Exploring the future of nature tech: investment & impact
Author: Kate Rocchio
You wouldn’t know it by looking at the money, but the nascent nature technology (nature tech) sector is ripe for entrepreneurial expansion. Having grown to an investment market of $1.5 billion in 2022, the Nature Tech Collective (NTC) decided to host a fireside chat with Jahed Momand, Co-founder and General Partner at Cerulean Ventures, to get an in-depth investor analysis of the space. In this fireside, Jahed and NTC Director Gilad Goren tackled what’s hot in the nature tech space, where we need to focus our collective efforts as a community with the potential for scale, where the future of nature tech might lead, and a bit of investor 101 (which was so insightful - it has its own article debuting 10 Sept!).
A little under thirty years ago, ecological economist Robert Costanza planted the roots of nature tech in his pioneering report on the value of natural capital and ecosystem services. If you’ve ever heard the statistic that ecosystem services are valued at, “an average of US$33 trillion per year”, that came from Costanza’s calculations. This represented an important pivot in societal thinking of our relationship with nature because for generations it has been treated as a free, inexhaustible resource that will be around forever. But, that’s simply not the case!
Nature tech was a response to this evolving understanding, a method by which to measure the state of nature. As time passed on, nature tech has evolved to tackle the question of how we might make nature legible to the machines that we have running most of the economy in some way. Jahed synthesizes nature tech as a means to an end. Broadly, it is any kind of technology that allows us to capture the state of nature (whether it be terrestrial, marine, etc.) and make claims about it.
Wider Market Signals
NTC interfaces with startups, academics, project developers, and corporates alike. Despite the plethora of personas, they all ask the same question. Who cares? Is there an adoption signal, and where is it coming from?
We took this question to Jahed as he exists on the other side of the nature tech entrepreneurship journey that so few of us see and so many of us struggle with. Unfortunately, there was no magic 8-ball to demystify here. Jahed quickly replied that investors see signals originate from the same needs gaps entrepreneurs do. The bleeding edge of this industry is currently placed within the asset management sector, particularly in the European markets of the United Kingdom, Germany, and Switzerland. At a recent closed-door climate summit with Schroders, a multinational asset manager, Jahed saw a foundational shift in the C-Suite approach and understanding of nature. For the past decade, the conversation had been centered around ESG questions and laying a baseline understanding of sustainability and climate. Partially due to the launch of the Taskforce on Nature-related Financial Disclosures (TNFD), the conversation is now turning to questions of nature impacts and dependencies. These are necessary questions that many boards are unable to answer, setting off a scramble for solutions.
While working on the problem of nature data and analytics is an important area for innovation, Jahed reminds us that Schroders is very far ahead of the rest of the market. They have invested significant resources into a longstanding partnership with NTC Member, NatCap, to build out their understanding of nature and the broader environment and technological capabilities for interaction. The type of education and technical solutions used by Schroders are solutions that take time to implement. However, Jahed is quick to reassure that these potential roadblocks should not stop entrepreneurs from pursuing the natural capital solutions market. The asset management market has demonstrated a willingness to pay for answers and an inclination to circumvent the big four consultancies and beeline straight for solution providers. This approach creates openings for smaller-scale actors who can partner or directly provide answers and capacity to companies across sectors.
Are We on the Cusp of an Innovation Tidal Wave for Nature?
This is another popular question when we discuss nature tech’s maturation as an industry. It’s one that Jahed gently responded that he didn’t feel correctly positioned to answer. Instead, he pointed us to customer development specialists. When evaluating whether or not an industry is on the cusp of a big change, we need to be talking to those interfacing with the problem daily. Customer development specialists know which of their clients' needs are or are not being met, and where the gaps exist. Better yet, talking to the companies and asset managers directly allows entrepreneurs to assess the size, scale, and demand for their solutions more accurately for a faster, more effective product-market fit.
The other aspect requisite for an innovation tidal wave is continued market growth. Despite the rising influence of the TNFD, European Union Deforestation Regulation (EUDR), Corporate Sustainability Reporting Directive (CSRD), and other regulations, they don’t create business markets overnight. Regulation may drive demand, but entrepreneurs and tech providers must answer that demand, populate the space, and drive continued growth. As entrepreneurs, you have to have a visionary thesis for how you’re going to establish, scale, and drive the creation and maturation of the market yourself. This is a lesson learned directly from the experiences of the carbon credit market. When the market was still in a rapid growth phase, entrepreneurs came to investors pitching ideas that would yield returns predicated on the continued growth of the developing market. However, a lack of actors invested in driving growth, a failure to achieve regulatory and corporate adoption, and a murky understanding of standards culminated in a struggling market. Learning from the carbon market and engaging with frontline actors are key for driving widespread adoption and success for the nature tech market.
Jahed identifies a few chokeholds before the full ingenuity of the nature tech market can be unleashed. Growth, attracting new project developers, and scaling are just three. He suggests that we overcome these challenges by accelerating growth through measuring, reporting, verification, and funding. After all, we don’t need permission to increase funding or assess the efficacy of nature tech solutions. This is where the power of the Nature Tech Collective comes in. Our coalition is at the forefront of this work, united behind a shared vision to grow the nature tech market in size and capacity. Though small, we are looking to grow our community and chase that tipping point of marketwide adoption.
Cerulean VC x NTC wrote a companion article on VC 101 for nature tech startups.
The Nature Tech Collective is a non-profit member alliance, accelerator, and intelligence unit that is advancing the uptake of nature-based solutions to integrate nature protection into all sectors of society. If you’re interested in joining the Collective, fill out our introductory form. Our weekly firesides take place on Wednesdays from 12-12:45 EDT, and the sign-ups can be found on our Luma.
