In climate technology, it’s often accepted that hardware holds significant importance. Indeed, reducing carbon emissions isn’t feasible without addressing areas like cement, steel, and hydrogen. However, these days, hardware alone doesn’t make up the full picture.

“In nearly every instance, hardware will be designed with software considerations,” explained Vaughn Blake, a partner at Blue Bear Capital, speaking to TechCrunch.

This is why Blue Bear Capital emphasizes a software-first strategy — a path which, while perhaps not unconventional, goes against the dominant trends within climate, industrial, and energy sectors, where funds often focus on hardware or a combination of hardware and software investments.

“We believe the potential impact of digital innovations and AI application is huge,” stated Ernst Sack, another partner at Blue Bear. 

Consider a solar firm, for example, Sack mentioned. Like any physical infrastructure, solar installations face technical issues that might impede energy output. But, he noted, if a company uses a supervision tool like Raptor Maps, which Blue Bear invests in, it may significantly cut down on losses.

“Consider a 10% as just an estimate,” Sack suggested. “If a company such as Raptor Maps is integrated across over 100 gigawatts of solar energy capacity, then a 10% efficiency boost equates to 10 gigawatts. This is roughly equal to 10 billion of capital expenditure and a similar output to about three to five coal or nuclear power facilities.”

Sack, Blake, and their partners identify potential beyond traditional eco-friendly technologies such as solar. “AI’s relevance is far-reaching,” Sack emphasized, referencing wind, water purification, cooling systems, steel, cement, chemical manufacturing, and marine and aerial logistics.

“Many segments of the global market have a high energy requirement where, if we were to establish a physical asset or a hardware entity, it would more often than not only cater to one specific area. It might be substantial, yet it’s confined. Conversely, software tends to be widely adaptable.”

To support this vision, Blue Bear has recently secured a $160 million third fund. The limited partners include the McKnight Foundation, Rockefeller Brothers Fund, UBS, WovenEarth Ventures, and Zoma Capital, along with leaders from private equity and infrastructure funds.

Blue Bear integrates some of these LPs’ investing tactics, blending a more mature strategy into earlier-phase investments. The fund is reserving twice the amount of money for subsequent investments compared to initial checks; for the typical $5 million investment, Blue Bear plans to allocate another $10 million for additional funding to sustain equity. The fund anticipates investing in about 15 enterprises, stated Blake.

By maintaining a compact portfolio, he continued, the fund aspires to assist more startups in reaching a successful exit. 

“The framework we use to invest anticipates a lower probability of IPOs in our sectors,” Blake discussed. “Acquisitions, whether strategic or supported by private equity, are far more probable.” Consequently, each lucrative exit may be smaller in scale compared to the larger figures typical of many venture capital strategies, but collectively, he suggested, they aim to offer comparable returns for LPs.