Over the past 10 years, we’ve had the privilege of investing in over 100 companies, spanning the food & agriculture, energy, and oceans sectors. It’s been a journey marked by both successes and failures. We’ve witnessed companies rise to IPOs, facilitated exits through mergers and acquisitions, and navigated secondary markets. At the same time, we've seen companies falter and learned firsthand that even the best technologies can struggle to find product market fit without the right market conditions, investor base, or strategic partners.
Our experiences have been humbling, reminding us that investing in technology and business model innovation isn’t just about capital - it’s about resilience, patience, and the ability to learn from triumphs and setbacks. Looking back on the past decade we recognize that only some companies will find success, with each investment carrying unique challenges and opportunities, just like other emerging trends including the internet, crypto, AI, etc.
2024 was a pivotal year for S2G. We are excited about the next 10 years as we build on the lessons of the last decade and embark on new challenges as an independent entity. We see a massive opportunity to invest in innovative technology and business models and to close the capital gap between venture and less-risky infrastructure-type capital. In our view, this will require a comprehensive systems approach to highly interconnected and commodity-driven sectors - food & agriculture, oceans, and energy - representing about 90% of emissions reduction potential.
What follows are the key lessons we’ve learned over a decade, shaped by our triumphs and challenges and grounded in the belief that true progress is built not just by individual companies - but by ecosystems and communities working together.
Lesson 1. A Systems Investing Approach
Technology solutions within our sectors often involve commodity markets operating on razor-thin margins, making introducing and scaling innovation difficult. Bringing groundbreaking solutions to markets that deal in calories, electrons, and molecules requires a deep understanding of the macro market forces influencing adoption, from policy and regulation to the investment landscape and shifting customer preferences. This complexity, however, has provided an opportunity for a systems-based investment approach to thrive.
Our Perspective
Understanding the unique characteristics, channels, value drivers and pace of change across the value chain of these sectors is paramount. These markets do not change in 12 or 24 months; progress can be measured in a decade or more. With a longer innovation horizon, where it can feel less like revolution and more like evolution, investors need to develop a deep understanding of the sector and look beyond the immediate investment opportunity to consider broader and long-term consequences and how they fit into the context of the value chain. This approach can generate differentiated opportunities, develop effective growth strategies and identify risks and mitigants others may overlook.
Lesson 2. Product-Market Fit in Highly Concentrated Industry Structure Systems
Companies introducing innovative new solutions in longstanding, highly concentrated industries like food &agriculture, oceans and energy, face extended adoption cycles, often resulting in costly and complex go-to-market strategies. Unlike the software industry - where technology companies are creating solutions that were not there before and can often find product-market fit with an iterative test-and-learn approach where they deploy a minimum viable product to a small audience and optimize the solution as they scale to a wider audience - these sectors face significant barriers to scaling virally.
Companies working to change existing oligopolist industries are faced with trying to change systems that have been around for hundreds of years, and they can’t test and learn in the same way on large-scale electron or molecule solutions or in a grocery retail environment. Customer discovery is critical and can be hard to obtain from a customer that needs scale, when you won’t have the scale they need for years. Whether it's new agricultural technologies or renewable energy systems, these solutions can require technical validation or the development of fit-for-purpose commercial models that can unlock value in long-standing markets. The time to market, therefore, is often longer than in technology venture sectors, and companies need to find ways to accelerate adoption while lowering the cost of goods to compete with incumbent solutions.
Our Perspective
Investing in these sectors requires understanding the long-term nature of technology adoption and market penetration. Companies with realistic growth expectations and a roadmap for overcoming adoption barriers are more likely to succeed. Successful companies will understand the industry channel dynamics and incentive structure of the incumbents and will compete with existing solutions on cost, speed, or effectiveness.
Lesson 3. Prepare for High Capital Requirements
Creating value-added new solutions in these sectors demands deep knowledge of the underlying business needs, from early-stage research and development to later-stage commercial capex. Unlike industries such as software, where capital efficiency is part of the model, climate technologies in these sectors often require significant capital, which can strain investor patience and resources. Over the last decade, too many companies have used equity capital to finance projects, like commercial-scale production facilities. In many other industries, you see project finance or developers/infrastructure firms financing these assets. This is not the case in tough tech, where it can take years to bring down the cost curve as a company progresses from raising money to afford a new facility, through to build, scaling production, and reaching profitability.
Our Perspective
Investors need to have the financial endurance and commitment to support companies through multiple funding rounds. Structuring deals with a long-term view of capital needs and burn rates is essential for success. Maximize your use of variable resources and avoid investing in companies that need to build their own assets to scale. Build relationships early with infrastructure firms and project developers. This opportunity in the market is one reason we launched our Special Opportunities strategy.
Lesson 4. Policy Plays an Important Role
Government regulations, such as those from the EPA, FDA, USDA, FERC, or NOAA, can make or break companies’ commercialization efforts. Getting regulatory approval can take months or even over a year, and companies with high burn rates that are seeking approval can put themselves out of business before they even get to commercialization. As policy landscapes evolve, companies and investors must stay informed and agile to move through the regulatory process and be prepared for regulatory changes.
Our Perspective
Leveraging regulatory knowledge and building relationships with policymakers and experienced industry consultants is crucial. Companies that are prepared to navigate or even influence policy changes are more likely to find success in their go-to-market efforts.
Lesson 5. Address Undeveloped Capital Markets and the ‘Missing Middle’
Capital markets remain underdeveloped, particularly for later-stage companies. Early-stage investments have surged, but the later-stage capital remains sparse, creating a "missing middle" in climate finance.
Our Perspective
There’s an untapped opportunity to bridge the gap between early-stage venture capital and growth-stage investment. For earlier-stage venture companies, it is important to ensure the founder(s) understand the limits of venture and early growth capital so that the company can plan for other lower costs of capital. Late-stage venture and growth investment are particularly important for companies that have validated their technology but need larger checks to scale commercially. The future lies in nurturing these later-stage companies, offering both financial capital, coaching, and strategic support.
Lesson 6. Sector-Specific Underwriting
Investing in commodity tech is not a one-size-fits-all approach. A battery storage company has a very different financial and go-to-market strategy than an agriculture business. We believe that investors who invest broadly in the climate sector should better define where they invest. Sector-specific underwriting that takes into account the unique risks, growth trajectories, and market challenges provides an advantage.
Our Perspective
Investors need to be very clear on their sector focus and avoid being “tourists” in a new, trendy sector. Understanding the unit economics, the channel relationships (i.e., the oligopolies that own these channels) and the policy drivers is critical to successful underwriting and value creation.
Lesson 7. Path to Value Creation and Exits
The buyer universe in these sectors is smaller and less cash-rich than the technology sector. For example, the market cap of the top 10 companies in food & agriculture, oceans, and energy is approximately $4.65 trillion, compared with $20 trillion in technology. Investors must find a way to be more capital-efficient for these companies to buy innovative startups and for investors to make risk-adjusted market-rate returns.
Successful exits require early alignment with company leadership on the exit strategy. Whether through strategic acquisitions, private equity, or IPOs, the path to value must be clear from the start. There are limited rinse-and-repeat management teams, and so it is critical to have a clear path to value from the jump and then be prepared to adjust your team to drive this as you encounter bumps in the road.
Our Perspective
Investors must build organizations that are prepared for various exit scenarios and maintain flexibility in navigating changes in leadership or market conditions. Stay abreast of exit valuations and the key KPIs that drive higher valuations. This information will help to drive capital efficiency in earlier rounds to avoid inflated values that don’t fit the exit markets.
Lesson 8. Ecosystem Building: The Power of Networks
Building websites was difficult in the early 2000s because companies had to write all the code in-house. Over time, an ecosystem of companies that specialized in specific services like commerce (Shopify), cloud web services (Amazon Web Services), and user authentication (Okta), along with business models like two-sided networks, freemium models, and affiliate programs grew to enable the industry to scale. We believe food & agriculture, oceans and energy are in the early stages of industry evolution, but over time we will see similar specialized service providers and new business models emerge enabling scale.
At the core of successful sector-focused investing is the ability to build and leverage robust networks. We have made building coalitions, convening industry leaders, and fostering collaborative ecosystems our core business. We have seen the tremendous value relationships can drive for our companies and our sourcing, underwriting, and value creation. These networks not only support individual companies but also accelerate broader industry growth.
Our Perspective
Build relationships, don’t just execute transactions. Building and nurturing a comprehensive ecosystem is one of the most effective ways to drive value creation and de-risk investments, particularly in concentrated sectors. Investors must proactively support portfolio companies beyond capital, helping them navigate industry hurdles and cultivate relationships with stakeholders.
Lesson 9. AI’s Role in Scaling Businesses
The opportunity for AI to advance business model innovation, operational improvements, and emissions reductions - through optimizing resource use, enhancing efficiencies, and revolutionizing product development - is significant. By using AI to execute rapid discovery and predictive models, companies can run hundreds of thousands of tests in a matter of moments, decreasing costs and increasing the chances of success.
In a world that urgently needs scalable climate solutions, AI's ability to rapidly process data and deliver predictive insights is helping to bring powerful business models and applications to market faster. We’re just scratching the surface of AI's potential to drive transformation in human and planetary health.
Our Perspective
While AI offers immense potential, investors should encourage portfolio companies to implement it in strategic and context-specific ways. Successful deployment requires tailored solutions that address the unique needs of each company, supported by robust infrastructure and timely, high-quality data.
Lesson 10. Longest Economic Mega-Trend in Human History
The journey of taking useful energy and turning it into useful materials has been a 10,000-year effort - from fire to photosynthesis to fossil fuels to whatever is next. The goal of a more productive and less volatile system of delivering useful materials is an enduring economic goal. Just like every prior moment in economic history, addressing this transition will depend on humans' ability to develop innovative solutions that scale in three sectors with the most potential for emissions reduction - food & agriculture, oceans, and energy.
These sectors are highly interconnected, commodity-driven, and policy-sensitive with commonly hard-to-abate emission challenges. As discussed above, companies innovating in this space face a capital gap between venture and infrastructure. Because they are all operating in highly concentrated industries, they can benefit from collaborative relationships with a diverse group of stakeholders. It will be interconnected, involve multiple asset classes, and should be rewarding for those with patience and a focus on productivity.
Our Perspective
We believe the next decade will necessitate a holistic approach to investing that unlocks scalable solutions at points of critical overlap between sectors, asset classes, and stakeholders in our ecosystems. Understanding these seams helps to unlock investment opportunities, anticipate market trends, manage risks, and create value-added partnerships.
Our Future: Invested in the Seams of Sector Transition
As we move into the new year with these lessons in mind, it will be imperative to understand the shifting market dynamics that have the potential to impact our companies’ go-to-market strategies. We believe that companies pursuing innovative, market-based solutions that have the potential to outperform traditional alternatives in terms of cost, speed, or effectiveness will continue to thrive. Investors who can navigate the complexities of these markets, leverage policy changes, and build strong ecosystems will emerge as key industry participants driving change.
At S2G, we are doubling down on our investment strategy - Invested at the Seams of Sector Transition - and will release an exciting evolution to our story in January. Until then, happy holidays from all of us at S2G. We look forward to continued collaboration in this new frontier of investing, offering enormous potential - not just for financial returns but for driving real, sustainable impact across the planet.
