Tag Archive for: venture capital

Carbon credits in Brazil: I’d invest my own money

Yesterday I spoke with an investor focused in climate tech and once again I got highly excited with the sector. In particular, my eyes sparkled with the potential of carbon credits in our region. You may have already heard that carbon credits are the future and that Latin America and Brazil, in particular, have an enormous potential for it. If that’s the case, can cleantech and carbon credits lift Brazil’s relevance and positive impact in the world? I believe so, and have just prepared a basic download on the theme.

What are carbon credits?

Carbon credits are a type of tradable permit that allows organizations and countries to offset their greenhouse gas emissions by investing in carbon reduction projects. In recent years, Brazil has emerged as a key player in the global carbon credit market thanks to its large tracts of forested land and commitment to reducing deforestation rates.

Brazil’s potential

Brazil is home to the largest rainforest in the world, the Amazon, which covers around 60% of the country. Deforestation rates in the Amazon are a major issue with policies and their enforcement varying by the focus and philosophy of the federal government. Nonetheless, with its abundance of land Brazil has become one of the world’s leading producers of carbon credits, with the potential to generate billions of dollars in revenue. More specifically, according to the Brazilian government, the country’s forest conservation projects have the potential to generate up to $10 billion per year in carbon credit revenue.

Who buys it?

One of the main drivers of carbon credit demand in Brazil is the European Union’s emissions trading scheme, which allows European companies to offset their emissions by purchasing credits from eligible projects. Brazil’s forest conservation projects, which prevent deforestation and promote reforestation, are among the most popular types of carbon credits in the EU market. In 2020, Brazilian projects sold 27 million carbon credits to the EU, generating around $500 million in revenue. Other countries, such as China and the United States, are also emerging as significant buyers of Brazilian carbon credits.

How much?

The price of carbon credits can vary widely depending on market conditions and the type of project. Forest conservation projects, which are the most common type of carbon credit project in Brazil, typically sell for around $5 to $10 per ton of carbon dioxide equivalent. However, prices can be higher for projects that have additional benefits, such as promoting biodiversity or providing economic benefits to local communities.

Local benefits

The potential benefits of carbon credits in Brazil are many. Firstly, carbon credits provide a financial incentive for forest conservation and reforestation, which can help reduce deforestation rates and protect biodiversity. Carbon credits can also provide a source of income for local communities, who can sell their carbon credits to generate revenue.

Further, carbon credits can help Brazil meet its climate targets under the Paris Agreement. Brazil has committed to reducing greenhouse gas emissions by 37% by 2025, compared to 2005 levels, and carbon credits can play an important role in achieving this target. By generating carbon credits, Brazil can offset some of its own emissions, while also helping other countries meet their emissions targets through the purchase of credits.

Challenges

Despite the potential benefits, there are also challenges associated with carbon credits in Brazil. One major issue is the risk of fraud and double counting, which can occur when multiple parties claim the same carbon credit. Additionally, there is a risk that carbon credits can be used as a substitute for more comprehensive climate action, such as reducing fossil fuel use and promoting renewable energy.

I’d invest my own money

Overall, carbon credits have the potential to provide significant economic and environmental benefits in Brazil. Climate tech and clean tech are major investment trends and I am personally extremely bullish, meaning that I would bet my own money on it: on top of believing that I’ll generate strong financial returns I just love seeing the deployment of capital for the creation of shared value. I see more and more dedicated capital coming to the region and startups such as Mombak and Musa are inspiring examples of climate-focused startups.

Leading with less: the benefits of executing with scarcity

Nobody wants to go through it, but when we’re forced to, it turns out to be for the better. The reality is that, for the venture world, most of the new generation of entrepreneurs and investors have been educated in a time of abundance, with easy access to capital.

Raising round after round within six to nine-month windows became the norm. When money is easily found, it is also easily spent. During times like these, offices became nicer, overhiring was a common practice, and there was little concern over customer acquisition costs. Incentives were used to retain customers, as we know from the large number of coupons offered by companies like Rappi and Uber. Have you heard of the term VC2C? Well, it stands for Venture Capital to Consumers, which reflects the scenario I just described.

Now, the tide has changed dramatically, and those who can adjust with speed and a positive attitude will benefit the most. If you’re starting afresh, it’s easier because you won’t have to change habits. If you’ve raised in 2019-21, it will require more effort, but it should pay off. It’s important to keep in mind that Venture Capital money only came into place in the 1960s in the US and became more popular in Latin America around 2010. Before then, companies were created out of founders’ capital and with a lot of sweat. Entrepreneurship has always been a reference to hardship, resilience, and resourcefulness. Today, I spoke with a founder who is going through this process, and in her words, “We now have the mindset we had prior to fundraising. We’re doing a lot with very little.” Now that she has a plan in place and has accepted that she will not raise any time soon, she is energized and driven to make her company happen (this was not the case when she was trying to fundraise unsuccessfully). So, let’s go to the quick list of benefits of executing with scarcity:

Resourcefulness and creativity: This means finding creative ways to stretch your budget and make the most out of every opportunity. You will have to learn how to prioritize your spending and focus on the areas that will generate the most significant return on investment. By doing so, you will develop a keen sense of resourcefulness that will serve you well throughout your business journey. My recommendation is always the same: for early-stage startups, the goal should be finding product-market fit, which stands for having growing customers who are consistently engaged and paying for a product or service.

Agility: When you don’t have the luxury of a large budget, you have to be nimble and adaptable. This means being able to pivot quickly when a product or service is not performing as expected or when the market shifts. This also means making adjustments to team size and profiles quickly. With limited capital, your decisions must be swift. This will create a culture of strong performance that, if well-managed, will retain and attract those who are willing to fight with you over the long run. Of course, always communicate candidly and warmly.

Focus: Running a startup with little capital can help you maintain focus on what is truly important. When you have limited resources, you must prioritize what is essential to the success of your business. This means focusing on your core business model and avoiding distractions that can lead you astray. Priorities should be discussed on a weekly basis with the leadership team and on a monthly basis with the company at large. I recommend following the funnel model: start with the purpose of the organization, go to values, dive into goals, and then highlight the priorities needed to achieve these goals. People need to be reminded again and again why they’re there, what they’re trying to accomplish, and how to do it.

Let’s end with an old and reassuring note:

“A smooth sea never made a skilled sailor.”

Franklyn Roosevelt