Financing around first- or early-of-a-kind project risk
Coffee in hand, Dan Fitzgerald zoomed in from his surf van down by the beach in the wee hours of the Australian morning to share news of ReGen Venture’s new $50m fund. His vision goes beyond sustainability and towards a planet healing impact on nature, climate, and human health. ReGen’s thesis anchors on a consumer-first adoption of regenerative technologies, and they’ve amassed a team to boot - including the former Patagonia CEO Rose Marcario.
What’s the distinction between climate tech vs regenerative tech vs sustainability investing?
Sustainability perpetuates the status quo, it doesn’t undo the accumulated negative consequences of the last 250 years since the Industrial Revolution.
In our minds, that isn’t enough. We seek catalytic companies that are restoring nature, climate, and human health. Companies that solve for those inextricably linked vectors are regenerative solutions. While the goal of sustainability might be net zero, we see that as our starting point. No company we invest in would be any worse than net zero.
Does the classic climate tech sweetheart example of Tesla fit the regenerative definition?
No, Tesla doesn’t count as a regenerative company for a few reasons. First, their supply chain is not clean. Second, their leadership is not necessarily the type of leader that we would call a regenerative leader. Third, their cars have a heavy embodied carbon footprint.
What are some leading examples of regenerative companies?
Meati takes mycelium growing cycles and cultivates them to create a far healthier protein with a negative carbon footprint. Their team is truly gunning for regenerative outcomes.
Loam (formerly Soil Carbon Co) is another one. They use microbial soil amendments that actively remove carbon from the atmosphere, fix nitrogen in the ground, and do so through microbial and fungal networks. This stands in opposition to the raft of sustainable agtech companies that sell a “30% less bad” NPK fertilizer.
Is it possible to have regenerative companies/ outcomes across all industries? What industries are well positioned for the greatest regenerative outcomes?
I think it's possible to be regenerative in most industries, but there are probably still some exceptions that make it hard to truly get to that regenerative outcome. The cement industry has had difficulties reaching the regenerative threshold, but more and more companies are now getting close and I think will ultimately get there. There’s a company called Heimdal that extracts CO2 and calcium carbonate from sea water and turns it into carbon negative lime for cement. If sectors of mobility, like aviation for example, reach net zero I think that would be a wonderful outcome. But these aren’t the industries that will necessarily heal the world - the best we can do is mitigate their damage. As such, ReGen’s focus is on industries like food, agriculture, materials, carbon capture, and carbon marketplaces that can actively restore climate, planetary, and human health.
Will ReGen invest outside of deep tech?
We look at three business models: First, deep breakthrough technologies that have been proven at small scale and are worth taking market risk because we believe there’s latent demand for greener products. Second, business model innovation such as software applied to new industries which are catalyzing a regenerative step-change in that industry. Third, resource reimagination (aka turning shi*t into gold) such as converting waste feedstocks into core industrial building blocks. Some great examples in this space are using CO2 as a feedstock for gas fermentation to create carbon negative foods and textile materials.
Are you focused on B2B or B2C tech?
We are agnostic on B2B versus B2C go-to-market approaches but we absolutely feel that the consumer is the massive pull-lever which didn't exist 2-3 years ago. Rather than trying to convince 100 year old conglomerates to switch something out of their supply chain or do years of industrial pilots, the consumer is ready to shift on a dime to adopt climate technologies.
This is where climate impact meets latent consumer demand. Climate tech companies have the potential to scale faster than we could ever imagine. And the unit economics of those products are now and only recently, superior to the fossil fuel derived incumbents. That's due to a whole suite of enabling technologies sitting underneath - whether that's zero marginal cost renewable energy, computing power, or bioreactors. These technologies are now orders of magnitude cheaper than during Cleantech 1.0.
Our evolving thesis is that this intersection of climate and consumer is where the real venture scale opportunity lies - as well as the commensurate, massive climate scale impact.
Specifically, what underlying influences have driven that consumer shift?
Probably two key forces. One of which is awareness - it’s growing daily. Now, all the first ten pages of every newspaper include climate news. Meanwhile, the shift from a fear-based mindset towards an action-based mindset invites consumers to be a part of the solution. The second reason is generational. Whether we call them Millennials or a broader cross section of generations, people are waking up to the climate crisis and contributing their wealth and purchasing power towards things that are bigger than themselves at an exponential rate.
Is the Green Premium therefore less of an inhibitor?
Tensie Whelan's work at NYU is a core premise of our investment thesis. As her team proved, the Green Premium doesn’t necessarily hold true for consumer products. Green products have 7x the growth rate, while commanding a 40% price premium on average - driven by insatiable demand more so than the underlying production cost. Plus, the Green Premium quickly gets eroded as the company scales down the cost curve which enables scale.
How is ReGen positioning itself to capitalize on that thesis of increasing consumer appetite for sustainability?
Everything that we’re looking at has a direct or indirect consumer climate impact. That can range from being super direct like a carbon negative food product, or it could be in the carbon market where we actually think that consumers are the driving force. Within massive corporations, we see employees demanding action on net zero and driving climate momentum.
We aren’t out to take outsized deep tech risks, but we’re absolutely willing to take market risk where we believe that products have untapped consumer appetite waiting to be scaled.
How have you seen LPs’ understanding of and interest in “regenerative” tech changed?
My personal journey from sustainable to regenerative investing culminated a few years ago. In my previous roles as CIO at an institutional fund manager, I invested a lot in green buildings, renewables, and agriculture and watched as sustainability in those sectors became mainstream. Along the way, I concluded that it’s an insufficient goal. In learning the principles of regenerative agriculture, I realized those same principles could also be applied to the entire economy.
For our partners, there has been a big educational lift over the past year - but that has recently changed fundamentally, and it’s amazing. Of course, it certainly helps when Larry Fink and Bill Gates are out there talking our own book for us and giving people permission to do this!
Our partners now see that these regenerative companies are likely to be the generation defining companies of the decades ahead. Now it’s all about execution. What are the right technologies? Who are the right teams? And where are the markets in which they can scale?
You’ve clearly pulled exceptional talent into ReGen, like former Patagonia CEO Rose Marcario. What challenges and opportunities do you see facing talent moving into the climate?
Jumping into working on climate can be overwhelming. It’s hard to zero in on one’s unique contribution to this existential crisis. There are likely endless answers to that question. Sometimes the answer is to leverage one’s prior experience. For me personally, that’s how I got started - crossing my traditional finance and investing experience with the language of the emerging cleantech movement. I see CTVC and Work on Climate as platforms for people to join on a journey of curiosity and learning. We’re building ReGen in an open sourced and collaborative fashion to share our learnings, through the ReGen Deep Dive blog.
Not everyone is going to want to take on the risk to build something from scratch. But there's a whole bunch of legitimate contributions employees can make now in big corporations or in big finance. If companies feel threatened that their top talent will leave based on climate decisions, that will force change. Separately, a lot of top tier talent in big organizations are fed up and leaving, with the intent of having a big impact on climate. They’re mature in their career journey and it’s sometimes hard to see where they fit in the climate ecosystem today. It’s our job as early stage investors to help our seed stage companies find homes for folks of the caliber of CTOs of the big tech companies.
Your headshots feature the team surfing because you “wear wetsuits not suits.” How’re you putting your planet- and founder-first values into practice?
I hope we are! We pride ourselves in being early and being supportive, regardless of whether or not we ultimately make an investment in the company. Across a whole bunch of funding rounds, we’ve played some role in helping to catalyze the fundraise even if we didn’t participate ourselves because we met the team too early in our fund building, or if it was slightly outside our scope.
We want to build a regenerative venture firm. We’re doing so with an open source, collaborative mindset which means contributing more than we consume. Along the way, we’re supporting everyone who’s making the choice to move into climate because it’s a big choice and we need hundreds of millions, if not billions, of people to participate.
What do others get wrong about investing in regenerative technology?
First, I want to acknowledge that I wasn’t deploying venture capital during the first wave of Clean Tech 1.0, however, I think that people generally over-index on CT1.0’s high capital consumption and failure rate and conclude that investing in climate tech is harder than it is in reality. The underlying foundations today indicate that this type of investing will be the most attractive place to invest capital for decades to come. We’ve built this firm to capitalize on that multi-decadal trend.
Australia has the unfortunate distinction of being the world’s laggard on climate policy. Does the poor climate policy environment affect funding or innovation on the continent?
Onshore in Australia, the state-level governments are acting in a big way. I liken it to what happened in the US under Trump when, despite the handbrake at the federal level over those four years, local government, corporates, capital allocators all committed to and started to act on climate.
However, looking offshore into Australia, it’s a pretty negative signal and likely a red flag for those who might otherwise want to invest here. Yet, we have some of the most advanced carbon credit markets on the planet, and we’re adding biodiversity and reef credits to the evolved ecosystem. There are bright spots, but overall the headwind makes it challenging for local investors and companies, as well as Australia’s institutional capital flows. We have the largest pension pool per capita on the planet, over $3T, with big commitments to net zero, but it hasn’t really done much yet other than negative screens in the public markets. We want to help move that capital, whether that’s in a fund like ours or others, though it’s structurally challenging given the concern at the regulatory level.
The next federal election will be a big moment. There’s already a massive upswing here. We need to do it in the private markets first by demonstrating to policymakers that this is the best place to invest.
What’re some of Australia’s top performing regenerative innovation areas?
Agriculture is a big part of it, and one of our largest export markets. We’re ahead of the pack on acknowledging the harm of traditional agriculture and implementing the solutions. Loam just closed a significant round from Marc Benioff’s TIME Ventures and other great investors. Alongside transitioning to regenerative agriculture, alternative meats are booming in Australia. There’s a huge plant based company, V2, here which is scaling like crazy. We also have the world’s most creative and ambitious cellular agriculture alternative protein company, called Vow.
Renewable energy infrastructure is another bright spot. A rapid scale solar infrastructure company called 5B, uses modularly manufactured solar panels that just roll out on the land, rather than building in-ground infrastructure. We have an audacious project called Sun Cable to generate 15 gigawatts of solar and export it via a subsea cable to power Singapore. Australia gets something like 3,500 petajoules of sun each year, and we only need 59 to power our country. Hypothetically we could export 100 times what we consume, through a subsea cable or by converting it through an electrolyzer into green hydrogen. Both of which are massive macro scale opportunities for Australia.
When will we hit net zero?
2032. We have the talent, the technology, and the willingness to do it. Net zero will happen way faster than we anticipate!
Congrats! ReGen announced the first close of your $50m first fund. What comes next?
It feels nice to share publicly what we’ve been up to and the team that’s been assembled. Though it’s just step one in a marathon. We’ve announced two investments. Hide Biotech which makes real leather without cows, and Seqana which measures soil carbon from space. We’ve closed three other deals that we haven’t announced yet in carbon negative foods, a fleet of Mars Rover-type agricultural robots to remove the need for pesticides, and solving the methane challenge in food waste. We’re immediately focused on these areas of food and ag, materials and decarbonization and want to meet everyone who’s working on these sorts of solutions. Talent has never been more globalized, and we’re investing globally.
Want to be part of the ReGeneration Nation and rebuild the planet? ReGen Ventures is open for business, backing companies globally from pre-seed through Series A across the future of food and ag, regenerative materials, carbon value chains, and biodiversity. Reach out if you’re at a company, sympathetic or curious fund, or LP.
Big thanks to Nell Gallogly for generating this interview!