No impact without revenue? That's ArcTern's climate tech thesis

Much of the intriguing climate tech that crosses our desks is theoretical or only just coming to market — think, tech that sucks carbon out of the sky, emerging lithium-ion battery alternatives and bioplastics that’ve yet to seriously scale. These aren’t the sorts of things ArcTern wants to fund, managing partner Murray McCaig told TechCrunch. 

The Toronto-based venture firm just announced the close of a $335 million fund (USD) — its third and largest to date. ArcTern plans to pump this capital into climate-focused startups that can deliver super quick returns.

“If you’re not making money, you’re not having impact,” McCaig told TechCrunch. “You might in the future at some point,” the VC conceded in a nod to firms like Bill Gates’ Breakthrough Ventures, which makes longer-term bets on emerging tech. However, McCaig said ArcTern is aiming for “impact that happens over the next 10 years, because the next decade is the most critical time for decreasing our global carbon emissions.” 

The investor appears to be referencing the Intergovernmental Panel on Climate Change here. The UN environmental group has said nations must halve greenhouse gas emissions by the end of the decade to limit warming to a global average of 1.5°C. Sticking to that target may help humanity avoid the most disastrous climate scenarios, but really that warming figure should be as low as possible, as soon as possible. 

In any case, ArcTern has drawn a line in the proverbial sand. The investment firm is focused on startups that utilize proven tech in new ways, while researchers and investors with longer-term appetites focus on stuff that’ll take a while to potentially pan out. Of course, there are plenty of ways to decrease emissions that typically have little to do with startup profits, such as reducing air travel and improving public transit.

Materially, one of the areas ArcTern is focused on is decarbonizing mobility. Though electric vehicle sales have slowed lately, McCaig sees this as a “blip.” The VC believes North America is about to reach a tipping point where EV adoption takes off like a rocket, as it has in Norway.

ArcTern’s recent transportation bets include Seattle-based battery analytics company Recurrent. Another is Los Angeles–based battery-electric commercial vehicle maker Harbinger Motors. (Of course, not everyone will perceive the same tipping point in a given sector. Take, for example, hydrogen passenger vehicles; are they a pipe dream, or will we soon see hydrogen fueling stations popping up just around the corner?)

Along with Toronto, ArcTern has teams in San Francisco and Oslo. “Climate tech tends to be fairly distributed around the globe, more so than AI and software, which tends to concentrate in California,” added McCaig.

Investors in ArcTern’s newest fund include TD Bank and Credit Suisse. The venture firm’s second fund clocked in at $150 million (USD), while its first — a seed fund — totaled $30 million.