Aftermaths of COVID-19 might benefit Green VCs
“The Chinese use two brush strokes to write the word ‘crisis’. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger–but recognize the opportunity” John. F Kennedy
No, the Chinese word for crisis is not composed of the characters “danger” and “opportunity”, as Kennedy once said and most motivational speakers lacking creativity since then.
However, there is some kind of truth: crisis periods are often when humans do their best, disrupt outdated processes, think creatively etc… A McKinsey poll in June 2020 showed that 90% of executives thought the crisis will “fundamentally change the way they do business” and 85% were “concerned that the COVID-19 crisis will have a lasting impact on their customers’ needs and wants”. Furthermore, the same study highlighted that only 21% of them felt they had the required resources and expertise to pursue new growth.
Find the pain point
There it is, this sparkling moment when entrepreneurs turn a false proclamation from John F. Kennedy into an equally false Chinese grammar theory but a very often confirmed business truth.
Executives in the poll agreed about the crisis opening new growth opportunities -with variations among sectors. However, their pessimism came from the mean, not the situation. Anybody who already worked in a big company could understand that fear, already picturing an distant N+5 in a far away office writing down new vague guidelines about ecology, artificial intelligence or cybersecurity. Flat organizations, lean management or agility are great words that are rarely implemented in reality, because in reality not everybody works at Google or Wordpress (and those who are will not be the most impacted by this crisis).
New wishes have been made for sure, and for once environmental considerations are astonishingly well-aligned with strategical requirements. Increasing our independence from specific resources is impossible without improved recycling processes. Finding new ways to transport goods and people call for massive investments that no sane person would do on fossil fuels technologies. Digitalizing our administrations and common tasks reduces useless transports. Repatriation of data centres locally for geopolitical interests will also diminish their ecological footprints (mostly due to coal being the main source of electricity in developping countries) etc…
All of those are business opportunities for entrepreneurs because it necessitates the agility and creativity most big corporations fail to have. Let’s find new pain points and innovate. As for VCs, investments will be required to support that transition.
Investments are highly depended on trends
The French government just announced “France Relance”, a 100B€ economic recovery plan, as part of the 700B€ common European debt to tackle the post-COVID economic crisis. 30 billion € will go the ecological transition including 9B€ on hydrogen technologies, 4.7B€ for railways and an astonishing 6.7B€ for buildings insulation. The country isn’t a marginal example, Germany previously unveiled its 130B€ stimulus plan that has -according to Bloomberg News calculations- 41B€ on electric vehicles, public transportation or renewable (and intentionally excluded aids for petrol and diesel cars).
In general, we can expect most economic recovery plans -not only in Europe but globally- to emphasize sustainability investments. If you inject billions in your economy, you’re doing it thinking in the long run. With few exceptions, most countries are trying to perform an ecological transition.
Therefore, we can expect Venture Capitals to take advantage of this trend that could diminish their overall risks in Green Investments. They knew before that the Green Market was expanding and that the demand from customers was there. However, they now benefit from a better alignment between political interests and the maturity of green markets.
Countries will crave for future sustainable businesses to develop on their soil, and to do so might ease some regulations (autonomous vehicles, hydrogen trials…), strengthen others that could change the costs/benefits calculations (cost of renewable, plastic bans…) and adapt taxes (carbon tax, green exemptions…). We can logically presume that green businesses will do better in a more friendly environment, especially considering the ecological trend in our societies.
It’s not (only) for dolphins and turtles
Pragmatically, governments of the world also know the COVID-19 crisis was the textbook example of what can happen when you fail to consider economic sovereignty for decades and rule with short-term visions.
For example, in response to global uncertainties often coming from short-sighted political debate, France reinstated the commissioner of the Plan. The job was created by Charles de Gaulle, post-WWII, to rebuild the country and focused on strategically identified sectors (electricity, steel…). They built long-lasting infrastructures that the country still uses 70 years later, developing nuclear plants and hydroelectric dams which still represent respectively 72% and 10% of France’s electricity (fully decarbonate, by the way), investing in roads and railways or developing telecoms. French are not the first, and we could hope they won’t be the last.
Hopefully, these new changes are great news for startups that will benefit from this sudden political awareness. Local actors will have to innovate to meet developed countries’ ecological standards, contrary to what is currently happening with industries that delocalize their pollution in developing countries instead of researching new ways to diminish or prevent it. We can expect solid supports and incentives from states that could push sustainability innovations.
Let’s recap
COVID-19 is for sure a nightmare on many levels, but because we won’t change that facts, we might at least get the most of what we can learn from the crisis.
From the perspective of a VC, we can expect a surge in profit for sustainable businesses, pushed by global and political awareness, as well as innovation. Changes in our way of life have created new opportunities that will need to consider climate change, first because it’s a consumers request but also because governments will promote ethical actors as a way to decarbonate our economy and finally reach a higher level of independence on strategical sectors.
Last but not least, the pandemic showed a lack of long-term plans that engendered a wake-up call for states. Luckily, most actions that could prevent too short-sighted visions of the economy will likely promote sustainable companies and/or processes.
