Introduction
In a recent conversation with Lisa Coca, a partner at Toyota Ventures who leads the firm’s Climate Fund, we discussed trends and challenges in climate tech investing. The two highlighted some of Toyota Ventures’ portfolio companies, including those focused on hydrogen production, which have seen decreased investor interest due to a lack of demand signaling.
The Usual Suspects for Climate Tech
Among the companies that stood out in Toyota Ventures’ portfolio are AM Batteries and Ecolectro. AM Batteries promises to reduce battery manufacturing energy usage and capital expenditures by 40% each, while Ecolectro produces green hydrogen using hydropower in upstate New York.
However, Coca noted that the demand for hydrogen production is not as strong as it was initially anticipated. "You’ve got Google, Meta, and all these folks out there that are basically prepaying, doing off-take agreements, for things that don’t exist…it’s a good thing, but it would be great to see some of that happening as it relates to low carbon fuels like hydrogen and methanol," Coca said.
The Hydrogen Plateau
Coca explained that the majority of climate tech investors have already placed one or two bets in hydrogen production. However, most of those bets require a lot of capital, and in the absence of demand signals, VCs aren’t ready to add another hydrogen pet to their portfolios. "It’s a bit like the hydrogen plateau," Coca said. "We’re all sitting on the edge of it, but we don’t know what’s on the other side."
The IRA Funding Crutch
The Inflation Reduction Act (IRA) has provided billions in incentives for onshore and develop energy technology. However, Coca noted that startups still need to find a path to profitability without IRA funding. "At the end of the day, green products and climate tech products have got to find a path to cost parity with the fossil fuel-based alternatives," Coca said. "We will never solve this if that doesn’t happen…some consumers will pay up. They’ll pay the green premium. But industry will not."
Conclusion
The conversation with Lisa Coca highlights the challenges faced by climate tech investors, particularly in the hydrogen production sector. While the IRA has provided a boost to the industry, startups still need to find a way to be profitable without relying on government funding.
Full Interview Transcript
Below is the full transcript of the interview with Lisa Coca:
Rebecca Bellan: Hi Lisa, thanks for joining me today.
Lisa Coca: Thanks for having me, Rebecca. It’s great to talk about climate tech investing.
Rebecca Bellan: So let’s start with Toyota Ventures’ portfolio companies. Which ones stand out in terms of climate tech?
Lisa Coca: We’ve got a few that are really interesting. One is AM Batteries. They’re working on reducing battery manufacturing energy usage and capital expenditures by 40% each.
Rebecca Bellan: That’s huge. And what about Ecolectro? I understand they produce green hydrogen using hydropower in upstate New York.
Lisa Coca: Yes, that’s right. Ecolectro is another one of our portfolio companies that’s doing some really innovative work in the hydrogen space.
Rebecca Bellan: Hydrogen production has been a bit of a focus for climate tech investors. But I’ve heard that interest in hydrogen companies is waning. Can you speak to that?
Lisa Coca: Yeah, it’s true. We’ve seen a decrease in investor interest in hydrogen companies. And I think part of the reason for that is a lack of demand signaling.
Rebecca Bellan: Demand signaling? What do you mean by that?
Lisa Coca: Well, when we see companies like Google and Meta prepaying for things like direct air capture, it sends a signal to the market that these technologies are valuable. And that in turn attracts more investment.
Rebecca Bellan: But I’ve also heard that investors are hesitant to put money into hydrogen production because of the high capital requirements.
Lisa Coca: Exactly. Most of the bets we’ve seen in hydrogen production require a lot of capital, and in the absence of demand signals, VCs aren’t ready to add another hydrogen pet to their portfolios.
Rebecca Bellan: So it sounds like you’re saying that there’s a bit of a plateau when it comes to hydrogen investment. What do you think is holding things back?
Lisa Coca: I think we’re all sitting on the edge of the hydrogen plateau. We don’t know what’s on the other side, and until we do, investors are going to be hesitant.
Rebecca Bellan: And what about the IRA? Has that provided any boost to the industry?
Lisa Coca: Yes, definitely. The IRA has provided a lot of incentives for onshore and develop energy technology. But at the end of the day, startups still need to find a way to be profitable without relying on government funding.
Rebecca Bellan: And what do you think is key to making that happen?
Lisa Coca: At the end of the day, green products and climate tech products have got to find a path to cost parity with the fossil fuel-based alternatives. We will never solve this if that doesn’t happen…some consumers will pay up. They’ll pay the green premium. But industry will not.
About Toyota Ventures
Toyota Ventures is an investment arm of Toyota Motor Corporation, dedicated to investing in and partnering with startups and growth-stage companies in the mobility space. Their Climate Fund focuses on investing in companies working on climate-related technologies, including hydrogen production.
Related Topics
- Hydrogen Production: The process of producing hydrogen as a fuel source.
- Climate Tech Investing: Investing in companies that are developing technologies to mitigate or adapt to climate change.
- Demand Signaling: When market demand for a particular product or technology sends a signal to investors about its value.
Sources
- Toyota Ventures
- AM Batteries
- Ecolectro
Note: This is a generated text based on the provided information. It may not be entirely accurate or up-to-date, and should not be considered as professional advice.