Why the Urban Stack is the next frontier of tech and sustainability investing

If we are going to build the equivalent of an entire New York City every month for the next four decades, as Bill Gates estimates in his new book How to Avoid a Climate Disaster, we better really be smart about it.

Not since the mass urbanisation of Western Europe and the United States driven by the industrial revolution in the 1800s has the world faced an urban challenge like we do today. Back then, Europe’s crammed, dirty, fast-growing capitals became humanitarian emergency zones where life expectancy often dropped to medieval levels. This crisis inspired a scientific revolution in urban planning that laid the foundation for the technical and social ecosystems we know as modern cities today.

Breakthrough innovation is needed in cities once again. Today however, innovation is not merely necessary for keeping people healthy and safe as they continue to agglomerate in cities to reap all the benefits of prosperity, education, and culture. This time, the battle for sustainable development of our planet will be won or lost depending on how we innovate our cities.

Today, 70% of global energy consumption and CO2 emissions come from cities; almost 40% of global emissions come from constructing, furnishing, and running real assets; and the global urban population is set to almost double in the next three decades, requiring 2 billion new homes and mind boggling infrastructure development to go with them. The potential for both social and ecological disaster is impossible to ignore and it is abundantly clear that we need to invest in technology innovation to make this explosive growth sustainable.

Given the powerful tailwinds and staggering scale of this challenge and opportunity, we believe that purpose driven entrepreneurs who succeed in solving the urban sustainability challenges facing the planet today will also be among the technology champions of the coming decades and their economies the leading ones globally.

So where do we begin?
I asked myself that very question when I initially realized these facts about urbanisation and climate change three years ago. After a couple of years of diving deep into the subject, reading and speaking to experts, analysing hundreds of startups and technology solutions, and investing in a handful of them, the answer my partners and I arrived at has become the foundation of our investment strategy at 2150. We start everywhere across the Urban Stack-from the infrastructures that enable the city by supporting, powering, and connecting it; the methods, materials and systems we employ to build cities; to how we operate urban environments, and ultimately how we experience life and work as urban dwellers.

The Urban Stack

Cities are complex systems and we tend to view them in the silos of residential buildings, roads, parks, construction sites, utilities, public transport, schools, workplaces, city government, and leisure activities and so on. But all this — which we in rich countries mostly take for granted today — is highly interdependent and fragile, even if we do not notice until a global pandemic or natural disaster disrupts the urban ecosystem. Therefore, innovation in the Urban Stack is also by definition systemic across its layers.

As the world digitises and becomes interconnected in real time at still deeper levels of the economy and physical reality, technological innovation is unlocked across all dimensions of the Urban Stack.

We can already see how this change follows a familiar pattern of digitisation that unlocks optimisation and ultimately automation; a virtuous loop leading to more and accelerating innovation cycles. This flywheel of data and network effects has already transformed media, financial services and retail and continues to advance across the economy as performance and cost reductions of underlying general purpose technologies such as networking, cloud computing, IoT sensors, and machine learning continue to improve.

At 2150 we invest across the Urban Stack where we try to identify the biggest unsolved business problems that also carry the biggest potential for sustainability impact; and there are plenty around.

Take for example building materials, heating and cooling, waste management, air quality management, urban farming, smart homes and offices, elderly care, rooftop solar power, EV charging infrastructure, IoT sensor and networking, floodplain management or the growing sector of inner-city, last-mile logistics which COVID has accelerated massively.

Other key topics we focus on are architecture, construction and engineering. The next 10 years will see a radical digitisation, industrial standardisation and automation of construction that will unlock the sector and finally bring it to the efficiency levels of the wider economy. This transformation is only just beginning and the successful exit of Spacemaker, a deep tech urban planning software company that we have backed, is a good example of how fundamentally this sector is about to change.

As the saying goes, you can’t optimise what you can’t measure. Therefore another important area for us is foundational digitisation that create new data layers and enable downstream innovation. ESG Analytics and Geospatial Analytics are cases in point. Like the website you are reading right now and the device that displays it, what allows digital technologies to get exponentially smarter with time is the data that tells their producers how they function and are being used.

Similarly, we need to track in real time all the carbon emissions we produce before we can report, price, offset, and reduce them at the most granular level of the economy. This is quickly becoming the fastest growing business analytics field where a truly scalable cloud software solution can become a very big business.

Carbon accounting and ESG analytics more broadly, is forcing transparency and accountability on carbon emitters and their investors which will incentivise them to offset and ultimately reduce the negative environmental and social externalities because if they don’t, investors will increasingly adjust their valuations downward to reflect the rising risk and real cost of their negative impact.

Likewise, capturing and combining contextual data about the physical environment with satellite imagery, sensors, cameras and other data sources is increasingly opening up unforeseen downstream opportunities for innovation across all sectors of the real economy.

In short, profits and purpose are finally converging at the frontier of technology investing, attracting more and more great entrepreneurs, ideas, and capital. As venture investors in this abundant and fast growing ecosystem, we feel incredibly privileged and excited to be able to help create great outcomes for the founders we back, for our investors, and for society and our planet as a whole.

Technology Investor and Entrepreneur