Investors want best-of-the-best ESG data. Here’s how to give it to them

One of the main criticisms leveled against ESG investing is that the movement is all talk, no action. The main reason for this is that there simply aren’t enough entrepreneurs providing adequately ESG-aligned investing opportunities. In fact, a third of VCs face difficulties with identifying suitable ESG investment opportunities, even though 97% of them find it important in making investment decisions, driven by the lack of adequate ESG disclosures and excessive costs for gathering and analyzing ESG information.

At the same time, ESG-focused assets under management are projected to increase from $18.4 trillion to $33.9 trillion in the coming years. Whether these figures become reality is increasingly up to entrepreneurs who need to get serious about delivering high-quality ESG data, fast.

Choose the right disclosure framework

Investors have lower levels of confidence in companies that do not collect investment-grade data (shorthand for data that meets high standards of timeliness, accuracy, completeness and auditability), and the majority of investors see unstandardized and poor quality data as their biggest barrier.

Regardless of your market and industry, the best way to get started with delivering investors with high-quality data is to embrace preexisting reporting and disclosure frameworks as early on as possible. There are many frameworks to choose from, including Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), Task Force on Climate-related Financial Disclosures (TCFD), CDP (originally known as the Carbon Disclosure Project) and United Nations Global Compact (UNGC). Although founders may need to carefully consider which framework to prioritize in the beginning, most of the frameworks are complementary in nature and mature firms tend to lean on several of them in their reporting.

For example, the GRI framework examines a company’s influence on the broader economy, environment and society to identify material concerns, while SASB is more tuned to serve the interests of investors who are interested in ESG data that could significantly affect the financial performance of firms in their portfolio. In short, GRI is an ‘inside-out’ framework that examines the company’s impact on the world, while SASB is an ‘outside-in’ framework that looks at the effects of the climate on the company and the risks it faces.

What ends up working best for any given company at any particular time will be down to a number of unique factors, and effective prioritization is key.

When eyeing an IPO, make aligning with TCFD your first priority

The Securities and Exchange Commission (SEC) introduced a proposed set of rules concerning mandatory climate disclosures last year. Under the proposed rules, firms who file with the SEC need to disclose a number of data points, including whether climate-related events are likely to push the needle on any of the accounts in its financial statements and what governance structures are in place to mitigate against climate risks. The disclosures envisioned in SEC’s proposal are largely in line with those of the TCFD and Greenhouse Gas Protocol, and if you are gearing up for an IPO, you would do well by ensuring that your ESG data is aligned with these frameworks as a matter of priority.

Investors want best-of-the-best ESG data. Here’s how to give it to them by Jenna Routenberg originally published on TechCrunch

A VC’s perspective on deep tech fundraising in Q1 2023

Like nearly every other sector, deep tech faced significant headwinds in 2022. As interest rates skyrocketed, deep tech deals, which inherently take more capital than other kinds of software businesses, became less attractive to many VCs and their LPs than lower-risk investments.

For instance, even though quantum computing suddenly became popular in the public markets as D-Wave, Rigetti and IonQ listed in the last year, private investment declined significantly — the sector received just over $600 million in venture capital in 2022, down from $800 million in 2021, according to Crunchbase.

Seasoned investors and operators in different segments of deep tech have been adapting to these changes in real time as the cheap money days dwindle in the rearview. For instance, in this environment, space tech startups would never have been able to raise the kind of money they did in 2021 to be able to deploy the technologies they’re working on today. As Delian Asparouhov, a principal at Founders Fund and the founder of Varda Space Industries, shared last month, it would be impossible to raise the $42 million his startup did in 2021 for its space factory “idea” in today’s market climate.

While some investors will continue to sit on the sidelines as we kick off 2023, it’s important to note that many funds are still sitting on amounts of dry powder like they’ve never had before. That doesn’t mean they or their LPs will be in a rush to deploy that capital, but money will be available to startups that can demonstrate current demand and are realistic about their valuations. As it becomes increasingly difficult to realize big exits in the years ahead, the technologies within deep tech that are transforming entire industries offer some of the only paths to “10x exits.”

These are positive signs for deep tech founders preparing to raise money this year. Another positive note is that some of the logic driving VCs to stay away from deep tech startups in down markets may be unfounded. Our team recently analyzed recent deep tech unicorns to understand how much money it took for them to get to the $1 billion mark. The results reinforced what we knew from experience: Deep tech startups’ capital and time requirements are on par with companies in other sectors. In fact, the median deep tech startup took $115 million and 5.2 years to become a unicorn.

With that as a backdrop, let’s look at a few areas where deep tech will find interest from investors in 2023.

Startups moving beyond launch tech in space

While Delian noted correctly that funding for long-term “moon shots” will be tough to find in the current market, I still believe investors will look for startups that are closer to commercialization in the sector. To date, 99% of the total investment in the space tech market has gone to the satellite and launch industries. Now is the time to focus on moving objects around in space rather than just getting them there.

For instance, investors are increasingly interested in solutions that tackle astrodynamics or propulsion to guide the motion of satellites and other spacecraft — for example, AI startups working on ways to simulate scenarios and generate maneuver plans for operators so they can avoid space collisions. Investors are also interested in future machine learning and neural networks use cases for astrodynamics, such as orbit predictions and spacecraft flight modeling.

Space missions also call for hardened software and hardware. As we look toward edge solutions for space-bound vehicles and objects, startups that can create radiation-safe applications will be in demand. So while the space economy will continue to provide numerous opportunities to invest in atoms, there will also be an opportunity to invest in the bits moving atoms across our skies.

Deep tech riding climate’s regulatory wave

Software alone will never solve the multitude of issues contributing to our climate crisis. Hardware solutions and engineering-led innovations in deep tech are needed to solve our most significant climate challenges.

A VC’s perspective on deep tech fundraising in Q1 2023 by Ram Iyer originally published on TechCrunch