'Climate change is solvable, but capital is missing'

“People are grateful we allow them to invest in climate technology. This is something they have wanted to do for a long time but have not been able to do before,” says Liza Rubinstein Malamud, smiling. She hops on a video call from a cafeteria in San Francisco, busy on a business trip for Carbon Equity, the climate tech investment platform she founded four years ago. Since then, the platform has invested in over 150 climate tech companies, manages €300 million, and has over 1000 backers.

Unlike other funding actors, such as venture capital (VC) or public investors, Carbon Equity seeks to mobilize ordinary people's funding for climate technologies. In fact, the platform allows individuals to invest as little as €25,000—an amount that is too low for VCs, which seek hundreds of thousands to millions of euros in investments to fund startups.

Carbon Equity is a fund of funds (FoF) that pools investors' money to invest it in other investment funds. In late June, the fund announced raising another €60 million for its Climate Tech Portfolio Fund III. As her coffee arrives, we go back in time and reflect on the journey that led her to make an impact.

Realizations

Born and raised in Amsterdam, Rubinstein Malamud has a diverse background, including an arts degree, but her master’s degree in political science steered her career path in the direction she is now following. “In realizing that national governments could not solve global problems, I understood that finance could give a push to a more sustainable world,” she recalls.

After graduation, she started working for the consulting company McKinsey, getting more acquainted with the dynamics of this world. During her time at the firm, she also worked on an analysis of decarbonization pathways that the European Union later used. Then, other valuable learnings came.

“I got a sense of what was needed to reach net zero and had a few big realizations. The first one is that we know exactly which technologies we need; the second is that most of them will become cheaper than current fossil fuel alternatives. Thirdly, not only the planet but also the economy will be better off if we solve climate change. I was impressed by how solvable this problem is, but also realized that capital was missing.”

The making of Carbon Equity

She felt she could do more. As a member of the nonprofit group of green shareholders in big oil , she met the sister of the person who would have become her co-founder, Lara Koole. Koole was already considering starting a climate investing business with Jacqueline van Ende, the other co-founder of Carbon Equity. With the clear goal of helping ordinary people invest in climate tech, many pizza brainstorms came up, and so did different concepts, eventually narrowing the scope to funding innovation.

Rubinstein Malamud still remembers the eureka moment that led to the start of carbon equity. “I said we need to lower the minimum amount VC funds accept. Then Lara said, ‘’I heard of this thing called feeder fund, which aggregates smaller tickets into a big one, so Jacqueline replied: Can we scale that?”

Since then, things have started moving “really quickly” as the four cofounders started talking to people about their idea, which was positively welcomed. This early success led the cofounders to raise a pre-seed round before Carbon Equity was officially established.

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Growth

After setting up the feeder fund, the first official customers come. The first feeder fund sold out in the first three weeks after launching. A precious lesson comes: restructuring the idea to a FoF suits private investors better.

A FoF offers more diversification and a lower risk profile. “But then we had to raise €15 million instead of 4. It seemed daunting, but it was the product we wanted to bring to the world, so we did it.” In the following year, Carbon Equity exceeded expectations, raising €42 million that went into 9 funds.

The formula has remained the same since then, with a new fund raised every year. While many startups pivot, Carbon Equity's offerings today do not differ much from what its founders “drew on the whiteboard four years ago.” The team is much more structured, with 20 people on board, a solid due diligence process, and close contacts with 22 fund managers.

Settling in

As newcomers in the innovation funding ecosystem, they have been positively welcomed. “The market is now rapidly growing and still emerging, and to this extent, we have been lucky to have entered it at this moment. Many funds like what we are doing, which is to create as much access as possible and to let more people participate. Carbon Equity is now well-known because we have done 22 fund commitments in 3 years. Our checks might not have been huge, but we are super active.”

To choose its investments, Carbon Equity first assesses the impact a fund can have and gets an overview of the companies being supported. Then, it conducts a deeper analysis of the fund’s team to understand its members' backgrounds and how deals are selected.

Pride

Rubinstein Malamud’s definition of impact investing is pretty straightforward: allocating money to essential technologies for the energy transition. In the view of the Carbon Equity co-founder, most of them still need to reach maturity; hence, funding them now is as crucial as ever. “The world is rapidly decarbonizing, and I think many companies we invested in will become unicorns. There is no certainty, but I am bullish about what we do,” she firmly says.

In stressing the need for more capital, Rubinstein Malamud underscores the need for pension funds to step in more. At the same time, she is happy about how, lately more of them are investing in innovation in the Netherlands. Still, there is €87 trillion in private capital does not have access to climate tech investing.” How do we mobilize more of them? “Well, Carbon Equity.”