Assessing a Climate Tech Venture's Value

Our Venture Value Potential metric informs investors in first-of-a-kind businesses.

Dr Aden Meinel and Marjorie Meinel with the Solar Thermal Testbed on the roof of the University of Arizona Optical Sciences center 1974 (Courtesy Donaldeosborn, CC BY-SA 3.0, via Wikimedia Commons)

Private climate tech ventures are characterized by a large number of pre-revenue companies working on products and services never commercially offered before.

Listed climate tech firms are characterized by slight near-term revenue and high cost forecasts, so profits are distant.

How should investors assess such ventures’ value and relative risk? Conventional valuation methodologies rely upon metrics like normalized profit margins, growth in free cash flows, and “discount rates” reflecting the uncertainty of future cash flows.

Because climate tech firms are usually so far behind positive free cash flows and their level of “normalized” profit margin is so unclear, they are likely best valued in the same way that venture capitalists assess prospective investments.

The problem with this approach? There isn’t much evidence that most venture capitalists are good at their jobs.