World Fund, Europe’s largest climate tech venture capital fund, announced its launch today. We talk to Tim Schumacher who is a founding partner and has also played a crucial role in building Ecosia.
Hi Tim! Tell us about your journey at Ecosia and why you're now getting involved in World Fund. Why do you think there's a need for climate tech investments?
I became an investor and operationally involved at Ecosia eight years ago. Back then, the team consisted of just three people. Now the company has become a purpose company reaching millions of people and setting standards for tree planting while having a massive climate impact. This journey taught me that companies do not become successful despite but because of their impact mission. My other green investments such as Zolar, Sirplus, gridX, Carboncloud, and Pachama confirmed my conjecture.
With World Fund, we want to multiply this model. The climate crisis is far too advanced to not act fast and effectively. We need to scale a new economy, and we can’t afford to wait much longer. Money needs to derisk climate positive technologies and help them maximize their regenerative impact.
From a personal perspective, I want to contribute to tackling the climate crisis using my strengths and experience. There are many great founders that truly want to make the world a better place and what I do best is identifying them, funding them, and enabling them to become market leaders.
But also from an economic perspective, I believe the pandemic has shown us that geopolitical independence is increasingly important. And yet we see that US and Chinese players are increasingly dominating global markets while Europe lags behind — despite strong European leadership when it comes to science and engineering. Europe’s tech ecosystem has also matured significantly over the last few years. What Europe lacks is climate-dedicated capital to bring high tech from lab to market. If we fix that, Europe can become a strong player that could drive the global transition towards a regenerative future.
How come something like the World Fund doesn't exist yet?
There’s actually quite a lot happening right now. In the last year we’ve seen many new funds, because the financial opportunity is massive. It’s estimated to become a $5.9tr market. Yet we are still at only 6% of VC money going into climate tech and most of the climate tech funds are rather small. That means they can’t afford to build a strong climate competence which is important to identify regenerative leaders.
But the real problem is: Many technologies with the potential to decarbonize entire sectors require more capital — initially and throughout their lifetime — to prove themselves. We believe that these will be the most important ones. That’s why we decided on €350 million. Again, the US and China are far ahead of us here.
How do you select the companies World Fund is investing in? What do you look for in a founder team?
We have already looked at almost a thousand companies, even before leaving stealth mode. One of our key climate-dedicated criteria is that a company’s tech should play in the ballpark of annually avoiding 100 megatons or more of CO2e emissions within 15-20 years. We have developed an investment hypothesis that helps us in day-to-day decisions and we do a full-fledged climate assessment before any investment.
However, even a great impact potential will not be achieved if the company doesn’t execute successfully or the market doesn’t want the product. That’s why, besides the total avoidable emissions, we look at more typical VC criteria. Over the last 10 years as an investor, the most important ones are an excellent, mission-driven team, a solution the market wants, and proven traction.
Who have you already invested in?
One of our first investments is the precision fermentation platform QOA that produces cacao and butter replacements in a local factory instead of sourcing it from the Global South. The cacao market is growing rapidly and 95% of cocoa production is based on extractive and exploitative practices, which has a massive negative impact on rainforests, soil, water usage, and local workers. If just a share of this market will be produced more efficiently, e.g. the German market will be supplied by German factories, we are already talking about 100 Mt of CO2e that can be avoided. At the same time local production needs to transform to agroforestry-based systems. It might sound surprising to invest in cacao. But people want chocolate! I do too. We need to find a responsible way to supply it in balance with people and the planet.
We’ll announce further investments over the coming days at the World Fund website.
How do you make sure companies you invest in have real impact and aren't just greenwashing?
We aim to be as evidence-based in our climate assessments as possible. To achieve this, we have a diverse scientific advisory board with leading researchers from different fields, including people like Chad Frischmann, the scientific lead from Project Drawdown, Simone Kaiser who leads Responsible Research & Innovation at Fraunhofer Institute, as well as Eckhart von Hirschhausen who just published a book on the topic and is actively involved in movements like Scientists for Future and Doctors for Future.
As part of our climate assessments we also look at risks and other dimensions to being regenerative, such as aspects relating to biodiversity, ocean health, and social impact. It’s similar to how Ecosia evaluates tree-planting partners to make sure they’ll achieve impact in the long run. We also have our vision of the future, including a theory of change, that helps us invest in companies that we believe deserve to succeed that we want to see in our future society.
In which sectors do you see the biggest potential for positive climate impact?
One of our main inspirations for our strategy has been the book Project Drawdown. I recommend everyone to read it. It breaks down the main polluting sectors, which are the ones with big decarbonization potential, to 5 sectors: Energy, Food & Ag, Manufacturing, Buildings, and Transport. Within these, we have developed investment hypotheses.
Some sectors I find particularly interesting from an impact perspective are the agricultural sector, where we can go from destructive and extractive not only to neutral but to fully regenerative, as well as the Energy sector, that will deeply transform to renewables and decentralized intelligent grids to power the electrification of other sectors, such as transport and buildings.
How do you think about risk analysis and fear of failure when it comes to investments for the climate?
There is always a high risk of failure for startups. The baseline of failure is around 90%. It’s my job to deal with that. That’s why investors give us money, so that we spread the risk across different ventures.
However, one particularly interesting climate risk we face often is: how much does a certain solution support the status quo of bad environmental behavior and when is it actually transformative? For instance, an e-commerce carbon offsetting tool can lead to major rebound effects (that consumers buy and emit more than before because they feel better), methane-improved feedstock for cows allows an intrinsically inefficient and exploitative industry to survive when we should abandon it altogether, and e-fuels can provide an incentive to stagnate transport at “more efficient” instead of “net-zero”. We want to avoid such “lock-in” effects which will be bad for the environment in the long run.
What do you hope to achieve in the long term? Can these kinds of investments lead to structural change, or to a different kind of economy?
Firstly, we want to mitigate the harmful effects of climate change as much as possible. We know 1.5°C has disastrous consequences and every decimal we add makes them worse. Our economy and policy so far has completely failed to address this, at a high cost for humanity.
So if you want to know what I think is the best way towards a better future, I’d say we need to have much more economic power in the hands of companies that truly care about the environment and the people they touch throughout their value chain. These companies should lobby with policy. These companies should set the standards so that other companies can’t risk not operating under lower standards. Policy has been too slow and failed to do this. The ideal, and I believe likely scenario, would be if policy and the economy create a flywheel of change here.