A week ago, Roland Berger and Station F published a joint study on how venture capital firms are evolving to meet the climate challenge. According to the EU, €8 trillion will be needed to fund the ecological transition by 2030. Addressing the urgency of climate change requires substantial resources, and this simply cannot happen without private capital. According to Roland Berger, which surveyed dozens of French and European firms for this study (we responded to the online questionnaire), the VC world appears to be making a significant shift in where it directs its investments. The proof is in the numbers: in 2021, $111 billion was invested globally in startups and scale-ups with a climate focus. Is this a passing trend or a lasting transformation? Is VC, as it has evolved, truly suited to financing impact and sustainable projects? Could evergreen models (with no exit horizon) become the norm?
The study outlines some potential answers… The conclusion, very much in line with Asterion's investment philosophy, obviously resonated strongly with us… Here's our take:
A momentum in the tech ecosystem around the climate question
Today, 85.3% of VC funds claim to have a dedicated climate vertical or allocation in their portfolio (STATION F & Roland Berger survey, 2023).
Among the reasons behind this trend, the study mentions:
The tightening of European regulations accelerating the creation of new markets, pressure from internal teams, and growing demand from institutional LPs to address the climate emergency
Classic VC and long-term vision: a fundamental incompatibility?
In the second part, the study's authors tackle the thorny issue: the mismatch between contemporary VC models and the pursuit of sustainability. And this for at least three reasons.
The 6-to-8-year exit imperative isn't suited to long-term investments, yet these are precisely what's needed to develop sustainable solutions. Breakthrough innovations in sectors like decarbonized energy require sustained R&D efforts, with proof-of-concept phases that typically run longer.
The current system, based on successive reinvestments by funds with different exit horizons, sometimes creates misalignment among investors—conflicting objectives and priorities that can have harmful effects on the growth and development of funded companies.
Finally, many funds act by mimicry and prefer to minimize their risk by seeking to replicate past successes. The result: investment in sectors or technologies that are nonetheless essential to the net-zero transition is falling short. The lack of investment in hardware is often cited as an example, even though it could represent 60% of tech revenues over the next five years.
The need for more evergreen funds to emerge… and to go further
To counter these shortcomings of the current VC model, the study concludes by highlighting the emergence of evergreen structures: capital-efficient funds with no exit horizon. Evergreen funds offer an alternative to fixed-term funds, which require capital to be returned in the short term and therefore steer investment toward companies with rapid return potential. We had the opportunity to share this conclusion in a LinkedIn post that I'm republishing here:
At a time when every fund is launching an "impact" arm, it's not easy to see clearly. Most VCs (including those labeled "impact") create funds with a fixed exit date (between 6 and 8 years for most).
This has two consequences:
- The need to return capital within a fixed timeframe pushes toward selecting companies with short-term potential over breakthrough innovations
Additional pressure is placed on founders to sell earlier or find a new investor, often negatively impacting the company, the founders, and their employees
An evergreen fund has no pre-established exit date, providing founders with greater peace of mind to plan for the long term.
At Asterion, structuring our investments through dedicated vehicles (SPVs) also provides greater flexibility to our investor community, who have the option to exit at each liquidity event.
In short, yes there is momentum in climate tech. But if we want to take the long-term question seriously, this shift must go hand in hand with reinventing investment models—starting with evergreen. Of course, evergreen is only one step in reinventing the model. Other initiatives and safeguards need to be put in place. For example: embedding the mission in corporate bylaws, assessing impact by engaging all stakeholders, ensuring lasting governance of investment vehicles, or creating shared resources that help the entire ecosystem move forward. And many other projects we have in the pipeline. But we'll have the opportunity to discuss those another time.
To go further:
"Evergreen funds, the 'patient' version of venture capital". Les Échos"Why Evergreen Funds are the Future of Climate Tech Investing… and all of Venture Capital!" 4Ward.vc"Climate: €8 billion needed—will VCs step up?". Maddyness