Daniela Vargas, Social Capital | Investing in Climate Tech: Evaluating Markets, Validating Ideas, and the LatAm Opportunity

The audio and video are in Spanish. These notes are a translation.

Until a few years ago, climate change was a field where only governments and corporations played an important role. But recently, startups in different sectors such as energy and Agtech have started to play a more leading role. In fact, in 2021 and 2022 alone, more than 100 billion dollars was invested in climate technology companies worldwide.

Today I spoke with Daniela Vargas, partner at Social Capital, an investment fund specialized in technology applied to the energy, climate, and science sectors, and which was founded by Chamath Palihapitiya.

Before Social Capital, Daniela worked in McKinsey’s sustainability practice and was part of the founding team of mckinsey.org, an incubator of solutions to social problems such as sustainability.

We talked about the climate tech market and the challenges of investing in it, how to evaluate a market’s potential, and how to validate a technology. We also talked about climate tech opportunities for startups in Latin America.

Youtube Timestamps*

[1:56] - Intro to the Climate Change Market

How did Daniela arrive at the fascinating world of startups and climate tech?
Chamath Palihapitiya, founder of Social Capital, started learning about climate change and the energy transition 3 years ago and hired McKinsey to do a study on the technologies and the market, in which Daniela took part. What are the main areas, whether batteries, energy, materials, and so on, and the most striking findings of that research?
There are no incentives for a large company to invest in climate technology and sustainability. Unless it is because of mandatory regulation. How does Daniela think about market formation in climate tech? How does she evaluate market attractiveness?
Chamath said multiple times that the next trillionaire will be an entrepreneur in the energy transition. What is so interesting about the energy market, and how should an entrepreneur think about this market?
How does Daniela evaluate the potential growth of a market or even the “creation” of a market in climate tech?

[25:14] - Investing in Climate Tech

Between 2006 and 2011, more than $25 billion was invested in climate-focused startups. However, around 90% of those investments failed to return the initial capital. Why does Daniela think that first wave of investment in climate technology failed or did not live up to expectations?
What has changed in the last 5 years that has captured so much interest from investors, including Social Capital? And why does Daniela think this time will be different from the first wave?
If she had to draw a timeline of the climate tech sector on a PowerPoint slide, what have been the most relevant advances and perhaps the reference companies that have brought us to the current era of climate tech?
How long can the development of these technologies take until they are ready to be commercialized? And at the moment of investing, how does Daniela evaluate Product Market Fit when there may be no sales traction or customers?

[43:12] - Impact in Latin America

Given the high capital requirement and the fact that regulation or incentives for clean technologies still do not exist, what opportunities are there for climate tech startups in Latin America? Are there problems or dynamics where a local startup can have an advantage of closeness to the customer, operations, go to market, and so on, in order to compete with global startups?
Let’s say Daniela is forced to quit her job and start a climate change startup: How would she approach the challenge? What things would she focus on? What would be a good mental model for creating a valuable company based on climate tech?

[1:06:00] - Rapid-Fire Questions

If she had to start a company from scratch, what is the main piece of advice Daniela would give herself?
What has been the most influential book on Daniela’s path through the world of startups?
Changes Daniela would like to see in Latin America’s startup ecosystem