On how the built environment sector is about to be disrupted – $2 trillion a year for climate startups – The Fifth Estate

The Fifth Estate
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NEWS FROM THE FRONT DESK: When the bad news comes in about climate change – and there’s been plenty of it in the past week – it’s easy to start feeling helpless. But that’s only half the story – and now Silicon Valley is watching!
The built environment sector has been a major contributor to the climate problems we’re facing. Think: inefficient energy guzzling buildings of old (and many contemporary iterations sadly); think urban sprawl and car centric urban development; construction materials with intense levels of embodied carbon and the huge waste factored into construction – typically 30 per cent – unless it’s part of the smart growing movement to off-site and prefabricated construction. 
Of course that’s before we get to the inbuilt linear, not circular, systems built into the design of our buildings, precincts and cities.
The good news is that the built environment can also be the solution to our climate and sustainability challenges.
The smart money knows this, and it’s turning its attention to this sector at an ever faster pace.
It starts with a very different type of “developer” – the people who use sophisticated technology to solve our challenges.
In the “Silicon Valleys” of the world, built environment startups are fast becoming the next big thing. 
Tech entrepreneurs, investors and venture capitalists love nothing more than the lucrative opportunities that come with disrupting industries. And our built environment is certainly ripe for creative disruption.
How big is this opportunity? Top experts estimate that over $A2 trillion a year will be invested in climate tech startups by 2025. 
That’s each year.
Let’s take a closer look at these trends, and how they all fit together.
The built environment – and especially the car dependent model of suburban sprawl that came into vogue after World War two – are a big cause of these problems.
The built environment directly contributes around 40 per cent of annual global emissions. The use of fossil fuels for transport makes up around 20 per cent of Australia’s total emissions. 
And around 85 per cent of the built environment sector’s total emissions will be made up of embodied carbon in buildings (from the manufacture, construction, maintenance and demolition) by 2050.
The big opportunity is in transforming our cities into the compact, green, and sustainable places we want to call home.
The opportunities don’t just come from swapping coal power for solar cells with storage or petrol cars for EVs and better public transport. They’re also in areas such as tackling the hidden embodied emissions in building products, and making our buildings more energy efficient.
The property and development sectors are leading the way on driving emissions out of its supply chain – including the embodied emissions in building products – through initiatives such as MECLA. 
The finance sector is increasingly paying attention. Just this past week, CBA revealed that institutional investors have poured $1.5 billion into its ESG term deposit product in just the past six months.
Super fund Hostplus and the Clean Energy Finance Corporation on Wednesday poured $10 billion into renewable storage investor Octopus Australia, to target major investments in large-scale wind, solar and storage assets.
Major companies – and their marketing people – are latching onto the need to show ESG and sustainability credentials.
But the real action is now in Silicon Valley (real or would-be) with big name big venture capitalists shifting their intense gaze towards climate solutions – and waking up to the opportunities around sustainability in the built environment 
TechCrunch, essentially the “Financial Times” for US startup investors and venture capitalists, reported this week that: “While the venture capital world slows, climate tech is bucking the trend as startups in the space continue to ink deals at a record pace.”
It estimates that, by 2025, investors are expected to sink between $US1.5 trillion ($A2.2 trillion) and US$2 trillion into climate-related startups – each year.
Here’s some more big numbers.
In the first quarter of this year, according to figures from CB Insight, climate tech deals made up five of the 10 biggest seed funding and venture capital rounds worldwide, with those deals worth a combined total of $US1.4 billion.
By the second quarter, eight such startup deals made the top 10, pulling in a total of $US2.5 billion.
While Australia’s climate startup sector is small by international standards, it’s growing fast.
A report released last month showed Australia’s 171 climate tech companies now have a total valuation of $4.2 billion. They’ve raised $1.4 billion over the past 12 months, and they’re attracting foreign investment (half of the capital they raised came from overseas).
The local sector is creating an employment boom, with 4000 jobs already created to date and over 2000 more expected over the next year.
Big name Australian entrepreneurs and VCs are making climate startups their priority. 
One of the pioneers of Australia’s startup scene, angel investor Mick Liubinskas, recently started an organisation called Climate Salad to support local climate startups.
Mr Liubinskas is perhaps best known as the co-founder of the pioneering Australian start-up incubator and consultancy Pollenizer with Phil Morle back in the 2000s, which started 25 companies, as well as for heading up Telstra’s muru-D incubator program, alongside Annie Parker.
Among his many accomplishments as a tech investor and entrepreneur was a shrewd early investment in the group buying site Spreets, which was sold to Yahoo in 2011 for around $40 million after just 13 months.
Likewise, top South Australian tech entrepreneur Simon Hackett, who is best known as the founder of internet company Internode (which he sold to iiNet in December 2011 for $105 million) is now a major investor in battery storage tech firm RedFlow.
And while their focus isn’t on the built environment, Atlassian’s Mike Cannon-Brookes and his wife Annie have pledged $1.5 billion of their personal wealth to financial and philanthropic investments that tackle climate change. That’s on top of their $1 billion of existing investments in green energy.
Australia’s built environment startups are tapping into some big global opportunities.
They include Wattwatchers, which makes devices and platforms that track energy use in buildings. eMesh is supplying low-carbon concrete, reinforced with recycled waste plastic, to major Victorian infrastructure projects including the level crossing removal program. 
Then there’s the Office of Planetary Observations, which is democratising access to satellite data on urban greening. Meanwhile, Adelaide-based ValAi is transforming the way banks and insurers measure the sustainability of their loan portfolios.
And that’s before we get to the Clean Energy Finance Corporation, which invests a big chunk of its $10 billion war chest on the built environment, because, let’s face it, the built environment is the main consumer of energy, clean or otherwise.
Why the startup sector matters is because it has a lot of money to throw at a range of innovative businesses, it’s not afraid to take on risks, and it can move quickly.
Typically, many startups go through what are known as accelerator programs, where over the span of about three months or so, they develop a minimum viable product and are mentored by leaders in the field.
These MVPs are ideally the bare minimum to test whether there is interest in the market for the product. It should also be repeatable and scalable.
Early stage angel and seed investors are often willing to back many startups with the hope that one or two succeed. 
Here’s an example. Just imagine you had $100 million to invest in early stage startups. If you invest $1 million in 100 startups, and 99 of them fail but one grows to be a $200 million company, you’ve essentially doubled your money.
Once the startups prove their business model and are ready to scale, the bigger venture capital firms are ready to pour in millions during the later series A, B, and C funding rounds in the hopes of getting in on the next Google or Amazon at the ground floor. 
There’s a few other big reasons why startup investors are keen to focus on the built environment space right now.
Many of the big opportunities around things like apps, marketplaces, delivery services, and cloud opportunities have already been taken.
The cryptocurrency, blockchain and NFT market is in a downturn at the moment, and is not having the immediate short-term impact many web3 evangelists hoped for. The immense amounts of fossil fuels needed to power most of the major blockchains is also an issue.
There’s the simple fact that a growing number of investors – VCs and angel investors included – are looking far more closely at the sustainability of their portfolios.
But the biggest incentive is to tap into the massive market opportunities that are opening up, particularly around sustainability in the built environment.
Some businesses will see the wave of climate and built environment startups and think they can turn back this tide, like King Canute. 
Frankly it’s a dumb move. 
Just ask Kodak or Blockbuster video about what happens to companies that don’t adapt their businesses to Silicon Valley’s disruptive ways.
And the wise option is to partner with these innovators and embrace the wave of innovation that’s making its way through the built environment sector.

Because, with the climate clock ticking down, it’s better to be an investor in the next Tesla than the next Blockbuster.
Driving this growing appetite is the fast growing deterioration of our natural environment which everyone who scans the news can now read about, at scale.
This week, there was the five-yearly State of the Environment Report, originally handed down to the Morrison government in December last year, and finally released to the public.
It pinged the property development directly, raising the issue of how low-density urban sprawl is causing environmental degradation.
It’s a grim report card. But we are not alone. 
This week we learned that the heat wave in Europe is causing havoc and threats to human life (let alone the natural world). 
Everyone is getting the message, including venture capitalist and finance sector.
They’re joining the dots – the big piece we need to ensure now, is speed.
Want to learn how to be a disruptor in the built environment sector? Make sure you join us at Urban Greening next week. But hurry – seats are strictly limited. Register now so you don’t miss out!
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