It is a truism that in the world of climate change technology, hardware is of the utmost importance. After all, we can't curb carbon pollution without fixing cement, steel, hydrogen, etc. But like everything today, hardware is only part of the equation.
“For the most part, hardware is going to be developed with software in mind,” Vaughn Blake, a partner at Blue Bear Capital, told TechCrunch.
That's why Blue Bear Capital takes a software-centric approach. Even if it's not contrarian, it's an approach that goes against the mainstream of climate, industrial and energy investing, where funds that invest in hardware or a combination of hardware and software tend to do so. to dominate.
“We believe the potential impact of digital solutions and applied AI is huge,” said Ernst Sack, partner at Blue Bear.
For example, consider a solar power company. Like any other hardware, solar power facilities experience equipment issues that can limit power production. But Sack said losses could be minimized if carriers had access to monitoring services like Raptor Maps, in which Blue Bear is investing.
“Take 10% as a rough number,” Sack says. “Companies like Raptor Maps have installed over 100 gigawatts of solar capacity, and a 10% performance increase is 10 gigawatts. Equivalent to three to five power plants.”
Sack, Blake, and their colleagues see opportunities beyond traditional climate-friendly technologies like solar power. “The applicability of AI is very universal,” Sack said, citing wind power, water treatment, refrigeration, steel, cement, chemical production, marine and air logistics.
Blue Bear Capital Team. Image credit: Blue Bear Capital
“So many parts of the world economy are so energy-intensive that even if you build a physical hardware asset or a hardware company, you can almost always only serve one narrow vertical. But it's vertical. The software, on the other hand, is really universally applicable.
To invest in this paper, Blue Bear recently raised a third round of funding of $160 million. Limited partners include the McKnight Foundation, Rockefeller Brothers Fund, UBS, Woven Earth Ventures, Zoma Capital, and executives from private equity and infrastructure funds.
Blue Bear borrows a little from the investment approach of these LPs, incorporating late-stage strategies into early-stage investments. The fund sets aside twice the amount of the initial check for subsequent investments. For a typical $5 million check that Blue Bear plans to write, it has an additional $10 million in additional investments to maintain ownership. The fund plans to invest in about 15 companies, Blake said.
The fund added that by keeping its portfolio small, it hopes to be able to help more companies exit.
“The model we invest in understands and assumes that IPOs are unlikely to occur in the markets we invest in,” Blake said. “And M&A, whether strategic or private equity-backed, is much more likely.”As a result, each successful exit is a target for many venture funds. While it may be smaller than the usual outsized numbers, he said he expects it to add up to a similar return for LPs.