You’ve developed breakthrough carbon capture tech that pulls CO2 out of the atmosphere or a revolutionary recycled material to replace single use plastics. You’ve built the ultimate triple-bottom-line climate champion, managed to acquire customers and got Series B funding from the best VCs in the business (who you found from our 850+ Climate VC database)…
Things are looking pretty. You’re in great shape to scale and save our world.
There’s just one problem. One MASSIVE problem – your investor… they want you to sell.
Because their fund only lasts 10 years (plus an additional two if they push it). That means within the next 10-12 years (even less if they invested in year: 2,3, 4 etc… of the fund), they’re going to want to get liquid on their investment (even if it means compromising on your mission/morals), just so they can pay back their LPs and pay themselves a massive carry (for more on the economics of venture, see this post).
Well, what happens when your company’s in year 8, 9, 10 etc…, powering along, making serious revenue, pulling kilotons of carbon out of the atmosphere and poised to keep growing and expanding… What if you you want to stay private longer…? Good luck.
And it’s the same if you’re in year 10, 11, 12 etc… need a longer runway (either to prepare for an IPO or because the market’s in free fall). Ever heard the expression “Sh*t out of Luck” (SOL).
Because that’s how venture funds are set up. They’re designed for capital-light, rapidly scalable SaaS businesses – because that’s where the EASY money is.
But what happens when you’re dealing with hardware?
Hardware is hard. It takes longer and costs more. It just does. It’s not a single code push to fix a faulty actuator or rework a prototype for production. It takes serious engineering hours, knowhow, machinery, tools and tech expertise… and even then, things like supply chains can fall apart (as we all saw during Covid).
Yet when you take venture capital, you NEED to commit to “giving up” (exiting too early via acquisition or IPO) on your climate company after 8-12 years… all so some VC can return capital and hit their IRR numbers?
If you think it sounds ABSURD, you’re not alone.
That’s why we at 4WARD.VC believe an Evergreen Fund structure is the future of venture capital – because investors need to have FULL long-term alignment with our founders to change the world.
Short term incentives lead to short term mindsets and thinking small. But 4WARD.VC’s Partner in Clime Climate Accelerator program is here building the climate champions of tomorrow, the generation-defining cleantech & sustainability startups who’ll save our world, drive MASSIVE returns and alter the very fabric of our world economy.
And that’s more than a decade-long project.
Which brings us back to the most confounding question of all: why aren’t all VC funds evergreen? Why don’t they truly believe in their founders to go big?
Why set an arbitrary limit on innovation, growth, impact, scale…?
Why compromise and create incentives that divide founders & investors?
Evergreen… even the name sounds climate-friendly…
Maybe it’s time the venture industry started thinking bigger 🙂
And if you’re not sure what to do, consider this: we’re running out of time to act. It’s literally NOW OR NEVER when it comes to creating impact and saving our planet. And we think that means rethinking the incentives and structures of the entire venture industry (which was built and optimized on the basis of inexpensive, infinitely scalable SaaS).
Another example of the flaws of VC… why ALWAYS raise dilutive funding? For capital-heavy climate companies, we often recommend considering non-dilutive funding (guide here) after Series A/B etc… (depending on the maturity and cash flows of the company) – because why give up your entire ownership just to finance more facilities/hardware/product etc…
IMPORTANT NOTE: None of the above should be construed as solicitation or investment advice. To clarify, we’re not saying we have an Evergreen fund currently or offering anyone to invest. This is merely how things SHOULD be done and how the industry NEEDS to be disrupted.
If you agree and are interested in learning about our views on long term climate investing, send us an email: matt @ 4ward.vc
Btw, if you haven’t joined our Climate Tech Startup Slack, you should. If not, it’s a great place to network and collaborate with 700+ other climate techies focused on solving major real world problems: https://4ward.vc/startupslack