New green businesses are better prepared than ever to deal with uncertainty

The London office hosted a Green Business Building (GBB) knowledge-sharing event on November 10, convening a select group of UK-based climate tech start-ups, scale-ups, incumbents, and investors. The central theme for the evening was around scaling green businesses during a time of uncertainty. We came away from the evening confident that, despite the tough economic times, green businesses will likely continue to experience positive momentum even in the face of market turmoil.

Among the many pockets of conversation, there was a common thread: financing and its availability. In one corner of the room, senior executives from venture capital firms assured a few anxious founders that the climate technology sector was more protected from the broader trends in the tech world—decreasing investment, budget-tightening, devaluations.

The evening formally kicked off with a welcome from McKinsey Partner Alastair Hamilton, and a five-minute video address from Harry Bowcott, a McKinsey Senior Partner reporting back from this year’s COP27 event in Sharm El-Sheikh. McKinsey Partner Gisa Springer moderated the subsequent panel discussion with Holaluz co-founder and executive president Carlota Pi, and VC investor and co-founder of Giant Ventures Tommy Stadlen. The panel’s trialogue reinforced some of the earlier small group discussions and provided a balanced view on the opportunities and challenges of scaling green businesses from the perspective of a founder and an investor.

Over the course of the evening, these key messages left an impression:

  1. Green business entrepreneurs are going to be okay. Unlike the climate tech bust of the early 2010s, there is greater protection for climate technologies from the broader trends that are besetting the market as governments and investors continue to understand the decarbonization imperative. However, VCs and other investors are going to demand considered stress-tested concepts and technologies to back the path going forward, as well as more financial rigor from founders
  2. Decide whether your green business needs capital now or if it can wait for 24 months. The advice for founders right now is to use this period of market turbulence to exert greater discipline over their businesses, such as refining value propositions, and building a talent pipeline. Capital is currently expensive and there is a greater need to justify the cost of green business building to both yourself and your shareholders.
  3. Use this time to find the right talent needed to scale. Capitalize on the increased availability of talent to build a talent pipeline that has experience in scaling businesses to success. Look for experienced middle managers across the tech ecosystem that can lead the build-out of more nascent green businesses
  4. Find your transcendent purpose and hold onto it. As a founder, you need to find the guiding light for your start-up, which is bigger than making money. That purpose will get you through tough times. Moreover, it was great to hear how purpose and value are positively linked, it isn’t a trade off, but a source of value creation and distinctiveness. It was even more encouraging to see the investors in the audience enthusiastically agreeing. Carlota anchored on this purpose as she was building her business in Spain—Holaluz was founded in the early 2010s, at a time when clean energy was not widely adopted in Spain and access to funding was tight. Very few VC investors understood the Holaluz value proposition. 
  5. Climate financing for hard-to-abate sectors is still limited. Although there are billions of dollars in funding available for climate tech in recent years, early-stage investing in technology and infrastructure is still limited, with most LPs still requiring short timelines to see a return on their investments—average investment horizon is five-to-seven years. Without investors’ willingness to fund newer technologies, such as long duration energy storage, carbon capture, and hydrogen, and newer approaches to decarbonization, such as brown-to-green transformation, large-scale change will remain elusive. This topic remained top of mind for attendees at COP27 and the founders present in the room

All in all, the mood at the event was cautiously hopeful. There is a clear sense of momentum behind green business growth and now more than ever companies need to think about how they capitalize on that growth. Community is important too in realizing that growth, and looking back, it seemed like a self-evident truth given how many attendees stayed well past the end of dinner to continue conversations.

Learn more about how we work with clients to create and scale new businesses that address the climate crisis and help build a more sustainable future.

This article was edited by Thomas Farrar, a manager of communications, based in McKinsey’s London office.

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