WEBVTT - Climate-Tech Finance: India Surges, China Slumps 0:00:00.440 --> 0:00:03.200 This is Dana Perkins and you're listening to Switched on 0:00:03.480 --> 0:00:06.640 the B and AF podcast, and today we're talking about 0:00:06.720 --> 0:00:10.399 climate tech investment. During the third quarter of twenty twenty four, 0:00:10.560 --> 0:00:14.120 climate tech companies raised over ten billion US dollars in 0:00:14.200 --> 0:00:17.599 equity across public and private markets. So is this a 0:00:17.600 --> 0:00:20.880 lot of money? Well, it's not insignificant, but it represents 0:00:20.880 --> 0:00:23.640 a decline from the same period in twenty twenty three 0:00:23.840 --> 0:00:26.840 and is a fraction of the almost forty one billion 0:00:27.000 --> 0:00:29.680 that was raised in twenty twenty two, so zooming out. 0:00:29.680 --> 0:00:32.560 The story is different depending upon where in the world 0:00:32.600 --> 0:00:36.160 you are. In China, clean tech manufacturers had over capacity 0:00:36.159 --> 0:00:39.280 in industries like solar and energy storage, so this resulted 0:00:39.320 --> 0:00:42.479 in a collapse in funding. Meanwhile, in India there was 0:00:42.520 --> 0:00:45.000 an increase in equity funding in Q three this year, 0:00:45.200 --> 0:00:48.400 rising by one hundred and fifteen percent. But if globally 0:00:48.560 --> 0:00:51.080 it looks like there is a decline, what do clean 0:00:51.159 --> 0:00:54.600 tech investment trends tell us about the future and should 0:00:54.600 --> 0:00:57.680 we be even comparing current numbers to previous peaks like 0:00:57.720 --> 0:01:00.600 that scene in twenty twenty two. Well, today to answer 0:01:00.600 --> 0:01:03.040 those questions and more, I am joined by Mark daily 0:01:03.200 --> 0:01:06.680 Head of Technology and Innovation at BNF, and he talks 0:01:06.720 --> 0:01:10.520 about the recent report titled Investment Radar three Q twenty 0:01:10.560 --> 0:01:15.120 twenty four funding drop Again. BNF subscribers can access this 0:01:15.200 --> 0:01:18.200 report at BNF go on the Bloomberg terminal, and at 0:01:18.240 --> 0:01:31.800 BNF dot com. Now, let's talk about climate tech investment. Mark, 0:01:32.000 --> 0:01:35.040 thank you for coming on switched on today, Thanks for 0:01:35.040 --> 0:01:38.120 having me. We're going to talk about well equity funding 0:01:38.400 --> 0:01:42.399 for climate tech. So these technologies that have the potential 0:01:42.520 --> 0:01:45.680 to change the way that the energy transition is playing 0:01:45.680 --> 0:01:49.520 out and the future of decarbonization. And in twenty twenty two, 0:01:50.000 --> 0:01:52.840 our research showed that there was one hundred and twenty 0:01:52.880 --> 0:01:56.640 seven billion of US dollars in companies, but that fell 0:01:56.680 --> 0:01:59.960 in twenty twenty three to eighty four point four billion. 0:02:00.360 --> 0:02:02.880 So thus far, if we're looking at twenty twenty four, 0:02:03.120 --> 0:02:05.320 and I know we're bowling out three quarters in, but 0:02:05.400 --> 0:02:08.320 we're in that last quarter, where are things trending and 0:02:08.360 --> 0:02:10.760 where is twenty twenty four stacking up? Is it more 0:02:11.000 --> 0:02:12.880 like twenty twenty two or is it more like twenty 0:02:12.880 --> 0:02:13.399 twenty three. 0:02:14.160 --> 0:02:16.920 So it's unfortunately not really like either of them. So 0:02:16.960 --> 0:02:19.360 we've continued to see a drop off in terms of 0:02:19.840 --> 0:02:22.400 what we say corporate equity funding for climate tech, And 0:02:22.680 --> 0:02:24.040 that's important part of the word, because a lot of 0:02:24.040 --> 0:02:26.399 the equity that goes into climate tech that people would 0:02:26.400 --> 0:02:28.880 think about is project equity for solar implants. And what 0:02:28.880 --> 0:02:31.720 we're really talking about here is companies that are issuing 0:02:31.880 --> 0:02:35.239 stocks in order to finance their business operations and grow. 0:02:35.360 --> 0:02:37.040 So in terms of how much of a decline are 0:02:37.040 --> 0:02:39.480 we seeing, it's probably going to end up to be 0:02:39.560 --> 0:02:41.760 about half of what it was last year, so at 0:02:41.760 --> 0:02:44.839 a point of about eleven billion dollars per quarter this year. 0:02:45.000 --> 0:02:46.720 Why is that, you might ask, I think you probably 0:02:46.720 --> 0:02:48.240 have a lot of people in this podcast to come 0:02:48.280 --> 0:02:50.720 on and talk about growth and things, and I have 0:02:50.760 --> 0:02:52.760 to present this chart all the time, and it's always 0:02:52.760 --> 0:02:56.120 a bit counterintuitive, but the reason is basically that corporate 0:02:56.160 --> 0:02:59.360 equity funding is highly highly linked to company valuations. If 0:02:59.400 --> 0:03:02.079 your company's were more money, and the stock market sees 0:03:02.120 --> 0:03:03.200 it that way, then you're going to be able to 0:03:03.280 --> 0:03:06.040 raise bigger rounds to grow your operations more quickly. And 0:03:06.160 --> 0:03:07.840 over the past couple of years, if you look at 0:03:07.840 --> 0:03:10.720 the stock market, and Bloomberg has covered this pretty extensively 0:03:10.840 --> 0:03:14.160 from started twenty twenty two, the entire stock market dipped 0:03:14.200 --> 0:03:16.640 a little bit, the SMP, the NASDAK, and clean energy 0:03:16.639 --> 0:03:19.920 and clean transport indices. But since then the general stock 0:03:19.919 --> 0:03:22.280 market has recovered quite a lot. But if you separate 0:03:22.320 --> 0:03:25.399 out clean transport and clean energy, they really haven't. Part 0:03:25.400 --> 0:03:27.560 of the reason for this is there's been a little 0:03:27.560 --> 0:03:29.600 bit of trouble in the industry. You constantly see negative 0:03:29.600 --> 0:03:32.679 headlines about electric vehicles and the wind industry. Personally, I 0:03:32.720 --> 0:03:35.200 think that's a little bit overwrought compared to the reality 0:03:35.200 --> 0:03:38.520 of the situation, but it's definitely impacting perceptions of companies, 0:03:38.640 --> 0:03:40.560 and so that's depressed a little bit. But also interest 0:03:40.640 --> 0:03:44.000 rates have been high. High interest rates mean that companies 0:03:44.040 --> 0:03:46.840 that are growth stories, which is all climate companies, really 0:03:46.880 --> 0:03:48.760 they're going to have more of their profits out there 0:03:48.760 --> 0:03:50.720 in the future discanted at a higher rate, and so 0:03:50.760 --> 0:03:54.320 that's depressed them. Is it all bad going forward? Not necessarily. 0:03:54.360 --> 0:03:57.480 We've actually seen a little bit of recovery in company valuations. 0:03:57.560 --> 0:03:59.920 But I also say to people that this number of 0:04:00.080 --> 0:04:04.320 being big isn't good or bad. It's largely a function 0:04:04.360 --> 0:04:06.760 of like what companies need to raise money to do, 0:04:06.880 --> 0:04:09.440 and lots of the really mature climate tech sectors like 0:04:09.520 --> 0:04:13.280 solar and wind and energy storage. The companies that were 0:04:13.360 --> 0:04:15.440 raising a load of capital over the past few years 0:04:15.560 --> 0:04:18.359 actually have built a lot of the manufacturing capacity to 0:04:18.560 --> 0:04:21.160 sell and manufacture all the products they need to sell 0:04:21.240 --> 0:04:23.240 to get to net zero, and so the industries have 0:04:23.240 --> 0:04:25.960 a lot of oversupply in terms of manufacturing capacity. So 0:04:26.160 --> 0:04:28.880 additional capital being raised is actually just making all of 0:04:28.880 --> 0:04:32.000 these companies unprofitable because there's even more competition. And so 0:04:32.040 --> 0:04:33.800 that's another reason that we've seen a big drop off 0:04:33.920 --> 0:04:35.960 in funding, is because the companies that needed to raise 0:04:35.960 --> 0:04:38.919 the money to build these really capital intensive facilities just 0:04:38.960 --> 0:04:40.080 don't need to do it anymore. 0:04:40.560 --> 0:04:44.800 When you're talking about equity and valuations of existing companies 0:04:44.839 --> 0:04:47.640 and raising fur their money for new projects, this perfectly 0:04:47.680 --> 0:04:49.799 makes sense. And what I want to know though, is 0:04:49.800 --> 0:04:53.280 is this market largely focused around a few big players 0:04:53.480 --> 0:04:56.560 or are we also seeing IPOs of companies and new 0:04:56.720 --> 0:05:00.400 entrants into this listed space also tracking a lot the 0:05:00.440 --> 0:05:02.560 same lines of what you're seeing in twenty twenty two, 0:05:02.640 --> 0:05:03.599 twenty three, twenty four. 0:05:04.040 --> 0:05:06.640 So really hawk eyed listeners will I don't know, maybe 0:05:06.680 --> 0:05:09.200 have read the description and see my title at PNF 0:05:09.279 --> 0:05:11.160 is head of Technology and Innovation, and they might be 0:05:11.279 --> 0:05:13.400 wondering why I'm talking about IPOs. The reason for that 0:05:13.520 --> 0:05:16.119 is because the data set that this report is built 0:05:16.160 --> 0:05:19.839 on is a corporate equity deal tracker, and our team 0:05:19.880 --> 0:05:22.360 has ended up doing the venture deal tracking at PENF. 0:05:22.520 --> 0:05:24.400 The venture deal tracking is a lot of the work 0:05:24.480 --> 0:05:27.080 in terms of tracking this sector or this kind of 0:05:27.360 --> 0:05:29.760 group of financing because most of the deals that happen 0:05:29.800 --> 0:05:31.960 are in private markets that are pretty small or maybe 0:05:32.040 --> 0:05:33.960 like five to ten million dollars or even less than that. 0:05:34.160 --> 0:05:36.320 Most of the actual funding that we're talking about here 0:05:36.480 --> 0:05:38.440 is raised in like really really big deals, so they 0:05:38.440 --> 0:05:40.760 can be massive growth equity or they're probably going to 0:05:40.800 --> 0:05:43.000 be IPOs, And it's kind of that most I think 0:05:43.080 --> 0:05:44.680 is a Pareto rule where it's like eighty percent of 0:05:44.720 --> 0:05:46.560 the money comes from about twenty percent of the deals. 0:05:46.680 --> 0:05:49.360 So it's a really really big spectrum of So if 0:05:49.360 --> 0:05:53.080 there's like seed rounds in here, there's IPOs, there's secondary offerings. 0:05:53.160 --> 0:05:55.839 We don't really have a lot of SPACs anymore, but yeah, 0:05:55.839 --> 0:05:58.120 that's the kind of portfolio of what's in there. 0:05:58.320 --> 0:06:01.080 Why was twenty twenty two such a big year and 0:06:01.120 --> 0:06:03.680 why is this the year that we keep comparing everything too? 0:06:03.720 --> 0:06:06.080 Because you're right, Mark, Like we talk so much about 0:06:06.160 --> 0:06:08.640 charts where everything is up into the right. We're reaching 0:06:09.000 --> 0:06:12.480 record breaking investment levels in various parts of the energy transition, 0:06:12.720 --> 0:06:16.000 and here where we're looking at equity funding, we're seeing 0:06:16.279 --> 0:06:18.040 potentially the second year in a row. Like it was 0:06:18.080 --> 0:06:20.080 a peak. We're coming down off a slide. Yeah. 0:06:20.120 --> 0:06:22.680 So actually this data set starts in twenty twenty two. 0:06:22.720 --> 0:06:24.920 We tracked it before at PNAF, but we basically built 0:06:24.920 --> 0:06:26.880 this data set to have a slightly different deal source. 0:06:27.040 --> 0:06:29.400 But if we were using the old methodology, you see 0:06:29.400 --> 0:06:32.480 actually probably twenty twenty one was the peak, and it's 0:06:32.520 --> 0:06:35.720 actually nothing really to do with climate specifically. People will 0:06:35.760 --> 0:06:38.000 be very familiar with the term zero interest rate phenomenon. 0:06:38.120 --> 0:06:41.440 Virtually all private capital markets were like booming in that 0:06:41.520 --> 0:06:43.359 time period. There's just massi amounts of enture money going 0:06:43.400 --> 0:06:46.200 into everything simultaneously. There was a bit of a bump 0:06:46.240 --> 0:06:48.760 in climate at the time relative to the overall capital markets, 0:06:48.839 --> 0:06:52.240 but it really wasn't anything fundamental to climate or energy. 0:06:52.480 --> 0:06:55.360 So you think that bump that occurred when you saw 0:06:55.440 --> 0:06:59.120 a lot of different companies embracing ESG ratings that hadn't before, 0:06:59.200 --> 0:07:01.880 and you saw a lot of funds being raised to 0:07:01.920 --> 0:07:05.159 actually focus on climate or even things with a sustainability 0:07:05.240 --> 0:07:09.200 lens that didn't previously exist around twenty twenty, that didn't 0:07:09.200 --> 0:07:10.920 have as big of an impact, and you think that 0:07:11.000 --> 0:07:12.040 maybe that's here to stay. 0:07:12.320 --> 0:07:15.440 I think like funders of these things, they just have 0:07:15.600 --> 0:07:17.920 capital and they're looking for something to deploy it into. 0:07:18.040 --> 0:07:21.320 At the time, climate was one of the hottest topics 0:07:21.360 --> 0:07:24.280 in capital markets. Now we actually go into this in 0:07:24.280 --> 0:07:27.120 this quarter's report. We track what is climate as a 0:07:27.160 --> 0:07:29.880 share of total private capital markets, and I think it 0:07:29.920 --> 0:07:33.000 peaked in late twenty twenty two at about a quarter 0:07:33.080 --> 0:07:36.040 of all private market funding per quarter. Now it's down 0:07:36.040 --> 0:07:38.400 to about ten percent. And part of that is because 0:07:38.440 --> 0:07:40.920 climate has been depressed a little bit relative to the 0:07:40.920 --> 0:07:43.760 tech market, but it's really been the rise of generative AI. 0:07:43.920 --> 0:07:48.080 And if you interview climate specific venture investors, they're saying that, oh, 0:07:48.120 --> 0:07:49.680 there's actually a bit of a drop off an interest 0:07:49.760 --> 0:07:53.680 because general venture investors, who do everything, generative AI is 0:07:53.720 --> 0:07:55.480 not the thing that they want to invest in, and 0:07:55.680 --> 0:07:58.000 it's a lot more attractive to the typical venture investor 0:07:58.080 --> 0:08:00.880 because it's much more similar to mobile web than it 0:08:01.000 --> 0:08:03.360 is a climate, which everyone knows is a pretty tough 0:08:03.640 --> 0:08:06.800 industry to make the kind of VCS returns that people expect. 0:08:07.000 --> 0:08:09.280 So let's have a little bit of a discussion around 0:08:09.400 --> 0:08:11.800 the regions and things to watch around the world. So 0:08:11.920 --> 0:08:14.720 much of our time on this show is talking about 0:08:14.880 --> 0:08:18.360 China and the incredible amount of manufacturing capacity that they have, 0:08:18.640 --> 0:08:20.960 and then also the US the Inflation Reduction Act has 0:08:20.960 --> 0:08:22.640 been a big part of it. But it also makes 0:08:22.640 --> 0:08:25.920 sense that these are traditionally the largest markets for clean 0:08:25.960 --> 0:08:28.800 tech investment because they're also number two and number one 0:08:28.880 --> 0:08:33.280 in global GDP respectively. So outside of these two behemoths 0:08:33.320 --> 0:08:36.120 in the industry, what other parts of the world are 0:08:36.160 --> 0:08:40.520 emerging is really innovators and looking at clean tech investment, 0:08:40.559 --> 0:08:43.040 and are we seeing equity funding in other parts of 0:08:43.040 --> 0:08:44.600 the world, You know, what should we watch? 0:08:44.880 --> 0:08:47.840 So I would say the point I was making earlier 0:08:48.160 --> 0:08:52.280 about manufacturing over capacity, that point actually links directly into 0:08:52.280 --> 0:08:55.240 this topic, and that's because the huge boom in twenty 0:08:55.280 --> 0:08:57.720 twenty two. Actually, if you look at the regional chart 0:08:57.760 --> 0:08:59.839 breakdown of where the boom was happening, it was in 0:09:00.080 --> 0:09:03.520 inland China and that's because the entire manufacturing supply chain 0:09:03.600 --> 0:09:05.960 for things like solar and batteries and a lot of 0:09:05.960 --> 0:09:08.640 electric vehicles is based in mainland China. So these are 0:09:08.679 --> 0:09:10.120 the companies that I was talking about that don't need 0:09:10.120 --> 0:09:12.320 to build any more manufacturing capacity. And in fact, we've 0:09:12.360 --> 0:09:15.160 heard that, particularly in the solar industry, the government's really 0:09:15.200 --> 0:09:18.360 discouraging people from raising additional capital to build out more 0:09:18.480 --> 0:09:21.520 manufacturing to prevent a I don't want to say death spiral, 0:09:21.559 --> 0:09:23.080 that's a bit over the top, but like just make 0:09:23.120 --> 0:09:24.880 sure the companies are not driving each other out of 0:09:24.880 --> 0:09:27.640 business and making sure that they can generate some profits. 0:09:27.920 --> 0:09:30.199 So China's seen a huge drop off. The United States 0:09:30.240 --> 0:09:33.040 is relatively stable. The United States market is pretty different 0:09:33.040 --> 0:09:34.520 than China in the sense that it's a lot more 0:09:34.559 --> 0:09:38.000 private capital oriented. It's a lot more diverse across different 0:09:38.000 --> 0:09:40.440 areas of climate. So yes, some energy, but also things 0:09:40.440 --> 0:09:43.920 like industry decarbonization and ag tech. But yeah, in terms 0:09:43.960 --> 0:09:46.040 of there's not a huge amount of markets that are 0:09:46.080 --> 0:09:48.280 big enough in order to have trends in this data set, 0:09:48.320 --> 0:09:50.520 because there's you if one country has like one really 0:09:50.520 --> 0:09:52.440 big deal that can give it like its biggest quarter 0:09:52.480 --> 0:09:55.560 ever by ten x, so there's only some economies like 0:09:55.600 --> 0:09:58.560 maybe the major European ones. Something notable that we saw 0:09:58.679 --> 0:10:01.720 this quarter is that in India was ranked as the 0:10:01.760 --> 0:10:04.800 second biggest market for the first time. So the reason 0:10:05.480 --> 0:10:07.640 that this is a pretty interesting story is because it's 0:10:07.679 --> 0:10:10.840 kind of indicative of this broader trend of the on 0:10:11.000 --> 0:10:13.840 shoring of supply chains. People that I speak to because 0:10:13.840 --> 0:10:15.360 I'm based in Europe, often think about it in the 0:10:15.360 --> 0:10:17.679 European and the US context, but actually the same thing 0:10:17.800 --> 0:10:22.000 is happening in India, and there's content requirements around solar 0:10:22.000 --> 0:10:24.400 modules that are going to qualify for subsidies, and so 0:10:24.880 --> 0:10:28.360 the valuation of companies in India in the solar value 0:10:28.400 --> 0:10:31.480 chain has actually been They've performed really really well in 0:10:31.520 --> 0:10:33.600 stock markets since they've all gone public this year, and 0:10:33.640 --> 0:10:35.680 you can see a kind of gradual and then all 0:10:35.760 --> 0:10:39.440 big sudden increase this quarter in funding. This quarter in India, 0:10:39.600 --> 0:10:42.560 a climate tech company's raised bout two point four billion dollars. 0:10:42.800 --> 0:10:45.520 In the context of China, that would be low over 0:10:45.520 --> 0:10:47.959 the last two and a half years or three years, 0:10:48.120 --> 0:10:51.200 but just Chinese funding is now so low that it's 0:10:51.280 --> 0:10:53.120 kind of fallen down the ranking a little bit. So 0:10:53.160 --> 0:10:55.280 that's in terms of regional trends, the most interesting thing 0:10:55.280 --> 0:10:56.040 happening right now. 0:10:56.440 --> 0:10:59.840 So, if India is really becoming a much more dominant 0:11:00.040 --> 0:11:03.960 layer in this clean tech space, what parts of the 0:11:03.960 --> 0:11:06.000 industry are they known for. Is it going to be 0:11:06.480 --> 0:11:09.920 on the battery and storage and vehicles part of the 0:11:09.960 --> 0:11:12.080 supply chain? Is going to be more on the clean 0:11:12.120 --> 0:11:15.480 power traditional wind solar? You know, what are the industries 0:11:15.559 --> 0:11:19.319 and the sectors actually that they're most involved. 0:11:18.960 --> 0:11:21.720 In right now? The companies that drove a lout of 0:11:21.720 --> 0:11:23.559 the funding that we've seen over the last few months, 0:11:23.880 --> 0:11:27.840 it's definitely been solar. Solar manufacturing is a lot easier 0:11:27.880 --> 0:11:31.160 to scale in a country than battery manufacturing. European companies 0:11:31.160 --> 0:11:34.040 are struggling a lot to scale battery manufacturing. It's just 0:11:34.080 --> 0:11:36.600 a lot more complicated. If things like scrap rates get higher, 0:11:36.600 --> 0:11:38.679 the materials and more expensive, the equipment's more expensive, so 0:11:38.679 --> 0:11:40.800 there's a lot more opportunity cost to being bad at 0:11:40.840 --> 0:11:43.560 doing it. And so that's definitely the focus right now 0:11:43.559 --> 0:11:44.319 in India. 0:11:44.480 --> 0:11:46.520 So what are some of the reasons you think India 0:11:46.600 --> 0:11:51.040 is experiencing such an incredible rise compared to previous years 0:11:51.080 --> 0:11:53.800 and is really shown up on a lot of your 0:11:53.880 --> 0:11:55.200 charts more recently. 0:11:55.240 --> 0:11:58.679 So I think the biggest thing is the fact that 0:11:58.679 --> 0:12:03.319 the government is pretty acting the domestic clean energy industries. 0:12:03.480 --> 0:12:07.400 So there's tariffs unimported solar modules now a forty percent, 0:12:07.520 --> 0:12:10.480 which is pretty expensive. So even if domestic manufacturers can't 0:12:10.520 --> 0:12:13.320 compete with the Chinese companies, who are definitely the leaders 0:12:13.320 --> 0:12:15.160 in this, they can still compete in India, which is 0:12:15.160 --> 0:12:17.440 a really huge market that they can build and grow 0:12:17.600 --> 0:12:20.520 and become better at manufacturing for. I think there's kind 0:12:20.520 --> 0:12:23.280 of a broader lesson to learn here for people who 0:12:23.280 --> 0:12:26.920 are looking at the energy and climate capital markets, which 0:12:26.960 --> 0:12:29.800 is that protectionism if you believe that it's bad for 0:12:29.960 --> 0:12:33.040 the economy and it's making decarbonization more expensive, which means 0:12:33.080 --> 0:12:35.520 it's bad for trying to mitigate climate change, but it's 0:12:35.520 --> 0:12:39.960 not necessarily bad for investors' returns because protectionism creates opportunity 0:12:39.960 --> 0:12:42.080 for certain companies to make money. The thing I was 0:12:42.120 --> 0:12:45.840 mentioning earlier about manufacturing over capacity, there's globally a huge 0:12:45.840 --> 0:12:49.880 manufacturing over capacity for things like batteries and solar, and 0:12:49.920 --> 0:12:51.560 we still need some additional build out in like the 0:12:51.600 --> 0:12:53.400 next decade, but like right now it's kind of a 0:12:53.440 --> 0:12:56.080 bit oversupplied, but that's really because of China. And so 0:12:56.400 --> 0:12:57.880 if you're based in the US and all of a 0:12:57.880 --> 0:13:01.720 sudden you can't buy Chinese energy equipment for whatever reason, 0:13:01.840 --> 0:13:04.160 all of a sudden, there's now a shortage of supply, 0:13:04.280 --> 0:13:06.720 and that's actually good if you're a manufacturer. So cynically, 0:13:06.800 --> 0:13:09.280 I think there's actually an opportunity to make money if 0:13:09.280 --> 0:13:11.360 you're an investor from productionist policies. 0:13:11.520 --> 0:13:13.640 I mean, tariffs were certainly one of the topics that 0:13:13.679 --> 0:13:15.960 were at the forefront of the recent US election, So 0:13:16.000 --> 0:13:18.800 we would anticipate in the coming administration that you would 0:13:18.840 --> 0:13:21.440 see an increase in tariffs on a number of things, 0:13:21.520 --> 0:13:24.280 both in the energy transition and in other industries. So 0:13:24.559 --> 0:13:28.000 do we expect to see them these investment and these 0:13:28.120 --> 0:13:30.760 valuations that you're talking about, would you expect to see 0:13:30.800 --> 0:13:33.000 a bump from that if tariffs do indeed go up 0:13:33.040 --> 0:13:34.320 in countries like the US. 0:13:34.720 --> 0:13:37.880 Yeah, that's a really good question. I this is the 0:13:38.559 --> 0:13:41.400 indicator I'm watching the most from the election in terms 0:13:41.440 --> 0:13:44.000 of like direct change in policy. Will notice quite quickly 0:13:44.280 --> 0:13:46.560 in terms of the impact is going to have on 0:13:46.960 --> 0:13:50.080 manufacturing companies inside the US. I'm not familiar enough with 0:13:50.480 --> 0:13:53.400 the industrial base compared with the demand. Obviously there's going 0:13:53.480 --> 0:13:56.520 to be unexpected changes to the demand for these technologies 0:13:56.559 --> 0:13:58.680 in the US. Now. People think that the Inflation Production 0:13:58.720 --> 0:14:02.400 Act is relatively protected in a narrowly split Congress, but 0:14:02.120 --> 0:14:03.880 it's very up in the air at the moment. 0:14:04.160 --> 0:14:06.040 Well. And so then let's talk about the other big 0:14:06.080 --> 0:14:08.199 country in this space that we've mentioned a few times, 0:14:08.200 --> 0:14:11.840 which is China. Their government has provided a stimulus injection 0:14:11.960 --> 0:14:15.840 for stock valuations. So how has this impacted the stock 0:14:15.880 --> 0:14:19.240 market when it comes to these energy transition focused companies. 0:14:19.520 --> 0:14:22.720 Yeah, So, as I said, this whole funding market is 0:14:22.800 --> 0:14:26.240 very linked to public market valuations of companies because obviously 0:14:26.280 --> 0:14:28.720 that's what investors see is their like ultimate exit opportunity 0:14:28.720 --> 0:14:30.160 and the kind of comps that they can look at. 0:14:30.320 --> 0:14:33.600 The Transport Index in particular, notice, had a big uptick 0:14:33.680 --> 0:14:36.040 this quarter for the first time since we started charting 0:14:36.080 --> 0:14:39.040 it in twenty twenty two, and it's kind of an 0:14:39.160 --> 0:14:41.680 artifact of the fact that the Chinese government just injected 0:14:41.760 --> 0:14:44.680 huge stimulus across the entire economy, and most of the 0:14:44.680 --> 0:14:47.200 transport's supply chain in that index is based in China. 0:14:47.320 --> 0:14:49.440 So it's more of a generic bump from the economy 0:14:49.480 --> 0:14:51.880 than it has anything to do with transport related companies. 0:14:52.280 --> 0:14:54.760 So you mentioned that this is a part of what 0:14:54.760 --> 0:14:56.680 you spend your time focused on, which is the venture 0:14:56.680 --> 0:14:59.480 capital and private equity end of the market. So how 0:14:59.600 --> 0:15:01.920 is climate tech placed as a share of this? Is 0:15:01.960 --> 0:15:04.720 it growing or is there less investment in kind of 0:15:04.760 --> 0:15:07.960 some of these really early stage, more disruptive technologies. 0:15:08.240 --> 0:15:11.160 The share of it as the total venture capital and 0:15:11.160 --> 0:15:14.160 private actory markets is declining a little bit. So reached 0:15:14.160 --> 0:15:16.320 a peak of about a quarter at one point about 0:15:16.320 --> 0:15:18.840 eighteen months ago, and now it's kind of gently declined 0:15:18.880 --> 0:15:21.440 down to round ten percent. That's not low if you 0:15:21.480 --> 0:15:24.720 look at energy transition spending across the whole economy and 0:15:24.720 --> 0:15:27.840 compared to global GDP right about two percent. So obviously 0:15:27.880 --> 0:15:30.000 the venture capital and private actory market is more forward 0:15:30.080 --> 0:15:32.360 oriented than the rest of the economy. So it makes 0:15:32.400 --> 0:15:34.040 sense that it's a little bit bigger if you look 0:15:34.040 --> 0:15:36.200 at the public market size of things. It's smaller than 0:15:36.240 --> 0:15:39.040 private capital, but it's bigger than the economy more broadly, 0:15:39.080 --> 0:15:42.360 because again public market fundraising, it's four companies that are growing. 0:15:42.400 --> 0:15:44.320 They're just growing in a kind of later stage than 0:15:44.320 --> 0:15:47.480 metro capital companies. So that's at about five to seven 0:15:47.520 --> 0:15:50.440 percent of total public market raising right now, that's a 0:15:50.480 --> 0:15:53.560 bit flatter, that's not really declining or growing. 0:15:53.840 --> 0:15:56.120 So just taking kind of the temperature in the room, 0:15:56.160 --> 0:15:58.400 if you will, is your view that this is a 0:15:58.880 --> 0:16:02.360 perfectly reasonable amount of money to be going into these spaces, 0:16:02.400 --> 0:16:05.600 and we should not be expecting additional money to be 0:16:05.680 --> 0:16:09.640 flowing really dramatically into the venture capital private equity space 0:16:09.680 --> 0:16:12.120 when it comes to clean tech, because the way I'm 0:16:12.160 --> 0:16:15.040 looking at it is so often we're talking about net 0:16:15.120 --> 0:16:17.600 zero goals, and I look at how close we are 0:16:17.640 --> 0:16:19.600 to twenty thirty, so we're kind of halfway through this 0:16:19.640 --> 0:16:23.240 critical decade. And I would then anticipate that if we 0:16:23.280 --> 0:16:26.640 accept this fundamental premise that decarbonization is something that most 0:16:26.680 --> 0:16:29.320 countries in the world are interested in seeing come to 0:16:29.360 --> 0:16:32.520 fruition and are therefore writing policies that would then support it, 0:16:32.680 --> 0:16:37.000 we would see an increase in funding. Now, there's the 0:16:37.080 --> 0:16:41.240 scaling of late stage technology like renewable energy sources, and 0:16:41.360 --> 0:16:43.520 that is one end of the market, but there are 0:16:43.560 --> 0:16:48.520 still parts of the emissions pie that need technology development 0:16:48.520 --> 0:16:50.720 in order to meet them. We often refer to them 0:16:50.760 --> 0:16:52.720 as hard to abate when we talk about them, but 0:16:52.800 --> 0:16:56.400 it's those things as really complicated parts of things. Agriculture 0:16:56.440 --> 0:16:58.600 is another one of them where there is a need 0:16:58.640 --> 0:17:02.480 for technology development, And so why is this not blowing 0:17:02.560 --> 0:17:06.280 up as big as you know, maybe I would naively 0:17:06.320 --> 0:17:06.919 expect it to. 0:17:07.200 --> 0:17:09.640 Yeah, So in terms of like is this the right 0:17:09.680 --> 0:17:11.120 amount of money, or like are we going to see 0:17:11.119 --> 0:17:13.040 it grow in future? We talked about a peek in 0:17:13.080 --> 0:17:15.400 twenty twenty one. We're still much higher than we were 0:17:15.400 --> 0:17:18.080 in like twenty nineteen, say, and it's still a huge 0:17:18.119 --> 0:17:20.560 amount of money that's flowing into these companies. In terms 0:17:20.640 --> 0:17:23.000 of if I could wave my magic wand and funnel 0:17:23.000 --> 0:17:25.920 one hundred billion dollars into this sector every single quarter 0:17:26.160 --> 0:17:28.960 for these harder to abate industries, I actually don't know 0:17:29.119 --> 0:17:30.960 if that would really help us get to net zero 0:17:31.040 --> 0:17:33.480 at all. Maybe a little bit. But the problem is 0:17:33.520 --> 0:17:36.520 it's not venture capital, private equity, or people who invest 0:17:36.560 --> 0:17:39.359 in IPOs. It's not their job to develop technology. And 0:17:39.400 --> 0:17:41.720 even if they did develop the technology, if there's no 0:17:41.840 --> 0:17:44.560 demand for the ultimate product, you're never going to be 0:17:44.600 --> 0:17:48.000 able to bootstrap an industrial tech solution to like actually 0:17:48.000 --> 0:17:49.960 solve the problem in the long run if people aren't 0:17:49.960 --> 0:17:52.359 going to pay you, because there's market structures that exist 0:17:52.520 --> 0:17:54.919 to kind of incentivize the adoption of technology. There's no 0:17:54.960 --> 0:17:57.240 amount of venture money that can develop a product that's 0:17:57.240 --> 0:17:59.479 going to solve climate change. And so so yeah, it's 0:17:59.520 --> 0:18:01.159 just not the job of these financiers to do that, 0:18:01.200 --> 0:18:02.920 and you need policy to support it. So for hard 0:18:02.920 --> 0:18:04.840 to abate. We have some of that, particularly in the US. 0:18:05.000 --> 0:18:07.240 The forty five V for hydrogen, the forty five Q 0:18:07.359 --> 0:18:10.760 for carbon capture really really important and it's generating a 0:18:10.800 --> 0:18:13.159 lot of demand for those products. Doesn't exist everywhere in 0:18:13.160 --> 0:18:16.280 the world for things like agtech. My personal thing that 0:18:16.280 --> 0:18:17.960 I always talking about is like, if you believe in 0:18:18.040 --> 0:18:22.280 that we need something to decarbonize protein production like cows 0:18:22.359 --> 0:18:26.600 and chicken, there's no support for any technology that would 0:18:26.640 --> 0:18:29.040 decarbonize that value chain you think is something like lab 0:18:29.040 --> 0:18:31.960 grown proteins. Not only is there no subsidies for it, 0:18:32.040 --> 0:18:34.520 consumers don't want it, they think it's bad for their health. 0:18:34.720 --> 0:18:37.679 So like it's on a totally different field. So I 0:18:37.800 --> 0:18:40.720 we're so far away from venture investors needing to develop 0:18:40.760 --> 0:18:43.800 the technology. Obviously, there are startups out there. Maybe they 0:18:43.840 --> 0:18:47.200