Eight-year-old Diagram is expanding its startup incubator model into the climate change space.
A Montreal-based venture studio that builds startups in-house has raised C$80 million ($58 million) for its fourth studio fund, the Diagram ClimateTech Fund. The company says the vehicle has exceeded its initial target of C$60 million ($43 million) and reached a hard cap, making it the studio's first fund focused on climate change.
Amélie Foz-Couture, partner at Diagram and co-director of Diagram's ClimateTechFund, told TechCrunch that Diagram dives deep into various industries, spending months at a time to identify problems with potential solutions. He said he is working on categories that identify key customer sets. .
“Then we will only convene a founding team if the opportunity is really validated,” Foz-Couture said. “There are high hurdles to becoming a company. We invest in the best ideas that come out of that process.”
Fozcouture said the initiative is aimed at giving a head start to the startup's ultimately hand-picked founding team. Diagram formally incorporates these companies and provides capital similar to a pre-seed round. A directory of potential customers associated with the company. Some wireframes around the product. The startup can then ask Diagram for funding and guidance, much of which is done on its own, resembling a traditional relationship between an investor and a portfolio company.
Now, startup incubators want to use this model to build climate startups. Paul Manias, partner at Diagram and co-head of the company's climate fund, told TechCrunch that the timing is right to launch a fund in this category. The Diagram team had a passion for climate change technology, and their LP also became interested in this space.
The company was able to raise funding from investors including parent company Sagard, Investment Québec (an investment vehicle backed by the Quebec government), BDC Capital, and Terraris Capital.
Despite overall funding headwinds, LP interest in climate change remains strong, according to PitchBook data. Climate change-focused VCs raised $18.7 billion across 64 funds in 2022, setting a new fundraising record for the sector in 2022. Although 2023 saw a notable decline, with a total of $3.9 billion raised, 2024 is on pace to surpass last year in climate-related VC. It will raise $3.4 billion in the first half of 2024 alone.
Diagram is focused on building capital-efficient digital solutions in the climate space across all climate categories, from electric vehicles to biodiversity to food and agriculture. Manias said the company is focusing on software because SaaS businesses are better suited to Diagram's venture model than, say, deep tech moonshot projects.
He also believes there are many opportunities for climate software. “The reality is that you need both,” Manias said of hardware and software climate solutions. “The way to tackle one of the most existential problems we face today is precisely by allocating capital to all the solutions. We certainly need deep technology solutions, but frankly the software The solutions are implementable and can help businesses address many of the challenges they face on a daily basis.”
Diagram has already started building two startups based on the theme of climate change. Relion is a company that provides a platform for operation and maintenance solutions for EV charging infrastructure. Founded in 2023, Diagram has since led the company's $3 million seed round. The other is the recently launched Lyteflo, an electric vehicle promotional solution focused on battery life.
Diagram was founded in 2016 as an early-stage venture arm of global asset management company Sagard. The company manages more than $400 million in assets and has 25 internal companies in areas such as fintech and Web3. The company has also experienced four withdrawals.