A couple years ago, when the pandemic was still in full swing, Raj Kapoor and Josh Felser started making some investments in climate tech startups. They called their operation Climactic, and initially they placed bets using their own money. Both are experienced founders, operators and investors, but they were new to focusing on this particular sector and began by testing the waters.
Things must have gone well, because now they’re jumping in: The firm today said it has closed a $65 million inaugural fund, using it to back founders who are starting climate tech software companies.
Both Kapoor and Felser have a long history as investors — Felser co-founded Freestyle Capital, and Kapoor spent seven years as a managing director at Mayfield Fund. They’ve also founded and sold their own software startups.
It’s a bit surprising it took the two so long to work together; their résumés are strikingly similar. Felser founded Spinner in 1997 (sold to AOL) and Crackle in 2004 (sold to Sony). He also started the #Climate nonprofit in 2014 and a public-private COVID task force during the pandemic. Kapoor was previously chief strategy officer at Lyft, and before that, he founded Snapfish (which HP bought) and FitMob (which ClassPass bought). He also started a nonprofit climate social app in 2007.
Those experiences, coupled with a growing concern for the state of Earth’s climate, led the two to form Climactic.
“If we could get the supply chains in the top 50 companies to hit their net-zero goals, rather than just talk about it, we will have the biggest impact,” Kapoor told TechCrunch+. “To get there, we think the low-hanging fruit is software, because there are a lot of efficiencies that can be gained.”
The firm’s list of LPs reads like a who’s who of Silicon Valley: they’ve roped in Reid Hoffman, Chris Sacca, Ev Williams, Mike Schroepfer, Chris Larsen, Alison Pincus, Mark Pincus, Logan Green, Stephen Simon, Jeff Clavier and John Zimmer. The list also includes institutional investors Stepstone, MIO Partners, NfX and Mayfield. Paul Hawken and Van Jones are serving as strategic advisers.
Kapoor said LPs have been receptive to the pitch. “Most of them are just getting into climate tech, and so they’re saying ‘what do I know?’” he explained. “We’re looking like what they normally invest in, which is early-stage software that’s not so capital intensive and can produce returns.”
So far, Felser and Kapoor have found the space to be more welcoming than traditional tech. Other climate tech VCs advised them as they got up and running, and they’ve directed deals to other firms. “It’s just very collegial,” Kapoor said.
“Instead of fighting over who will invest in the next sales support software, we’re actually aligning around the planet,” Felser said. “We’re all trying to make money. We’re also trying to have an impact and fight for this common goal. I really think that’s the differentiator between general tech and climate tech.”
Kapoor said Climactic has structured its first fund so there would be room to syndicate deals. Part of the reason for doing that, Felser added, was because climate tech demands a greater degree of specialization. Different firms bring different strengths to each deal, and Climactic’s includes scaling software-focused businesses.
The firm plans to focus on the seed stage and make a total of 20 to 25 investments over its lifetime. Half the fund will be reserved for follow-ons. Once they’re running at full steam, the firm plans to make eight to 10 investments per year, Kapoor said. The two investors are rolling nine of their 11 previous investments into the fund. Under the umbrella of the inaugural fund, they’ve made four investments so far.
It’s no surprise that the two are bullish on climate tech — why else would they start a fund focused on the sector? To them, climate tech today feels like how tech felt in the 1990s.
“There was a point after the market had launched in the late ’90s that big companies started to see they were falling behind. When that happened, it keyed off a massive M&A boom,” Felser said. “I think we’re approaching that point where big companies are realizing they’re falling behind, and they’re going to need to buy smaller companies to catch up.”
With their backgrounds in tech, Felser and Kapoor clearly have a different, yet complementary perspective on climate tech than a lot of other investors. Many climate tech firms have been focusing on deep tech, the sorts of risky, hardware-focused big swings that venture capital was known for in its early days.
Instead, firms like Climactic are focusing on what, in recent years, has become bread and butter for many VCs: Software, since it has low capital requirements and can be scaled quickly. Both Kapoor and Felser are grateful that other firms are tackling deep tech — the technology is desperately needed. But they also know their strengths lie in software, so why not bring those skills to climate tech? Why not marry venture capital’s favorite business model with its biggest opportunity?
Sounds like a good thesis to me.