Hot or Not

Diagnosing biochar's moment

I probably shouldn’t be writing about biochar anymore. At least, you should be reading Sebastian Manhart and others first. Nevertheless, I’m dipping my toe back in the newly *scalding hot* waters of biochar-as-CDR after a three-year hiatus because I think the current moment is being misunderstood.

Heatmap released a piece yesterday diagnosing biochar’s lack of attention from investor/organizer/storyteller set. I see the same symptoms but have a different diagnosis. Here are my five reasons biochar is still getting so little buzz:

1. Sand in the COGS

   1. It’s hard to put the cost of biomass input into a VC story. Unless someone is delivering the biomass to you by the ton and paying you to take it, it’s not waste biomass. If you’re getting biomass for free now, you won’t be for long. As the market for biomass becomes more competitive, the price of usable biomass will go up. The more a biochar company succeeds, the more expensive its inputs become. No one likes that! Climate VC’s are often ex-Silicon Valley and trained on pattern-matching companies with rapidly declining marginal costs and infinite scale. Biochar is the opposite of that. While we’re not close to running out of biomass, investors can’t unsee that pattern.

   2. For biochar folk, biochar is the focus. But people with biomass will sell to the highest bidder, meaning that biochar is competing with ALL other potential uses of the same biomass. Are some of those other pathways potentially higher-margin? I would bet on it, meaning potential competition for biomass with deeper-pocketed entrants from other industries.

2. Less dangerous curves ahead:

   1. A steep learning curve portends a paradigm shift, exponential growth, massive value creation, and big returns. Biochar, being an old (perhaps the oldest) technology, doesn’t have a steep learning curve. So when people think and write about it they call it a “mature” technology. The remaining gains to squeeze from a flattening learning curve look likely to be in manufacturing efficient equipment at scale (an opportunity that is still available, imo). It’s hard to find a potential transformation of the technology - something like quantum mechanics for computing, or better fundamental chemistry for batteries - that still involves making biochar (more on this next.)

3. Please sir, can I have more technology?

   1. One feature of the biochar community is that there are amazing biochar OGs that love to weld and have been building pyrolyzers for decades. Unfortunately, this loveable feature is actually a bug. The kind of technology play that VC’s can pattern map to 100x returns is hard to find: where do AI, machine vision, sat imagery, synbio, and robots come in? The co’s with the most rizz are those who have figured out how to look more like tech and less like welding. Not coincidentally, they also have the best investors in the space: for example, CarboCulture (new pyrolysis tech) and Climate Robotics (infield robots) have had rounds led by smart and respected climate VCs.

   2. But really, if you want to add more technology, the more exciting comps in biomass are *outside of biochar.* Instead of turning biomass into biochar, you use synbio to replace petrochemicals, you process it into fuel for the white-hot SAF market, or you turn it into CDR + an option on green steel. If you’re an investor looking for a paradigm shift, the risk for biochar is that it’s not *the best use* of biomass, and the paradigm shift is away from biochar, not toward it.

4. Biomass is, well, hard.

   1. Procedural complexity can be unpleasant to think about. Trucks, double handling, logistics, loading times. For the main stage, there isn’t anything like the narrative simplicity of a recyclable sorbent. 

   2. Biomass processing is the stuff of nightmares. Everyone I know in biochar talks about feedstock heterogeneity, gravel in the woodchips, and moisture content management. They don’t smile when they talk about these things.

   3. And, it’s worth saying, these are *good* reasons to invest in biomass companies, actually. Pain makes a good moat. But, narratively, it’s more “urgh” than “oooh”. So much schlepping and troubleshooting big machines.

5. Long-term, who owns the margin in the biochar industry?

   1. There are things the best, most sophisticated companies can do to preserve their margins: lock in long-term advantageous contracts for biomass, develop proprietary sourcing relationships, automate and innovate into competitive positions on processing, land meaningful offtake contracts for the biochar itself, and build a strong enough brand to differentially price a commodity, etc. But, it will be hard, and most companies will struggle to do them. I expect the downward pressure on the value of carbon offsets to continue until regulation sets a floor. 

   2. Long term, I expect the companies that benefit most will be those that control the biomass itself: farmers, timber companies, and processing facilities, either by doing the work of developing carbon projects themselves or contracting it out to biochar producers on low margins. 

VCs look at biochar and see companies that are hard to operate and expensive to scale, likely to see rising input costs, and will find it challenging to build durable long-term profits. I don’t blame them for seeing this! And, there are exceptions! But, I don’t think most biochar companies have a reasonable shot at delivering 100x returns. 

Funding rounds create the buzz in climate tech, so until VCs love biochar, neither will podcasters or conference organizers.

Objection your honor, biochar is gonna rip. 

This is the right take. VC money isn’t the only kind of money there is. I’m starting to see lots of financing deals for biochar pop up. And, because biochar fits nicely in portfolios, biochar suppliers may well have what they need to skip VC altogether: bankable offtake contracts. So, to my friends in biochar, work mules of CDR (you’re a legend for this one Josiah), don’t worry about the buzz-gap; a hot project finance summer awaits. 

time to cook, friends