It’s a truism in the climate tech world that hardware is paramount. After all, you can’t curb carbon pollution without fixing cement, steel, hydrogen, and more. But as with anything today, hardware is just part of the equation.
“In almost every case, hardware is going to be developed with software in mind,” Vaughn Blake, partner at Blue Bear Capital, told TechCrunch
It’s why Blue Bear Capital is taking a software-centric approach — one that, even if it’s not contrarian, swims against the prevailing currents in climate, industrial, and energy investing, where funds that invest in hardware or a mix of hardware and software tend to dominate.
“We think the impact potential of digital solutions and applied AI is tremendous,” said Ernst Sack, partner at Blue Bear.
Take, for example, a solar company, he said. Like any hardware, solar farms encounter equipment problems that can limit power production. But, Sack said, if an operator is able to use a monitoring service like Raptor Maps, a company Blue Bear is invested in, it could help them minimize losses.
“Take 10% just as a round number,” Sack said. “A company like Raptor Maps is deployed across over 100 gigawatts of solar generation capacity, and a 10% of performance improvement is 10 gigawatts. That’s roughly equivalent to 10 billion of cap-ex and something like three to five coal-fired power plants or nuclear plants.”
Sack, Blake, and their colleagues see opportunity beyond traditional climate-friendly technologies like solar. “The applicability of AI is so universal,” Sack said, citing wind, water treatment, refrigeration, steel, cement, chemicals production, and marine and aviation logistics.
“So many parts of the world economy have an energy intensity where, if we were to build a physical, hard asset or a hardware company, it can almost always only serve one narrow vertical. Maybe a big vertical, but it’s a vertical. Whereas software is really universally applicable.”
To invest in that thesis, Blue Bear recently raised a $160 million third fund. Limited partners include the McKnight Foundation, Rockefeller Brothers Fund, UBS, Woven Earth Ventures, and Zoma Capital along with executives from private equity and infrastructure funds.
Blue Bear borrows a bit from those LPs’ approaches to investing, bringing more of a later-stage strategy to earlier-stage investing. The fund is reserving twice as much money for follow-on investments as initial checks; for the typical $5 million check Blue Bear plans to write, it’s holding another $10 million for additional investments to maintain ownership. The fund expects to invest in about 15 companies, Blake said.
By keeping the portfolio small, he added, the fund is hoping that it can help more companies make it to an exit.
“The model through which we invest understands and presupposes that IPOs are going to be less likely in the markets in which we invest,” Blake said. “And M&A, whether that’s strategic or private equity-backed, are much more likely.” As a result, each successful exit might be smaller than the usual outsize numbers that many venture funds target, but in aggregate, he said they hope to deliver similar returns for LPs.
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Defense tech funding just reached a new high. Defense tech startups have raised almost $3 billion so far in 2024, according to Crunchbase. This surpassed the previous record from 2022 of $2.6 billion.
It’s an impressive feat, especially considering the number of deals has shrunk: in 2022, there were 113 defense tech rounds, outpacing 2024’s 85 rounds.
The record is buoyed by a few monster rounds this year, like weapons manufacturer Anduril, which raised a $1.5 billion Series F in August and Saronic Technologies, an autonomous maritime vehicle company founded by Anduril alumni, which raised a $175 million Series B this year. Additionally, defense infrastructure startup Chaos Industries raised a $145 million Series B this month.
Europe’s defense tech scene has grown by leaps and bounds this year as well. German AI weapons startup Helsing raised a whopping about $487 million this year. And PitchBook reports a spike in new Europe-based defense tech venture firms, like Ukrainian D3 Venture Capital, Lithuanian Scalewolf, and British Twin Track Ventures.
“We are living in an increasingly dangerous world,” said Mikolaj Firlej, general partner of Europe-based Expeditions Fund, to PitchBook. “Many are now feeling a sense of urgency and mission to use money and networks to invest in early-stage companies that could move the needle and help protect us.”
The defense tech boom shows no sign of abating: defense investors and founders are reportedly expecting the new White House administration to provide even more opportunities for startups offering new technologies in everything from space and aeronautics to weapons and surveillance tech.
“The close relationships between [vice president-elect] Vance, Elon and the defense VC and startup ecosystem will create a huge opening for real defense acquisition reform and widening of the number of players,” Nathan Mintz, cofounder of electronic warfare startup CX2, told Forbes.
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Insurance has been fertile ground for artificial intelligence innovation, working as it does at the nexus of giant datasets, risk assessment, predictive analytics, fintech and customer service. Federato, a startup riding that momentum, has now raised $40 million to expand its business: an AI-powered underwriting platform to help insurers better understand and respond to risk.
Stepstone Group is leading the round with previous backers Emergence Capital, Caffeinated Capital and Pear VC participating. The startup has now raised $80 million in total. It is not disclosing valuation, CEO and co-founder Will Ross confirmed in an interview that it was a “serious, significant upround” that was multiples bigger than its previous valuation.
For some context, Federato’s last valuation was $125 million based on a fundraise from last year. Further context is that Duck Creek, one of its competitors, was snapped up by Visa Equity for $2.6 billion in 2023. The latter company offers a wider set of SaaS for insurance companies, it does show you directionally where the valuation for a lucrative AI product aimed at this sector could go. (Insurance, globally, is estimated to be one of the biggest industries in the world, totalling multiple trillions of dollars in value, with underwriting one of key areas where AI is expected to play a major role.)
Federato was co-founded by Will Ross (CEO) and William Steenbergen (CTO). Ross was one of the early employees at the Watson group at IBM, where he worked on the deal to buy the Weather Company and leverage the data from there to build environmental models. Later he went back to graduate school at Stanford, where he met the other William (Steenbergen).
It was 2021 and AI was already all the rage (January 2021 was the month OpenAI released Dall-E, its image generator). But it was already being positioned by many as a replacement for repetitive work.
“We had a shared thesis that AI could better be applied to optimizing what no human could do or had time to do, versus automating away low value tasks,” Ross said. “The analogy here is Uber, DoorDash. These are consumer companies, but they solve a problem no human had the time to effectively solve. And those tend to look like these optimization problems.”
Ross was in the business school, and Steenbergen was in working in computational and mathematical engineering. “We were actually collaborating on a very different project, a wildfire modeling project,” Ross continued. “And we started to get to know the insurance industry, because they were interested in the wildfire modeling.”
That in turn led the pair to thinking about the wider challenges in insurance: typically when insurance companies are working through an underwriting process and coming up with how to cost a product against the risk around it; or even what products to build at all, there will be a team in-house bringing together vast amounts of data both directly and indirectly related to potential insurance scenarios, crunching numbers to get better insight and make more informed selections. Federato’s solution, which the company calls RiskOps, provides decision support around that process.
The startup claims that customers see 90% improvement in “time to quote” (how long it takes to give a quote on a particular service in aid of winning a sale) among other efficiency improvements.
The pair’s initial foray into modelling wildfires led to one of its early customers, Kettle: a reinsurance platform that has up to now mostly focused on one market, California, and one big problem: reinsurance and fire catastrophes, a big issue in the state. It also counts larger companies like Nationwide among its customers.
While speed is definitely something that AI brings to bear in its work, another important aspect here is how it is used to evaluate large amounts of data, an important part of the diligence that insurance companies must go through in their work.
“We are in the land of Facebook, and moving fast and breaking things,” Lotti Siniscalco, a partner at Emergence, said. “But in insurance you cannot do that.”
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