Pale Blue Dot has launched its second venture fund, New Private Markets has learned, pitching a strategy that involves investing in the software that supports a low-carbon economy.
Fund II has a target of “around €100 million”, according to a source familiar with the matter. It will invest in companies between seed and Series B stages. Pale Blue Dot declined to comment on fundraising.
The new fund is a successor to the firm’s €88 million debut, which closed in 2020. Fund I’s LPs included several generalist venture funds including Atomico and Spotify founder Daniel Ek’s fund Prima Materia; Union Square Ventures’ Albert Wenger and Creandum’s Staffan Helgesson also invested on an individual basis. Most of Fund I’s LPs are backing Fund II too, the source said.
The sophomore fund will primarily invest “climate software” – software supporting the decarbonisation of industries and the adoption of green solutions – a sector that made up 70 percent of Fund I. The remainder of Fund I has been invested in climate-related deeptech start-ups and “hardware” (companies producing material low-carbon products).
“Climate software is an important stack of the technologies needed to address the climate crisis in a data-driven and cohesive way,” Fabian Heilemann, co-founder of family office Pirate Impact, an LP in Fund I, told New Private Markets. “Climate software delivers the insights that decision makers need to act upon, [such as] carbon accounting and management and supply chain [management], and provides the basis for functioning carbon markets.”
The firm’s focus on software is unusual among climate venture funds. In Pale Blue Dot founder Heidi Lindvall’s own words: “A lot of the climate tech funds are looking more at the hardware because there’s been a gap there [since the cleantech bubble].” But software also has a part to play in decarbonising the economy, Lindvall argues. “There are hardwares that can do the heavy lifting, like [engineered] carbon removals, but we also need to decarbonise every sector. The software layer is in every sector. There is a lot of software to help sectors run more efficiently or to show what the more sustainable options are.”
Pale Blue Dot invested in a software-as-a-service company to improve the efficiency of steel factories, for example. While green steel production methods are still nascent and have yet to disrupt the existing carbon-intensive steel industry, this technology could reduce the relative emissions of currently operational factories.
The software focus involves applying existing software technologies to climate problems, rather than seeding “brand new technologies”, says Lindvall. “To build a SaaS platform for making steel manufacturing more efficient, you don’t necessarily need to have domain expertise in how to build a SaaS platform.”
The software sector is dominated by generalist venture funds, says Lindvall, but she believes Pale Blue Dot’s climate focus gives it a better eye for climate applications that will scale – which is why several generalist venture funds and managers invested in Fund I. “Generalist VCs hadn’t gone so deep into understanding the carbon markets or how regulations are going to change our sector. We had a bit of a head start with our strategy.”
These LPs “are benefiting from us looking into this [sector], identifying trends and trying to share our knowledge. It’s part of our strategy to educate the follow-on investors on this space so they are interested in [acquiring] our portfolio companies”.
Atomico did not respond to requests for comment prior to publication.