such commercial agreements, viewing them as indicators of seriousness and potential success.

Investors Prioritize Commercial Value

Agreements that offer tangible benefits, such as lab access or prototype funding, are particularly appealing. However, it's essential not to overvalue such partnerships.

While they can provide valuable resources, their true worth should be weighed against the effort invested in securing them. Sometimes, pursuits like applying for awards or grants may not yield sufficient returns, highlighting the importance of discernment in allocating resources.

In essence, founders should focus on forging meaningful connections and securing partnerships that offer tangible benefits. By prioritizing genuine commitments and discerning the true value of opportunities, startups can navigate the path from innovation to commercial success more effectively.

Letter of Intent (LOI)

It's encouraging when potential buyers express their willingness to invest in a product that's still in its nascent stages. This not only validates the innovation but also sheds light on the market's appetite and possible price points. For example, if several firms show interest in acquiring a product for a specific price, it acts as a robust indicator of market potential.

Nonetheless, it's critical to acknowledge that a letter of intent, while promising, is essentially a preliminary agreement. It indicates interest but doesn't solidify sales or enduring collaborations. Investors typically seek more concrete proof of market interest beyond just letters of intent.

🔄 Navigating Early Partnerships

When it comes to prioritizing early partnerships, striking the right balance is crucial. Investors often express concerns over startups becoming overly dependent on their first customers, risking a deviation from their original mission. The core issue is whether such partnerships facilitate the startup's growth or compromise its autonomy. This often depends on the nature of the relationship between the startup and the corporate entity.

The founders' experience plays a significant role in navigating these partnerships. Initially, some may focus on appeasing the corporate partner, anticipating positive outcomes. However, more seasoned entrepreneurs recognize the importance of setting clear objectives and expectations from the beginning. They adopt a strategic approach to partnerships, ensuring alignment with their long-term vision.

It's also vital to understand the differing motivations between startups and corporate entities. Startups operate with a sense of urgency and a drive for success, whereas corporates may afford to take a more leisurely approach. Appreciating these distinctions is key to managing expectations and securing terms that are advantageous for both parties.

In summary, by establishing clear objectives and engaging proactively in negotiations, startups can effectively manage partnerships while protecting their foundational goals and independence.

📈 Future Trends in Carbon Removal

Currently, the carbon removal industry is in its infancy, having only achieved around 100,000 tons of durable carbon removal last year. However, projections suggest that this industry could grow to a volume of 10 to 15 gigatons per year, rivaling the scale of the oil industry. This immense growth potential indicates that we're still at the nascent stage of carbon removal, with vast opportunities for innovation ahead.

One of the most significant areas of innovation lies in technologies capable of physically removing CO2 from the atmosphere on a large scale. Any approach that can achieve removal of millions of tons of CO2 within a few years is highly promising. Additionally, there's a growing focus on developing energy-efficient methods for capturing CO2, as well as the expertise needed to execute large-scale carbon removal projects, akin to building wind farms.

Moreover, connecting carbon removal initiatives with compliance markets and policy frameworks presents another avenue for innovation. This involves not only technological advancements but also strategic partnerships and advocacy efforts to influence policy decisions.

Furthermore, we're witnessing the emergence of carbon removal clusters in various regions, including Montreal, Scandinavia, Switzerland, and San Francisco. These clusters bring together companies, potential storage solutions, supportive policies, and financial backing, accelerating the pace of innovation in carbon removal.

In essence, the future of carbon removal holds tremendous promise, with opportunities for technological advancements, policy innovation, and strategic collaborations. As the industry continues to evolve, it's essential to remain vigilant, adaptive, and collaborative to maximize its potential in addressing the challenges of climate change.

This is all for today!

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