July 15, 2024
Why these investors think saving the trees isn’t just for protesters anymore

For more than 25 years, ecologists have been desperately trying to prove the economic worth of the world’s ecosystems, hoping that a markets-based approach would slow the destruction of the natural world. Forests, the world’s largest terrestrial ecosystem, have played a central role in that. People have long valued them for their lumber and the animals they harbor. Now, scientists are asking the world to value them for more than that.

The approach has had mixed results. Forests have been protected or restored to varying degrees to prevent flooding, capture and store carbon, halt the spread of deserts, and preserve biodiversity. And yet, every year, people continue to cut down an area the size of Kentucky.

Recently, though, a fresh crop of startups have emerged to combat the trend. Their founders have been driven by everything from first-hand experience with record-breaking wildfires to a desire to see their favorite ecosystems live past the end of the century. Along with them, a handful of investors have embraced the challenge.

The market has significant potential. Globally, forests are worth as much as $150 trillion, according to the Boston Consulting Group. Still, for companies working in the sector, finding profitable ways to conserve forests remains an uphill struggle.

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“Forests suffer from the classic tragedy of the commons,” said Bill Clerico, founder and managing partner of Convective Capital. “So many of the benefits they provide are shared by all of us and are hard to directly quantify.”

Still, Clerico and other investors think that’s left the door open to new approaches. Much of the interest in forests over the last decade has centered around carbon credits. To offer those credits, forests that are conserved or restored need to be assessed and monitored to ensure that the forest remains intact and sequesters carbon at the anticipated rate. It’s a laborious and time-intensive task using existing methods, and in some cases, that data hasn’t been reliable in some cases.

Boosting the use of technology in legacy industries is a proven playbook for venture capitalists, in part because gains are easier to attain early in the adoption curve. “Given the enormous amounts of acreage and labor involved, technology has the promise to help make forestry far more efficient than ever before,” Clerico said.

“Data quality is the biggest hurdle in valuing forests for biodiversity, air quality and carbon sequestration,” said Duncan Turner, general partner at SOSV and managing director at HAX. “The high-fidelity ground truth data being collected from the newest crop of forestry startups is going to enable forest growth monitoring and projections at a quality and level that was previously unachievable for cost reasons.”

Still, many startups today depend on a robust and trustworthy market for carbon credits. “We are very worried about carbon scams creating a negative impact on the markets,” Turner said.

Even if those markets are able to stabilize and grow, they still pale in comparison to the forests’ economic value derived from other uses like lumber and conversion to farmland. “So far, all business models look at forests as assets or a harbor for assets. We ‘mine’ forests,” said Hampus Jakobsson, general partner and co-founder at Pale Blue Dot. “The issue is that at the same time, we need them for sequestration.”

The hope is that improving data quality and cost-effective monitoring will help increase the value of a conserved or restored forest, helping to offset the advantage that other uses provide. The shift couldn’t be more timely.

“Forestry tech is at an inflection point right now,” said Maren Bannon, founding partner at January Ventures. “As the planet heats up, the need for technology applied to forest conservation is becoming more pressing than ever.”

Maren Bannon, founding partner, January Ventures

What is your investment thesis for forest conservation and management tech in 2024?

The forest conservation tech space has suffered challenges related to validating and providing accurate data. Although you could view this as a red flag, I see it as an opportunity. We’ve been investing in forest tech for the last few years and think teams that can address the need for accurate, trustworthy data will be the winners.

I think forestry tech is at an inflection point right now. As the planet heats up, the need for technology applied to forest conservation is becoming more pressing than ever. The devastation due to forest fires across the globe, from California to Canada to Greece, puts the problem front and center and makes it harder for all of us to ignore. At the same time as the problem has intensified, advances in artificial intelligence, machine learning, cameras, drones and 5G connectivity are enabling innovative, step-change solutions to be built.

Which startups do you think are the most interesting in the space today? Which show the most promise for long-term growth?

We have invested in two startups that are quickly becoming leaders in the forestry tech space.

Treefera is an AI platform that delivers data on trees for financial institutions, land owners, carbon analysts, governments and NGOs.

Pano AI offers a solution for wildfire detection using AI to help identify and extinguish new fires before they become a threat. Harnessing the latest developments in cameras, 5G connectivity and AI, Pano provides real-time intelligence to coordinate rapid response to wildfires before they escalate. Its customers include utility companies, government agencies and insurance companies.

How well do the economics of forest conservation and management tech scale?

While governments and nonprofits play an important role in restoring biodiversity and fighting climate change, there are also massive opportunities for commercial solutions to restore and protect forests. Forestry tech startups need to create products that customers urgently need, and just as importantly, have the budget to pay for.

People have been trying to use market economics to conserve forests for decades with limited success. Why is it different this time?

A confluence of factors makes this the right time: the warming planet, regulatory changes and recent advances in AI. As AI makes it possible to ingest and analyze large data sets, it enables forest conservation tech products to be deployed at scale.

What are your views on marketplaces for carbon credits derived from conserved forests and/or restored forests?

Marketplaces for carbon credits can only be successful if the underlying assets are verified. Unverified credits lack accuracy and trust, thus driving opaqueness and price disparities in the market.

We’ve spent over a century suppressing wildfire. There’s a lot of infrastructure, resources, and inertia behind the current approach. When do you think that can change?

When combating the wildfire epidemic, we need to look earlier than just suppression and instead focus on prevention of the root causes of wildfires.

Bill Clerico, founder and managing Partner, Convective Capital

What is your investment thesis for forest conservation and management tech in 2024?

Convective Capital is focused on technologies that can impact our wildfire crisis. One of the most critical jobs to be done in wildfire mitigation is forest management — essentially undoing the last century of harmful management practices and the interruption of the natural wildfire cycle. Driven by the wildfire crisis and record levels of funding in the Inflation Reduction Act and Bipartisan Infrastructure Bill, there is a renaissance happening in the ways we think about forestry.

Which startups do you think are the most interesting in the space today? Which show the most promise for long-term growth?

Burnbot uses robotics and AI to scale forest management and fuel treatment. The company has strong commercial traction with utilities and the U.S. Forest Service, and an experienced second-time founder.

Instinct Environmental makes forest sensor technologies built for collecting data in remote environments.

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