The new updates to the European directives (CSRD and CSDD) thanks to the Omnibus package, certainly do not destabilise large companies, which are by now already ready for such reporting, but MPMIs themselves. Among these are the start-ups, which in recent years, even in Italy, have tried to innovate services and products in pursuit of the objectives of Agenda 2030.
Now European targets have changed, and so start-ups will have to keep up if they are to survive.
The phenomenon has certainly gained momentum in the United States with the arrival of the new president in the White House. Trump is following through on his campaign promises to cancel the Biden administration’s green funding programmes. Although he is facing resistance in the courts and in Congress, the rapid changes in rhetoric from companies such as start-ups illustrate the danger of relying on policies that may soon change under a new administration.
In the US, in fact, several start-ups launched to rid the economy of fossil fuels are revising their approach to be more in line with the spirit of the times. On the one hand, some companies that develop climate-friendly metals, cement, and fuel are now emphasising how their products are beneficial for national security (defence), while on the other hand, some green technology developers are looking for a niche in the hot market of artificial intelligence.
As was the case in the post-pandemic chaos, some start-ups would like to pivot their core business to survive the loss of the green funding they saw at first.
Indeed, equity funding for climate technology start-ups fell by 40 per cent to $50.7 billion in 2024, a third year of declines, according to research firm BloombergNEF.
“There is a lot of thinking and trying to anticipate the future,” said Jacob Bro, a partner at venture capital firm 2150, “Everyone is already relabelling things a bit.
And the Wall Street Journal today presents the case of some start-ups:
- Magrathea Metals: on the website of the Californian start-up, which until yesterday focused on the climate benefits of its technology – the development of a process to extract magnesium from salt water – references to decarbonisation have recently disappeared from its home page. It now warns that the shortage of domestic magnesium production is a national security emergency and states that Magrathea can provide material for products including fighter jets and drones.
- Brimstone: a start-up producer of low-carbon cement, is also repositioning itself as a promoter of domestic production. In January, the company declared that its first plant would also produce alumina, the key ingredient for aluminium. In announcing the move, it included a photo of a fighter jet and cited a Commerce Department report from President Trump’s first term, which stated that China’s dominance in aluminium production was a national security risk.
- Air Company: some time ago the company declared on its website that it ‘exists to solve a problem: climate change‘. Now that mission is no longer mentioned. The company, which is working to commercialise a synthetic alternative to jet fuel, claims to be focused on ‘global energy independence and security’.
- VEIR: a company developing superconducting wires, was founded with a plan to equip the grid for electric vehicle chargers and other new sources of energy demand in the transition from fossil fuels. Now, VEIR’s priority is to sell to the fast-growing energy-hungry data centre market.
Behold, some companies that once extolled the ecological benefits of their work are now turning to defence and artificial intelligence.
But this actually started well before the arrival of the Trump presidency. What seemed like promising bets in miraculous start-ups investing in anything related to the energy transition, from batteries to wind turbines to photovoltaic panels, are now revealing their true purpose: business. Bloomberg reports on the rude awakening and a dramatic grasp of reality that has taken giant private equity funds such as BlackRock, Riverstone Holding, and the Caisse de Depot et Placement du Quebec (CDPQ), to name a few, by surprise, while many investors are still keeping their losses secret.
And in Europe the phenomenon has already arrived. The capital raised will be diverted to innovation. Von der Leyen was clear in January with her compass for competitiveness, which focuses strongly on artificial intelligence and launches ‘a broad strategy on new technology, including AI factories to enable companies to develop models for supercomputers’.
And so the banks will also prioritise IA and defence: ‘The world has changed. And we didn’t want that. Operators in the economy know that there will be more geopolitical tensions. Within this framework, defence investments are crucial. And today defence investments are mainly investments in new technologies. We as the European Bank will play our part’. These were the words of Gelsomina Vigliotti, Vice-President of the European Investment Bank (EIB), in a recent interview.
It is precisely the EIB, which cannot finance the defence sector, that has found the loophole, the key in the concept in the phrase ‘dual use’all civil assets and infrastructure that can be converted to non-civil use (such as valves, pumps, calculators, electronics, sensors and lasers, avionics, shipbuilding, aerospace, machinery, vehicles, chemicals, metals, electrical equipment) since last May can be supported even more, through the establishment of a task force and a ‘one-stop shop’ to streamline the EIB Group’s processes and thus speed up investment and access to six billion euro earmarked for projects in this sector. In parallel, the EIB has also updated its rules for SME financing in the security and defence sector to open dedicated credit lines for a large number of small companies and innovative start-ups in need of financing for dual-use projects.
This is how, until a year ago, defence technology investments were outside the scope of venture capital. But as the international scenario has tightened, the market is changing. In fact, many VCs are precluded from investing in arms companies because their LP agreements (LPAs) often explicitly exclude certain areas (including military and porn) or because LPs are public bodies in Europe or because of the difficulty defence start-ups have in gaining traction, perhaps because of a non-unified EU military agenda in Europe. But all this has now changed thanks to the magic word dual use. And in Europe, dual use startups would be quite a few, according to Dealroom’s list.
The Rearm Europe theme therefore has a profound impact on European start-ups. One of the first signs is the emergence of new venture capital funds, some with endowments in excess of €100 million, which focus almost exclusively on start-ups engaged in the development of defence solutions, among them Keen Ventures, Superangel and Outpost Ventures, for example. These technologies, ranging from hardware to software, are intended to concretely support the European rearmament project, highlighting the innovative potential of the sector. The innovations not only strengthen the defence equipment, but also find application in other areas, thus reaffirming the dual-use concept. (photo by Liz hamburger on Unsplash)
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