Investment Notes: CarbonHQ

Investible’s Climate Tech Fund co-led CarbonHQ’s $600,000 Pre-Seed round alongside Galileo Ventures, marking our 20^th investment from the Climate Tech Fund in under 2 years. In these investment notes, we will share insights into why we chose to invest in CarbonHQ and work with Allen Fan and Eugene Datsky as they revolutionise carbon project management!

A fast-growing market where projects are frequently managed with… Excel

For those of us in the climate technology space, we are aware of the speed at which the voluntary carbon market (VCM) is growing – a CAGR of ~30% since 2015. This growth rate is primarily driven by the increasingly ambitious commitments of companies to reduce their CO2 emissions and the accompanying pledges to reach net-zero emissions.

Carbon credit retirement, where retirement refers to “once the carbon benefit which the credit represents has taken place” and not “ceasing work to drink mojitos”, are currently at roughly 50% of the supply, but retirements are accelerating faster than projected. This suggests a squeeze may be looming if there aren’t enough carbon projects commissioned.  

These projects vary, and not all carbon credits generated through the projects are created equal. Each carbon credit is measured as one tonne of carbon dioxide (CO2) or an equivalent GHG that is or will be avoided or removed from the atmosphere; however, based on project type, there is an increased perceived risk.

Carbon crediting projects can be broken into two categories:

   1. Avoidance and reduction – activities that reduce GHG emissions

   2. Removal - activities that remove form the atmosphere

These span across nature-based solutions, renewable projects, cookstove projects and direct air capture. And, the number of developers of these projects is growing. According to Abatable, roughly 180 new developers listed projects in 2022, with each developer contributing an average of 2.8 new carbon credit projects. Agriculture project developers contributing the highest number of new projects in 2022, and there was significant expansion in cookstove development.  

What do these project developers have in common? Information overload, numerous manual tasks, including planning and record keeping across a variety of methods and standards, with most still resorting to… Microsoft Excel.  

Carbon HQ identified that project management tools are ripe for disruption in the fast-growing VCM

A unique position we get as a climate tech VC, with a global mandate, is the fact we see loads of investment opportunities. This includes an incredible number of carbon projects, credits, measurement, reporting and verification (MRV) platforms, marketplaces and more. What we saw less of? Carbon project management tools.  

That isn’t to say we haven’t seen plenty carbon project management tools. However, after utilising our due diligence methodology, which included getting CarbonHQ in front of our carbon market advisory members, CarbonHQ received some resounding feedback on their platform. While the industry is still over-reliant on excel, and larger players are often attempting to build their own solution, CarbonHQ’s automation of emission reduction calculations (forward abatement estimate) across relevant methodologies and project type was a favourite.  

Even though it’s early days, CarbonHQ has been testing their beta solution with project developers fromUganda, Vietnam, Kenya, India and the Netherlands. And this early customer traction led to the team winning the Carbon Market Digital Innovations Challenge organised by the UNCDF and the Clean Cooking Alliance in Kenya.

Think Monday.com but, with the emission reduction calculations across all your projects, document generation, carbon modelling, and inventory and contract management.  

Carbon HQ is led by a founding team who experience the pains of current solutions and have the skills to fix it

Like most early-stage investments, we are looking to go into the trenches with the right team. We ask ourselves questions, such as:

1. Do the founders have a deep understanding of the customer and the problems they face?

2. Do they have the skills to build a solution?

But Allen isn’t a product builder. Thanks to Between Work (kudos to Earlywork and Afterwork Ventures on the build of that platform)… Allen partnered with one, Eugene Datsky. As CTO and Cofounder of CarbonHQ, Eugene brings the much-needed capabilities after spending 2 decades in product development at Yandex, Jetbrains, Canva and Healthmatch.

The team have been successful in not just selling their vision to investors but have also begun expanding their team – with the team currently hiring roles across engineering and product.

We look forward to the journey ahead alongside the CarbonHQ team.