Investors warm up to climate tech

To the ordinary person, this plant is nothing more than a consortium of large steel poles and tanks constructed together for battery recycling. However, within the electric vehicle (EV) and climate tech industry, this LFP recycling plant can be considered revolutionary — it uses the world’s electrochemical redox method to recycle LFP batteries.

The incredibly nascent but ever-growing battery recycling industry has struggled to find a cost-effective and environmentally friendly alternative to the one commercially available today. But Neu Battery Materials, a start-up founded and headquartered in the city-state, is ready to change that.

The electrochemical redox method consists of a two-part process. It processes “black mass” or material recovered from crushed LFP batteries at the end of their roughly 10-year lifecycle. Two byproducts are produced: green hydrogen and lithium.

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Neu Battery Materials’ Oh: There are a lot of tailwinds behind what we’re doing as a climate tech start-up. Not just from governments but also from the capital side. Photo: Neu Battery Materials 

Bryan Oh, co-founder and CEO of Neu Battery Materials, says the proprietary redox chemical process, which is patented, first breaks down the black mass. The compound then undergoes electrolysis to form battery-grade lithium hydroxide and hydrogen.

“The redox chemical process is very important because it enables the regeneration of its property after lithium is extracted,” says Oh. This allows the constant and continuous processing of black mass without the need to add more chemicals, therefore cutting out any treatment of wastewater, the CEO elaborates.

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Their patented process requires electricity as its only consumable and utilises regenerative chemicals to avoid toxic waste and harsh acids. As a result, battery-grade lithium is produced, which can be supplied back to battery manufacturers.

“So you actually reduce the cost of recycling and environmental impact of mining and recycling, which is why today, our process is actually five times lower in carbon emissions than the traditional recycling process,” Oh says.

Neu Battery Materials says that at scale, a full recycling plant using its electrochemical technology will mitigate 382,000 tonnes of carbon dioxide for 300,000 tonnes of processing capacity. At present, the semi-commercial plant, which can handle up to 200 tonnes of black mass a year, produces five times less CO2 emissions, uses 18 times less energy and consumes 28 times less water than incumbent solutions.

Today, few methods exist to recycle batteries. The most commonly used and already commercialised among some of the top battery manufacturers globally is hydrometallurgy, which treats black mass with acid until metals are dissolved. The process, however, is highly capital-intensive and consumes large amounts of energy while resulting in the creation of environmentally harmful byproducts.

Other methods include pyrometallurgy, a process where metals are smelted to recover valuable materials, and mechanical recycling or disassembly. Many companies that offer such recycling services exist in North America and Europe and are at technology readiness level (TRL) 7–9, a scale used among manufacturers to describe how ready a technology is to be deployed.

“We have reached a point where we have ironed out all the kinks in this [recycling process],” says Oh. “And we’re actually getting more [black mass] materials than what we can process today because LFP is a very interesting story.”

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In Redwood Materials' recycling facility, batteries from used mobile phones, tablets and other consumer electronics are removed and recycled. Photo: Bloomberg 

Golden opportunities buried in e-waste 
EVs are projected to hit 40% of global car sales by 2030, up from around 15% in 2023, according to the International Energy Agency (IEA). But the process of mining, refining and assembling EV batteries is environmentally damaging. With growing sustainability concerns, Boston Consulting Group (BCG) predicted a year ago that the EV battery recycling industry will expand exponentially in the coming years.

Already, the world has extracted some 700 million tons of copper from the earth to meet its clean energy goals. It will have to mine as much again in some 20-odd years, as the IEA estimates that global demand for cobalt for EVs alone will soar to five times what it was in 2022. Demand will be 10 times higher for nickel and 15 times for lithium.

“The prospect of a rapid increase in demand for critical minerals — well above anything seen previously in most cases — raises huge questions about the availability and reliability of supply,” the agency warns.

While recycling batteries is just one circularity option, the economics of other alternatives like battery repair are not favourable, especially for batteries that are dominant today, which are high in nickel and cobalt, says BCG. “We believe that technological improvements and economies of scale will continue to favour recycling as the preferred circularity strategy,” the BCG report concludes.

Yet, a few key problems make the LFP battery recycling space nascent. For one, nickel manganese cobalt (NMC) batteries, the denser battery alternative to LFP batteries used in EVs today, are the preferred battery to recycle as they contain more precious materials like nickel and cobalt.

The only “valuable material” extracted from LFP batteries is lithium, and the price of black mass is often volatile as it is tied to the availability of valuable materials found in the battery.

This makes it difficult for battery recycling operators to decide whether they want to commit to an LFP battery recycling facility, which would require huge capital expenditure for little value, says Oh.

LFP batteries are becoming increasingly prevalent in EVs worldwide. Manufacturers like Ford, Mercedes-Benz, Rivian, Tesla, and others are now offering these packs as an alternative to or an outright replacement for NMC batteries.

According to BloombergNEF’s analysis, the key benefit of LFP batteries is that they cost significantly less, on average about 30% cheaper than NMC cells. However, the biggest disadvantage is that LFP batteries are less dense and offer fewer kilowatt-hours of capacity compared to NMC cells.

Lithium-ion phosphate (LFP) batteries, the less dense alternative to the widely used nickel manganese cobalt (NMC) batteries for EVs, are growing in market share. Now, they take up about 30% of the EV battery market, up from 6% in 2020. Photo: Bloomberg 

Today, LFP cells take up more than 30% of the EV battery market, up from the mere 6% in 2020. Oh from Neu Battery Materials says that this global LFP battery growth has resulted in the company getting more materials than what their recycling plant can handle today.

“Inquiries for LFP recycling are global and our clientele today actually comes from [all] around the world, so volume picks up quite fast,” says Oh. As of December, the factory floor of Neu Battery Materials in Jurong is storing over 350 tonnes of black mass, nearly twice the amount that the plant can process in a year.

Now, Neu Battery Materials is in the midst of raising its series A round. In order to become a fully profitable company, the company needs a bigger facility, says Oh. The fresh round of funding will allow the team to build a plant that can process up to 2,600 tonnes. Eventually, Oh plans to build a commercial facility of up to 300,000 tonnes outside of Singapore.

Already, the start-up is speaking with investors within its value chain — mining companies, automotive original equipment manufacturers (OEMs) and even recycling companies — and many have expressed interest in participating in the start-up’s growth.

Climate tech — the latest cash grab 
Battery recycling start-ups are the latest type of trendy “green” start-up to exist amid the growing investor appetite in the deep climate tech industry. Although capital flows in the venture capital (VC) ecosystem continue to trend downwards, climate tech investment has held up strongly in the US, buoyed by the Inflation Reduction Act and other policy measures, says PwC this December.

The PwC report states that start-ups operating in the energy sector increased their share of climate tech funding, and AI-centred climate ventures raised US$1 billion more in the first three quarters of 2024 than they did in all of 2023.

The industry is anticipating which climate tech start-up will file for an IPO in the US. Redwood Materials, a battery materials recovery company that raised US$1 billion in series D at a US$5 billion valuation, is a hot contender.

Closer to home, there has been a bigger push for more climate and deep-tech start-ups from government agencies such as Enterprise Singapore (EnterpriseSG), the National Research Foundation (NRF) Singapore through A*Star, Temasek-linked agencies and even local universities, says Melvyn Yeo, founder and managing partner at Trirec VC.

We are very clear to our LPs that, first and foremost, we drive investment returns, and they cannot be subpar, says Yeo of Trirec, a firm that invests in start-ups that decarbonise. Photo: Trirec 

Trirec is a VC firm with a specific mandate to invest in companies around the world that focus on decarbonisation. Since 2015, it has invested in more than 20 companies across three funds, over five verticals — energy, mobility, built environment, food and agriculture, and hard-to-abate industries, which Yeo says produce the most greenhouse gases.

“There is a realisation and acceptance that you need the deployment of deep tech to achieve a meaningful impact on addressing greenhouse gas emissions reduction. Software and AI serves as enablers in the process, less so effective primary solution for the issues,” says Yeo.

While most investors might think that investing in climate-related projects or projects that “do good” will not materialise in any returns, Trirec remains one of the top-performing firms in the region.

From the beginning, Yeo and his partners have promised their investors that they drive “more than market rate returns”. “Performance is our only KPI,” says Yeo. “Our thesis from the offset was to try and positively drive the climate change agenda by investing in entrepreneurs and technologies that are fundamentally sound businesses in order to derive investment returns that are ideally more than market rate.”

As it stands, Trirec has a reasonably impressive record. Its first fund, which closed at US$75 million in 2022, saw three exits in Southeast Asia. Its second fund, which closed at US$80 million in 2023, saw its first unicorn, Xpansiv, a market infrastructure platform for carbon and environmental commodities, and the rise of an Israeli chipmaker called NewPhotonics which was valued at US$10 million in 2022 and is now valued at US$500 million.

Not many VCs have mandates that are this brutally defined in Southeast Asia today, but Yeo hints that this is a key reason for the firm’s success so far.

A common metric among VCs to assess a fund’s performance is to observe the distributions to paid in-capital (DPI) — the actual cash distributions a VC fund has returned to its LPs, representing realised or “real” performance.

Typically, one is “hygiene”, but according to Google, Bain & Company and Temasek Holding’s e-Conomy report in 2023, the median DPI for funds in Southeast Asia stood at 0.4 times for funds with a vintage of 8–10 years. For funds with a vintage of five to seven years, this figure stood at 0.04 times. In comparison, India saw 1.3 times median DPI for funds that had a eight to 10 year vintage; and 0.1 times for funds with five- to seven-year vintages.

It is commonplace for VCs not to reveal their DPI, but Yeo lets in on the fact that his fund is “minimally top quartile, no matter which bucket you put us in”. Many of Trirec’s peers are “generalists” who invest in start-ups that have a “hockey stick” growth trajectory, different from what Yeo’s team is used to looking at. “We are a decarbonisation fund, it’s brutally, brutally defined. That’s really important, there are many problems out there in the world to fix,” he says.

The promises of patient capital 
Like Trirec, another deep-tech climate-focused VC headquartered in Singapore called Aera VC says they have generated real returns from their pilot funds. Aera’s mandate is to back global founders developing breakthrough technologies to reverse climate change. Daniel Tan, principal at Aera says that DPI is extremely valuable for backers of the fund.

With 30 portfolio companies under its name, Aera has three unicorns. Notable among these is Solugen, a CO2-negative chemical producer backed by heavyweights BlackRock, Temasek and GIC. Another is Twelve, a company pioneering the transformation of CO2 into sustainable aviation fuel, which recently secured US$645 million in funding anchored by TPG.

“The Singapore government is very loud on climate right now,” says Tan. “With a steady rise in climate-native talents, and pro-active government initiatives that will continue to foster a robust ecosystem for innovation to thrive, Aera is preparing to raise the next fund amid growing opportunities in Southeast Asia.” Just some weeks ago, during COP29, Singapore announced that it would commit up to US$500 million to a national initiative to channel financing to decarbonise Asia.

The US$500 million from the government will come in the form of concessional funding, such as grants and loans provided at more favourable terms and below market rates, and will match dollar for dollar concessional capital from other partners, including other governments, multilateral development banks and philanthropic institutions.

Such a push from the authorities in Singapore was explained by ex-MAS chief Ravi Menon as necessary, as he said that Asia faces significant challenges in attracting private capital for decarbonisation. This is due to insufficient expertise in green project development, high upfront capital costs and long payback periods, as well as regulatory and technological risks.

Antony Warren, a first-generation wealth builder, invests 65% of his portfolio into funds and “patient capital” investments like venture builders with a focus on impact. Photo: Eden Impact 

While Singapore is home to many ultra-high-net-worth individuals (HNWI) and family offices, few have bitten the climate bullet. Antony Warren, a first-generation wealth builder from the UK, is one of them. He knew from the get-go that he wanted to do “something useful” with the assets he gained from selling off his food waste biomethane facility.

Eden Impact, which is his family office that he manages the portfolio for, invests about 65% of assets into patient capital. This is something he admits is a high risk skew towards illiquids and patient capital. A portion of this 65% are invested in funds, while others are direct investments into start-ups that create impact.

Yet since starting out in his investment journey in late 2019, Warren has yet to see any exits in the portfolio companies he has invested in. “It’s early in our journey… but when you look at venture builders, they seem to track a lot better than VC firms do,” he says.

In April, Microsoft co-founder and billionaire Bill Gates’ new investment firm, Breakthrough Energy, announced that it would partner with EnterpriseSG and Temasek to co-fund and nurture deep-tech climate start-ups with an initial seed funding of US$500,000.

That same month, a new investment platform called Decarbonization Partners, set up by Temasek and BlackRock, announced the closing of its inaugural US$1.4 billion fund focused on decarbonisation technologies.

A worker takes a sample of molten iron at a blast furnace at a steelworks. Photo: Blooomberg 

VCs will consolidate 
With a growing amount of capital commitments from private investors and governments alike, Oh of Neu Battery Materials says that there are “a lot of tailwinds” behind what they are doing as a climate tech start-up. “Not just from governments, but also from the capital side,” he says.

Yeo from Trirec agrees. There is still dry powder, or capital, to be deployed, as more deal flow is coming through in the second half of 2024 than the first.

The landscape has improved as well, notes Yeo. There seems to be a step up in terms of quality whether in terms of founder perspective, or business model and technology.

Today, the industry is witnessing more founders with the right mindset, motivation and drive. Combined with the governmental and regulatory push in Singapore, Yeo remains optimistic. “I’m bullish that this region will continue on this growth trajectory,” he says.

Yet, the entrepreneurial investor who founded Thirdrock asset management in the early 2010s, believes that the VC industry will also go through a period of consolidation as part of a “typical” business cycle soon.

He adds that investors, who account for the LPs investing in these VCs, have “many options” out there today. Specifically with US mega cap technology stocks, investors can achieve good returns without necessarily having to take on illiquidity in private market funds.

Amid market volatility and weakness, investors are also increasingly moving towards allocating into big and trusted brand name funds such as Blackstone, among others.

As a result, many first-time fund managers who raised and deployed capital in the last four years or so, beginning from 2019, might have “zombie” funds with which they are unable to return money to their investors, and raise new rounds of funding due to cautious investor sentiment.

For Trirec, Yeo says they have had a long enough track record. A first close is a testament to the investments and their track record. They have since managed to raise their third fund as well. “But yes, it is still difficult,” he says.

Meanwhile, Oh from Neu Battery Materials agrees that climate tech companies will eventually return more capital to investors. With the world’s growing mandate to decarbonise operations, there will be higher demand for businesses in the climate space tackling this problem, he says.

With “real” problems to solve, climate tech start-ups like Neu Battery Materials are poised to become profitable with existing macro tailwinds.

“I really hope that Neu Battery Materials can become a success story for Singapore to show that as a small red dot country, we actually can pioneer huge changes in the climate and sustainability space. And that even though we’re a population of 6 million, our impact goes beyond 6 million and, in this case, by recycling these batteries, we really save billions of different lives,” says Oh.

“Singapore can actually do it. We just need more attention on Singapore as an ecosystem, and hopefully, more global investors will look into Singapore as well … recently we’ve started seeing more of that, but definitely, if you take the equivalent of [what is being invested into] Silicon Valley and you put that in Singapore, Singapore will flourish,” Oh concludes.