Venture capital as a vehicle for sustainability

Venture capital capacity for innovation has a growing business case to solve humanity’s parasitic destruction of Earth’s resources and climate. It’s a growing sector in our portfolio and nearly all our early-stage investors have at least one company that could be defined as climate tech. 

Just five years ago, even putting clean tech or climate tech on your business model would have self-selected a firm out of most institutional LP capital searches due to historical poor category returns, but those attitudes have changed. 

While venture capital-backed companies have had a major impact on the global economy, evaluating their positive impact is critical. As is the need for collective action in the short term. For us at Top Tier, the underlying principle of environmental, social, and governance (ESG) policies is greater investment in solutions that reduce negative environmental impacts, while also being thoughtful about the impact on all stakeholders. The recent economic and global turmoil has provided a great opportunity to reevaluate these priorities, and we are seeing a growing number of venture capital firms creating and committing to ESG policies of their own as they look to future investments.

This clear business need opens the door for VCs to underwrite emerging companies using traditional B2B operating metrics and benchmarks. The ESG vertical is solidifying as a new functional group within large companies, and we think VC-backed companies will be strong beneficiaries of this emerging field.

We believe that this modernization is an essential building block that puts us and our industry in a unique position to address the ‘E’ in ESG through innovation and climate tech. As a VC fund of funds and a signatory of the UN PRI, we believe there is critical need for measurement and focus on what effects our companies are having on the environment, positive and negative. 

Increasing regulatory and societal pressures are forcing large enterprises to price their impact on the world. Carbon offsets and credits are a clear example of this, but these are just scratching the surface. With more than 70% of the world’s GDP currently under net-zero carbon commitments by 2050, greater innovation and investment need to happen to reach that target. We believe the only way for large global enterprises to hit these ambitious goals is through the adoption of advanced analytics, new materials, and a complete rethinking of supply chains. 

Environmental concerns have not only changed the way venture capital values climate tech, but they’ve also ushered in a new sense of urgency around the sector. Venture capital’s innovation machinery places the asset class at the forefront of the battle for sustainability and it is this new recognition – in climate tech and ESG at large – that places firms such as Top Tier in a prime position moving forward. The agile nature of venture capital provides the opportunity to rewrite the rules of production in a way that benefits our planet. ESG pledges along with carbon goals are set, and climate tech is how we will meet them.

About
Top Tier has spent two decades building trusting, long-term relationships with managers, LPs, staff, clients, and partners throughout the venture capital ecosystem. We take a collaborative approach with every investment, operating as one team with a singular focus on providing support and perspective to fund managers and entrepreneurs alike.

David York is a Managing Director and member of the Investment and Management Committees at Top Tier Capital Partners (Top Tier). He also leads the Corporate Development team and is responsible for the management, development, and growth of Top Tier’s offerings. His thirty-plus years of industry knowledge and networks uniquely equip him to be a liaison and international ambassador not only for Top Tier’s brand, but also the broader venture community. In 2000, David joined Phil Paul to lead the fund of funds team at Paul Capital, which spun out in 2011 to form Top Tier.