Disrupting climate capitalism part 1: Leverage points

Audacious. Crazy. Inspired. Hippy nonsense. 

Whatever version of ‘impossible’ you may want to tack onto the notion of disrupting a global climate and impact startup financing system, that is nonetheless the job at hand. When you come to understand that venture capital is fundamentally incompatible with impact — social and environmental — then the only logical conclusion is that the system has to change.

Scratch that. The system won’t change. We need to change it. It needs, to use a term particularly favoured by venture capitalists, to be disrupted.

Disruption, or system change, does not come about easily. It is hard because, by definition, going up against an incumbent makes you the underdog. Not in the romanticised sense presented by David vs. Goliath story arcs. But in a very real sense, the system has reserves of financial, political, and cultural capital which are impossible to match. This is a big reason why so many people prefer the route of “changing the system from within.” It’s easier to swim with the current. Being within the system gives you — completely theoretically — access to those different forms of capital. But the reality is that to gain that access you need to play by the system’s rules, which in the long run only serves to reinforce the system rather than to create change. The current inevitably takes you with it.

After taking you through the narrative and evidence for why and how the consequences of climate capitalism are always exploitative, it's now time to explore strategies for disruption.

To do this, I draw on the work of Donella Meadows and Clay Christensen. 

Meadows, famous for her seminal work on The Limits to Growth, provides us with the notion of leverage points and how to use them to put pressure on an incumbent system.  Christensen, renowned for his work on The Innovator’s Dilemma, may seem at first like an unlikely ally, as his work is primarily focused on propping up the venture capital industrial complex. But his insights on how disruption happens — and how it can be engineered — will provide the perfect counterpoint and complete the toolkit.

In this first part, we will look at leverage points within the climate capitalism venture funding ecosystem.

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Leverage points can be thought of as pressure points or Achilles’ Heels. Relatively small points in a system where a change or an intervention can result in an outsized ripple effect that sends shockwaves throughout the entire system. 

All systems, no matter how entrenched, have leverage points. Venture capital is no different. 

Climate VC has three leverage points worth looking at. The first two are broadly applicable while the third is specific to climate and impact entrepreneurship. (There are more than three, but these are, I believe, the most effective.) I will now explain what they are and how they can be used.

Number 1: Herd mentality

VCs position themselves as individuals with privileged insight into entrepreneurial success factors, market forces, and future trends. In reality, very few are especially good at picking winners. Despite appearances, venture capitalists tend to chase trends, not create them. Whether it's crypto, social media, climate tech, or generative AI, investors follow the crowd, often funding redundant or derivative ideas. The fear of missing out on big payouts is what leads to so-called financial bubbles, a more palatable term than “uninformed investments at scale.”

Herd mentality is a leverage point because to change a herd’s direction, you do not need to convince every member. You don’t even need a majority. A percentage as small as 25%, at times as low as 10%, is enough to create the tipping point required for a systemic change in behaviour. 

Influencing the investing habits of a relatively small number of investors can be a tipping point for larger-scale change. (The exact what to change will become clear in Part 2.)

Number 2: Engineered scarcity

Investors often brag about how they will immediately discard your pitch deck if you don’t capture their attention in slide one. Or if you don’t stand out in the first thirty seconds of a pitch. Or any number of other limitations designed to show how they are overwhelmed with hungry entrepreneurs after their king-making powers.

While it is true that VCs receive a high volume of pitches, this is not really the problem it’s made out to be. Or, if it is a “problem,” it is one that has been created by design. The real problem for a VC fund isn’t wading through “too many pitch decks” — it is having too few.

In the VC world, this is known as the deal flow problem: the flow of pitches, or deals, landing on an investor’s desk. If that starts drying up, your VC fund is in deep trouble.

Let’s say you are a venture fund that has ten million Euros to invest in early-stage startups. You probably need to invest this money over a period of eighteen months, the quicker the better, so that your portfolio can start working and you can raise your next fund. Being focused on the early stage, you probably invest somewhere in the region of 150k per startup, giving you the ability to make around 60 investments. Only six of those are likely to be financially successful enough, given the outsized (extractive) return required, to make your fund profitable. Your worst nightmare, therefore, isn’t receiving a thousand pitches; it is receiving only a hundred, not having the luxury of choice and, consequently, the ability to dictate terms.

This perception of scarcity is created not only to keep the flow of pitches alive and well. It deliberately incentivises an atmosphere (and behaviours) of cutthroat competitiveness instead of cooperation, mutual support, and care.

The leverage point here is therefore around diverting deal flow away from applying for venture funding by providing robust alternatives to founders and entrepreneurs. (This is where Part 2, based on Christensen’s work, will shine).

Number 3: Exploitation of impact entrepreneurs

The leverage point here is that many entrepreneurs, driven by a genuine desire for impact, turn to venture capital and climate capitalism as the only perceived route to scaling impact successfully. Because, as mentioned, VC is a model built on rare successes, most end up failing, often burnt out and disillusioned in the process. 

The ones that do survive then go on to find that their startup’s impact has fallen by the wayside or, at best, been heavily diluted.

Ultimately, climate capitalism is nothing more than an instance of disaster capitalism: the practice of profiting from and exploiting crises. In this case, the exploitation takes place at the source by harnessing the entrepreneurial desire to do good and directing its energies towards profit extraction.

The leverage point here should be obvious: provide entrepreneurs with a meaningful alternative to finance and build impactful businesses that are designed for longevity, not exits.

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The climate crisis, the biodiversity crisis, the poverty crisis, and the various other crises comprising what has come to be known as the polycrisis have awakened in many people the desire to act for positive impact. Experienced entrepreneurs and novice founders increasingly choose to direct their energies to solving these complex problems of our time. 

These problems cannot be solved by the system that created them. 

In Part 2 of Disrupting Venture Capital, as part of the Reclaiming Entrepreneurship series, we will look at the alternatives to business creation that can put pressure on these leverage points while guaranteeing long-lasting impact.

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