Last month I spoke on a panel about the future of climate tech.

I was joined by Emi Naganuma, the founder and General Partner of Apprecia Capital and Richard Youngman, the CEO Cleantech Group, with Michael Matsumura of Scrum Ventures moderating.

Right now is both a challenging and an exciting time for climate tech innovatoin.

It's a fascinating discussion, and I think you'll enjoy it.



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Transcript
Welcome to Disrupting Japan, straight talk from Japan's most innovative founders and VCs.
I'm Tim Romero, and thanks for joining me.
I've got another quick in-between episode for you today. It's a great conversation about deep tech startups and the future of energy.
I was part of a panel discussion organized by Scrum Ventures at the Sakura Deeptech Shibuya Conference. It was moderated by Michael Matsumura of Scrum Ventures, and I was joined on stage by Emi Naganuma, the founder and general partner at Apprecia Capital, and by Richard Youngman, the CEO of the Cleantech Group.
We talk about the best way to raise venture funding as a deep tech startup, how enterprises and startups can better collaborate the important gaps we see in the green tech ecosystem and the somewhat controversial future of using ammonia and hydrogen as alternative fuels.
So, let's get right to the panel.
 
Discussion
Michael: Thank you much for our panelists. Maybe I'll just kick it off. Maybe you could start with Richard. Could you talk a bit about like what you're seeing globally in terms of where the dollars are flowing now? Has that changed like in the last like six months, one year from what you're seeing? From your perspective?
Richard: It hasn't changed radically yet, but it made it. So, I think if you go into Q1, clearly the deals in progress and so forth, some of which may have fallen apart, but some of which happen. I don't think the community in the US judging by our conference the year before was expecting the inflation reduction act to be sort of aggressively taken apart as it was. Meaning if something was already a deal was done and it was expected to continue. And so that's obviously created a lot of back backtrack there. But geographically, I would say we're still to see that. I guess the second comment might be in our 20 years and why really we're excited to be in this part of the world more and more is because we believe that innovation under this theme is coming from everywhere and should come from everywhere and needs to come from everywhere. This is not as Silicon Valley phenomenon. Silicon Valley has a role to play but so does everywhere else. And so I think long term we're expecting to see capital allocation change quite a lot.
Michael: Great. Then maybe staying on that sort of the macro theme maybe I could go to Emi obviously like on a similar topic, but in terms of like your limited partners, like the discussions you're having with your investors, like has there been a change in tone? Is it like in different sectors you guys are interested in or the partners interested in? Could you maybe touch upon a bit about that?
Emi: I think from the expectations from the investors, the LPs into the fund I see that they have shifted their interest into deep tech incredibly especially university or research driven. So, really deep tech and clean tech in terms of geography as well. I think a lot of attention has been in the US but now it, we do see more attention coming into Europe. We see US VCs also emerging into Europe. Before it was series B or series C that they came into. Now, early stage, I think from seed we kind of see some US VCs coming in and trying to getting into the deals. And I also see a shift of students coming in to study in Europe, but yes.
Michael: And in terms of your LPs, are they mostly Japanese or are they a mix of like global LP bases that you have?
Emi: We have Japanese corporates as LPs.
Michael: Thank you. Then maybe Tim, to your perspective, maybe also as JIRA, like you make one third of it a pound in Japan. But like you obviously have global operations. You've got like IPP businesses across Asia and also US as well. From like your perspective, how's the changing sort of landscape impacting the way how JIRA Ventures makes investments right now as well?
Tim: So, energy is a global market and I think that to your point, you have to be globally minded. And I think when the IRA passed in the US a few years ago, there was this tremendous movement of innovative companies from Europe to the US. We're starting to see that trend reverse, and a lot of them are going back to Europe, but even within the US, I think for example, my own companies have been enterprise software. And you can go to San Francisco and understand 80, 90% of what's going on in the world of enterprise software. You can have your finger on the pulse never leaving that area. Climate tech energy's not like that, there's a lot more going on globally, even in the US I think Boston is more innovative than San Francisco, but there's a lot going on in Europe and a lot going on in Australia. There's a lot of promising startups in Japan as well. So, these things shift. If innovation in the US slows down, there's a lot of other places that'll pick up the slack and it seems like they're already doing so.
Michael: Great. Thank you. Then maybe just diving a little bit deeper into some specific technologies or themes maybe as well. I think Richard gave a good overview of the sort of the, maybe the booms and buses the wrong way to put it, but like some hot sectors and less hot sectors. Maybe we'll start with Emi again then. What are the sort of areas that you see as very attractive right now? Like where do you think you'll get good returns looking for like what excites you right now?
Emi: In terms of return and of course impact, we look at it into two kind of segments. First is where there's a high environmental impact right now that exists. So the large sectors, and usually these aren't so many, it's construction, agriculture, energy, concrete, et cetera. And then we look at the other one that is where there aren't so much of an environmental footprint yet, but that industry will grow and we think that's really, really interesting. And Richard has already highlighted, but we think the AI infrastructure space is going to grow. So, we're looking highly into that. It is becoming a competitive space and also we look into space tech because that is really interesting as well, and it can provide solutions in climate tech that we haven't seen before and that could provide solutions that we couldn't even think of.
Michael: Yeah, I like the impact perspective is really important. And personally, I always thought that the industrial decarbonization never attracted enough capital, like given the emission level. So that's always a sector that I've always liked. Then maybe, Tim, to your side, I think JIRA's had a big focus on looking at hydrogen and sort of ammonia and I know there's been talks about using ammonia in sort of coal fire power plants like coal fire, coal firing, and then looking at sort of gas turbines using hydrogen as well. And obviously as Richard highlighted earlier hydrogen's kind of lost a bit of steam lately. In terms of the investment cases right now, is it still a viable sector that we should be looking at? Does it still have a -- what's your perspective there?
Tim: Well, I think it depends on your time horizon and your investment objectives. So, as a VC with a seven year fund, I think it's really hard to invest in hydrogen. As an energy utility or as a nation who needs to have a secure power grid, it is essential to continue investing in alternative fuels. Because in the long term, even if we get a very green grid, we shut down all the coal, we shut down all the gas plants, we get to Carbon zero eventually, the Germans have a wonderful word called Dunkelflaute. And it means when the sun's not shining and the wind's not blowing. And right now we've got batteries that'll do eight hour storage, no problem, maybe 12,24. There's some promising things that'll go to a hundred hours plus. But at some point, there's going to be a few weeks or a month where you've got the Dunkelflaute and you need to burn something. And that something could be fossil fuels or it could be ammonia or hydrogen that is made with excess energy when the sun is shining and the wind is blowing. So JIRA's plant, a Hekinan was the globally first successful test of a blended ammonia and coal firing, and it was 20% ammonia, 80% coal, and it was hugely successful. The engineers are saying we go to much higher ratios. So, in terms of a startup investment from a VC perspective, it's very hard to justify an investment like that. You're not going to see returns in five years or 10 years. But as a utility who's making 40 year investments and 80 year time horizon planning, it's essential. And so that's why alternative fuels be it hydrogen ammonia is really important in the midterm. I think storage is extremely exciting in all forms, whether that's lithium-ion batteries or zinc oxide batteries or these iron rust batteries or when I see EVs, basically it just looks like storage on wheels to me. So, I think that that's like, in terms of my investor brain, that's what I'm most excited about right now.
Michael: Nice. Okay. I'd like to add the geothermal and maybe nuclear to that, but…
Tim: No, absolutely agree. Absolutely agree. I mean, JIRA doesn't do nuclear, so JIRA doesn't have an official opinion on it, but I think it's pretty clear from all available analysis that there's no practical path to net zero without a lot of nuclear on the grid.
Michael: Yeah. Thank you. Then Richard, maybe to you obviously Cleantech group, you guys research and you look at so many different companies across the world. What are the sort of most under the radar sort of technologies and sort of sectors that interests you or excites you right now?