In the world of climate tech, a long-held truism has been that hardware is paramount. After all, how can we effectively curb carbon pollution without tackling the fundamental materials and technologies that underpin our economy? Cement, steel, hydrogen – the list goes on. But as with anything in today’s fast-paced world, hardware is no longer seen as the only solution.
The Importance of Software in Climate Tech
According to Vaughn Blake, a partner at Blue Bear Capital, hardware and software are increasingly being developed hand-in-hand. "In almost every case, hardware is going to be developed with software in mind," he notes. This is why Blue Bear Capital has taken a software-centric approach, one that diverges from the prevailing currents in climate, industrial, and energy investing.
"We think the impact potential of digital solutions and applied AI is tremendous," said Ernst Sack, partner at Blue Bear. "By leveraging these technologies, we can unlock unprecedented opportunities for growth and environmental sustainability."
A Solar Company’s Success Story
Sack cites an example that highlights the power of software in climate tech: a solar company facing equipment problems that limit power production. But what if this operator could use a monitoring service like Raptor Maps, a company in which Blue Bear is invested? The potential impact would be significant – a 10% performance improvement across 100 gigawatts of solar generation capacity would translate to a staggering 10 gigawatts of additional electricity.
"That’s roughly equivalent to 10 billion dollars of cap-ex and something like three to five coal-fired power plants or nuclear plants," Sack notes. "It’s a game-changer."
Beyond Traditional Climate-Friendly Technologies
The Blue Bear Capital team sees opportunity beyond traditional climate-friendly technologies like solar. "The applicability of AI is so universal," says Sack, citing wind, water treatment, refrigeration, steel, cement, chemicals production, and marine and aviation logistics.
"So many parts of the world economy have an energy intensity where, if we were to build a physical, hard asset or a hardware company, it can almost always only serve one narrow vertical. Maybe a big vertical, but it’s a vertical," Sack notes. "Whereas software is really universally applicable."
A New Fund with a Later-Stage Strategy
To invest in this thesis, Blue Bear recently raised a $160 million third fund. Limited partners include the McKnight Foundation, Rockefeller Brothers Fund, UBS, WovenEarth Ventures, and Zoma Capital, along with executives from private equity and infrastructure funds.
"We borrow a bit from those LPs’ approaches to investing, bringing more of a later-stage strategy to earlier-stage investing," says Blake. The fund is reserving twice as much money for follow-on investments as initial checks; for the typical $5 million check Blue Bear plans to write, it’s holding another $10 million for additional investments to maintain ownership.
A Smaller Portfolio with Higher Returns
By keeping the portfolio small, Blue Bear aims to create higher returns through more targeted investments. "We’re not looking to invest in every shiny object," says Sack. "We want to find companies that are truly making a difference."
"We believe that by focusing on software and digital solutions, we can unlock unprecedented opportunities for growth and environmental sustainability," notes Blake.
The Future of Climate Tech: A Software-Driven Revolution
As the world grapples with the challenges of climate change, it’s clear that hardware is no longer enough. The shift towards software-driven solutions has begun, and Blue Bear Capital is at the forefront. By leveraging digital technologies like AI and machine learning, we can create more efficient, effective, and sustainable solutions to some of our most pressing environmental problems.
"The future of climate tech is a software-driven revolution," says Sack. "We’re excited to be a part of it."
