MizMaa Ventures is an early-stage thesis-driven venture capital ﬁrm investing in Israeli deep-technology entrepreneurs. We have been closely monitoring the development of climate-related technologies in Israel and are enthusiastic about Israel's potential to contribute to global climate innovation.
Defined as “technologies that are focused on reducing GHG emissions, or addressing the impacts of climate change”1, ClimateTech encompasses any technology involved in solving any aspect of climate change, such as: removing greenhouse gasses from the atmosphere; reducing future emissions; and enabling data and intelligence technologies, such as crop intelligence, climate modeling and carbon reporting. The aim: to reach ‘net zero emissions’ - balancing the emissions produced with the emissions removed from the atmosphere.
Action is underway to curb global warming and reach net-zero by 2050. As of October 2022, net-zero pledges cover approximately 91% of the global economy, up from 16% in 20192. This includes 137 countries and one third (~790) of the world’s largest publicly traded companies.
An estimated US$130T of private capital has been committed to transforming the world economy to net-zero over the next 3 decades, up 25-fold from the 2019 estimate3. Global ESG AUM (assets under management) is estimated to be valued ~US$40T alone4.
Two landmark capital commitments stand out this year: Biden’s Inflation Reduction Act Bill—committing a minimum of US$369B toward emissions-cutting measures5—and the formation of Frontier, an advance market commitment to buy US$925M of carbon credits, formed by Stripe, Alphabet, Shopify, Meta, McKinsey, and others6.
Net-net, we’re no longer capital constrained, but we still face execution and technology challenges.
“I believe the decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime. The next 1,000 unicorns won’t be search engines or social media companies, they’ll be sustainable, scalable innovators — start-ups that help the world decarbonize and make the energy transition affordable for all consumers.”
- Larry Fink, CEO of Blackrock, in his 2022 ‘Letter to CEOs’7
Technology alone cannot solve the climate crisis, but it is an integral part of building a greener society. Climate Technologies received US$58B of global VC investment across 2021-H1’228, accounting for 14 cents on every VC dollar. Energy, Transport and Food received ~70% of the dollars raised, with electric vehicles scooping up 17% alone (known as the “Tesla” effect).
ClimateTech is estimated to be the fastest growing vertical in Europe, with the ecosystem valued at over US$100B and early-stage investments increasing 2.5x since 20179. For further breakdown of global VC trends, I direct you to CTVC as an excellent resource.
The Israeli government has been slower to respond to climate challenges relative to its European peers. As a result, climate innovation and investment levels have lagged behind European and U.S. benchmarks.
According to IVC, ClimateTech start-ups in Israel received over US$2B of VC funding in 2021 and around US$1B in H1’22, representing ~8% of total VC investment in Israel (compared to 14% penetration globally).
“For the world to get to zero emissions by 2050, changing our behavior will do less than half the job. The other half will come from technology that has yet to be developed. That’s where Israel has to lead”
- Naftali Bennett, COP26, Glasgow10
A year ago, former Prime Minister Bennett coined the term “Climate Innovation Nation”11, with the intent to position Israel as a technology leader in ClimateTech. In May this year, Israel passed its first Climate Law, establishing a goal of net-zero by 2050 and a phased energy transition to renewable sources12.
Since then, the Israeli government has committed US$870M to promote innovation in ClimateTech13, and in September, PLANETech (Israel’s ClimateTech NGO) hosted their first annual conference for 1500 attendees in Tel Aviv. We’re optimistic that this indicates an inflexion point and the beginning of accelerated growth for Israel’s ClimateTech ecosystem.
MizMaa’s ClimateTech map, co-created and published with IVC, presents over 200 private Israeli companies, split by sector and by type of technology. These are presented as segments and concentric circles respectively. It provides an investor’s perspective and a birds-eye view of the start-up landscape; showing areas of strength and exposing whitespace. Of course, this map is not exhaustive.
(i) Alternative protein start-ups spin out from academic institutions -
Israel is an indisputable leader in alternative proteins, boasting the likes of Future Meat, Redefine meat, Remilk and Aleph Farms. The start-up ecosystem is fed by ~28 research labs in academic institutions and well-oiled incubator programs. Israel’s alternative protein market attracted US$623M of VC funding in 2021 and US$320M in H1’2214 - the second most after the US.
The next big thing is ostensibly cultivated meat. The accompanying challenges are to reach competitive unit economics (cultivated meat is currently ~10x more expensive than animal-based), build scalable tech, and navigate regulation to get to market.
(ii) Success in transport optimization and electric vehicle (EV) technologies -
More than 38% of global ClimateTech funding over the past two years has been directed at transportation technology—a whopping US$27B—the best funded sub-sector8. Whilst the transportation segment of our map appears smaller, it is home to some of the most successful ClimateTech companies. Companies such as Autofleet, Via and Optibus, have built sophisticated algorithms and intuitive dashboards to optimize fleet routing and improve public transportation efficiency.
Within Electric Vehicles (EV), companies such as REE Automotive (IPO’d on NASDAQ July 2021: REE) and StoreDot are addressing EV design challenges and battery constraints respectively. There are also a number of emerging battery-tech start-ups, including Addionics, 3DBattery and EEXION to keep an eye on.
(iii) Early leadership in solar energy -
Whilst Israel itself has a relatively low reliance on renewable energy (7% of power consumed is generated from renewable sources, 90% of which is solar power15), SolarEdge, founded in 2006, is one of Israel’s early ClimateTech success stories. The company develops solar inverters, the so-called “brain” of a solar panel. In March 2015 the company IPO’d on the NASDAQ, and as of October 2022, the company has a market cap of ~US$11B.
The data challenges in ClimateTech are vast: from crop intelligence and precision agriculture, to extreme weather forecasting and MRV of carbon removal projects.
35% of the Israeli companies presented in our map are categorized as ‘Data & Intelligence’. Israel has a greater mix of ClimateTech software, compared to hardware solutions, relative to European and U.S. markets. Israel’s technical capabilities in systems such as advanced remote sensing, computer vision and IoT technology (some technologies originating from R&D in the IDF) form a competitive advantage in solving these evolving challenges.
One ClimateTech data challenge is carbon emissions reporting. Since mid-2020, US$1.5B of VC capital has been invested in carbon reporting start-ups8, contributing to a US$14B market and projected US$44B market in 203016.
Carbon emission regulation is strengthening, including the EU’s Sustainable Finance Disclosure Regulation (SFDR), the EU’s carbon-border tax (effective 2026) and the SEC’s proposal on Scope 3 emissions. And we see the regulation ripple through the economy. Investors are increasingly required to report on portfolio carbon emissions (who push the requirement onto portfolio companies of all sizes), and large companies are incentivised to reduce supply chain emissions (which spreads emission reduction incentives to supply chain partners and suppliers).
Whilst high-level carbon accounting is a ‘red ocean’, we assess that there is still plenty of room for innovation in supply chain emission reporting and reduction. We are yet to see a Software-as-a-service (SaaS) product for large enterprise that includes supply chain emission reporting and abatement detection, without a heavy consulting or service element.
Emission reduction alone will not suffice if we are to achieve the Paris Agreement target of 1.5-2C global warming, compared to 1890s pre-industrial levels17. Analysis by NAS (National Academy of Sciences) estimates that we will need to remove an average of 10 additional gigatons of carbon dioxide by 205018. To put that in context - it is twice that amount the U.S. emits from burning fossil fuels every year, and at a price of $100 per carbon credit (equal to 1 tonne of carbon removed), it is a $1T market.
Carbon Dioxide Removal (CDR) is a process in which carbon dioxide is removed from the atmosphere and sequestered for long periods of time. This can be through nature-based methods (e.g. restorative agriculture), deep-tech (e.g. carbon mineralization) or hybrid strategies. Still a nascent sector, there has been promising growth in CDR start-ups in Israel, from just 3 in 2021 to 14 in 2022 (according to the latest PLANETech report). Companies include: CarbonBlue, who are pioneering ocean-based sequestration, and RepAir in direct air capture (DAC).
Carbon removal is the deepest of the deep-tech in ClimateTech. It is moonshot technology that requires years of R&D but has the potential to define our climate response.
We have spoken with Climate entrepreneurs, investors, accelerators, NGOs, and climate-conscious corporations. Below are a few themes that reappeared across numerous conversations:
#01 Expectation of exits in alternative proteins - Following the IPOs of Beyond Meat and Oatly, and a few corporate acquisitions (including JBS’s acquisition of Vivera for US$409M19), industry stakeholders and experts predict further consolidation in alternative proteins.
#02 Growth in carbon trading infrastructure - The value of the voluntary carbon market (VCM) has quadrupled since 2020, reaching almost US$2B in 202120, and projected to increase 25x to US$50B by 205021. Digitalization will be the key to carbon market success; from digital MRV of carbon removal projects, to integrated and accessible trading platforms; we need more efficient and credible systems.
#03 Whitespace in energy management systems - One of the challenges with renewable energy is that it is an intermittent energy source, requiring microgrid infrastructure. To support a green energy transition, we will need more virtual power plants, grid balancing technologies and battery management systems.
At MizMaa, we identify and invest where Israel has a technological advantage. We think Israel will play a unique role in shaping the global response to the climate crisis and we are excited to watch the sector evolve.