our Theory of Change

Virta Ventures invests in equity-light climate tech businesses.

Equity-light can mean anything from software and software-enabled services, to marketplaces, fintech, insurtech, and business model innovation.

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We don’t invest in software for software’s sake. We’re not looking for the next killer app or software that powers other software. We invest in equity-light innovation that enables hardware—bits powering atoms. The solutions we invest in accomplish one of four broad goals vital to the climate challenge:

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• Support the development and management of our energy grid.
• Lower barriers and costs for electrifying transportation.
• Decarbonize our existing building stock—residential, commercial, and industrial.
• Speed up the transition to regenerative agriculture.

So why equity-light? And why now?

The costs of hardware and capital intensive climate solutions have plummeted to parity with carbon-intensive alternatives:

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• Solar and wind have reached grid parity around the world in the last decade.
• The cost of lithium-ion batteries has fallen by 97% over the past 30 years.
• EVs are on the verge of cost parity with ICE cars.
• Regenerative agriculture projects across the U.S. have demonstrated financial returns at or above traditional farming.

These rapidly falling hardware costs are the result of sustained and growing investment over decades. But investment in software-centric solutions hasn’t kept pace. As a result, we’re seeing:

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• Ballooning soft costs in the development and management of hardware.
• Significant friction in the deployment of hardware.
• Inefficiencies and waste across all climate sectors.

Do we need more hardware? Of course—trillions of dollars more. We need to decarbonize our entire civilization. It’s an epochal challenge, and we don’t have a second to lose. That’s why we also need equity-light solutions—to accelerate the development and adoption of that hardware. Equity-light solutions make fixed assets more profitable by lowering costs, increasing revenues, speeding up deployment, increasing utilization, and optimizing performance.

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Equity-light solutions can have a swift and broad impact in this critical decade.

Equity-light solutions take far less time and money to develop, get to market, and scale than hardware. It took Tesla nine years to launch its first mass-market product. It took Rivian twelve years to launch a product of any kind. While we need to keep making investments in that kind of innovation, we can’t just sit around and wait for it to mature. We also need to create the software that can be developed faster and deployed more broadly across industries, sectors, and climate tech assets.

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A.I. will accelerate the digitization of climate solutions.

Recent advances in A.I. present a generational opportunity for rapid innovation across all sectors. These advances will have at least three broad impacts on climate tech:

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• A.I. will open up new sectors of climate tech to rapid digitization. With the introduction of chat user interfaces, A.I. will increase software adoption where it’s historically been difficult. Users will be able to interact with software through conversation instead of an application. The friction of digitization will go down; the rate of digitization will go up.
• A.I. will make the under-digitized sectors of climate tech ripe for disruption. In most industries, A.I. will benefit incumbents, who have more data to train A.I. models on and larger customer bases to test with. But the under-digitized sectors of climate tech lack such incumbents—a huge opportunity for disruptive startups.
• A.I. is exponentially lowering the cost of building software. An investor recently declared: “There will be a billion-dollar company built in the next five-ish years that has one to three people, tops.” Equity-light climate solutions have the potential for extraordinary value creation: exponentially decreasing costs to create software for exponentially growing hardware.

Now is the time to invest in equity-light climate solutions.

They present a massive, differentiated opportunity. For many years, several climate sectors, particularly energy and transportation, weren’t big enough for venture-backed software businesses. They are now—and will only continue to grow, with unparalleled support from both the public and private sectors. It’s estimated that in order to reach net zero by 2050, cumulative capital spending on physical assets will be $275 trillion. We believe equity-light businesses can capture 10-20% of that. Virta intends to back the winners—hopefully dozens of the 300 ‘decacorn’ and 1,000 ‘unicorn’ climate tech companies expected to emerge by 2030.

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Equity-light businesses are more capital efficient than hardware and are more likely to survive challenging macroeconomic environments, at a time when capital is scarce at all stages of venture. Launching a startup in today’s environment is not for the faint of heart, and today’s founders are more dedicated and driven, highly convicted and motivated: very few “tourist entrepreneurs”.

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Virta is uniquely positioned to execute on this thesis.

We bring deep experience both operating and investing in equity-light businesses across our target sectors. We are perfectly positioned to identify, invest in, and support the best founders in this space. We’re extremely excited about the first round of entrepreneurs we’ve backed, and we’ll continue to add innovative climate tech startups to our portfolio in the coming quarters.