Skip to contents
Fund News

New VC Fund Targets Carbon-Heavy Consumer Marketplace

A shopper carries Gucci Group NV branded shopping bags in London, U.K., on Monday, Oct. 15, 2018. Gianni Versace SpA’s sale to Michael Kors Holdings Ltd. leaves a dwindling number of independent global fashion brands still up for grabs. Photographer: Jason Alden/Bloomberg

(Bloomberg) —

Climate change is now generally understood by scientists to be a systemic problem in which individual decisions are too small, at any scale, to make an impact. Consider this index of evolution over the last 16 years. Al Gore’s 2006 documentary An Inconvenient Truth ends with the question “Are you ready to change the way you live?” and then asks people to buy energy-efficient appliances and light bulbs. The website of the 2021 satire Don’t Look Up, by contrast, implores people to “Change the System.”

Leonardo DiCaprio, who starred in that movie, is an activist, philanthropist, high-net-worth polluter—and now a limited partner in and strategic adviser to Regeneration VC, a new $45 million venture capital fund focused on consumer materials and their greenhouse-gas emissions. Another strategic adviser is William McDonough, an architect, designer and writer who for decades has advised governments and businesses on how they can operate sustainably within the confines of the Earth’s biosphere, while recycling and reusing materials in a human “technosphere.”

Regeneration announces itself to the world today, having closed its first fund, which will provide early-stage finance to companies that say they are trying to clear waste out of consumer products and emissions from supply chains. Its initial five portfolio companies are advertised as capturing small amounts of CO₂ from commercial buildings to make soap (CleanO2); growing leather without relying on cattle and their emissions (VitroLabs); turning aquaculture’s leftover shells into polystyrene, the common white packing plastic (Cruz Foam); helping companies rent and resell products (Arrive); and selling renewable apparel (Pangaia). 

To change “the system” enough to rein in climate change will require policies coordinated at national, international and economy-wide levels, according to the latest 3,500-page report from the UN Intergovernmental Panel on Climate Change. So what then is the promise of a small fund trying to change what consumers buy, and how? 

Venture capital and private equity investors put $53.7 billion toward climate tech in 2021, according to BloombergNEF. Mobility, energy and agriculture attracted the overwhelming majority of that sum. Regeneration may fall into BloombergNEF’s “industry and materials” category, which also includes Rubio Impact Ventures and Closed Loop Ventures Group

In the context of either the financial industry or addressing what climate change demands, $45 million “is not a massive number,” said Michael Smith, a Regeneration general partner. “Right now, consumer industries account for almost half of global emissions, yet they receive only about 2% of venture capital funding—and most of that funding is later stage. Given it’s our first-time fund, in an emerging field, we were encouraged with the amount of investor interest.” 

Only 22 of 2,806 VC and private equity deals last year surpassed $500 million. Most of them were below $100 million. That’s much bigger than the whole $45 million Regeneration fund. Earlier this month Google.org, the charitable arm of Alphabet Inc.’s Google, announced a $6 million Sustainability Seed Fund to help entrepreneurs in the Asia-Pacific region move from idea to business. That’s much smaller.

Funds smaller than $100 million “are absolutely crucial in scaling climate technologies of the future,” said Sarrah Raza, who leads climate-tech investment research at BloombergNEF, a clean energy research group. Startups in still-niche fields are trying to raise early VC rounds of $5 million to $20 million—a much lower scale than more mature technologies need. They’re also high-risk. “These smaller funds also often have a special focus on certain sectors, which makes them better partners for early-stage start-ups, who need not only funding but also a network and advice.” 

New research complicates the issue of scale still further. It turns out that three decades of unchecked global income inequality has transformed the situation. In 1990, national incomes and energy use explained most of the inequality in greenhouse gas pollution; richer nations polluted a lot and poorer nations a little. Today, thanks to wealth inequality, the biggest divide is that richer people pollute a lot and poorer people less. Nations themselves matter less as the inequality within them has grown—but policy debates have not caught on.

What this means is that the highest-emitting people, who are also the wealthiest, have substantial untapped—and undiscussed—responsibility to reduce global emissions. And so far they’re not doing it on their own. The simple view that no individual emissions reductions can fix the problem is giving way to the idea that anyone who, say, can afford to buy $85 gloves made from recycled cashmere is most likely personally responsible for an enormous amount of pollution. Policies that encourage low-emissions, low-waste products over conventional ones may actually have a cumulative impact. 

Even the greenest soap isn’t going to wash up the atmosphere, but the wealthiest 1% shifting investments to low-carbon companies and funds might just help. 

Eric Roston writes the Climate Report newsletter about the impact of global warming. (The original version of the article misstated the amount of venture capital and private equity investment in climate tech in 2021. The total was $53.7 billion.)

To contact the author of this story:
Eric Roston in New York at eroston@bloomberg.net

© 2022 Bloomberg L.P.

Advertisement