Connect Earth
8/1/2024
By:
Donald Harmitt
Snapshot
Founders
Alexander Lempka
Founded
2021
Stage
Seed
No. of employees
~23 (as of Dec. 2023)
Headquarters
Europe (London)
Total Funding
~$7.5M (as of Jan. 2024)
Thesis (TL;DR)
Sustainability reporting for companies has drastically shifted from a choice to a must-have. Over 96% of the world top 250 companies report on sustainability, and 23,000 SMEs (and counting) worldwide voluntarily joined the Carbon Disclosure Project (CDP), a global reporting system used to disclose carbon emissions data to stakeholders. Whether the commitment to a low-carbon future derives from personal custodian responsibilities or from the number of climate-related legislations around the globe, the carbon market is geared up to grow significantly to $45-60 billion by 2030 (over 25% growth annually). From January 2024, over 50,000 companies are required to report under European Sustainability Reporting standards, and that is just the tip of the iceberg. Technology innovation (primarily AI and blockchain), increasing government mandates, and growing awareness and urgency towards net zero are driving the significant growth of the carbon reporting and tracking market.
However, companies face a dilemma. In order to report their emissions and make informed decisions in line with climate-related standards, they need the appropriate technological prowess to accurately measure their carbon emissions. The pressure is coming from all angles, as consumers are now demanding greener-focused products and investors are increasingly prioritising ESG-focused companies. According to Connect Earth surveys, 68% of consumers want more information to make make better sustainable choices. Before, businesses only had to worry about increasing revenue and keeping costs minimal. Now, emission reduction targets are sharing the same pedastal as their bottom line.
Connect Earth is a carbon accounting and reporting SaaS platform helping financial institutions and their SME customers measure and reduce their carbon emissions. Connect Earth caters to banks, consumers, and the environment. The platform helps banks and SMEs to track portfolio emissions and empowers customers to track and tackle their own emissions, in a bid to benefit the environment by mitigating climate change. SMEs can seamlessly integrate Connect Earth’s API into their business accounts, then Connect Earth does the rest. This provides financial institutions insight into their customer's (SME) emissions and the SME concurrently gains an overview of their own carbon footprint. Connect Earth also allows everyday customers of financial institutions to see their carbon-related purchases just by logging into their mobile banking and viewing their latest spend, using Connect Insights. This empowers consumers with the choice to favour low-carbon brands, increasing customer engagement and retention for financial institutions. The future will see everyday consumers going from solely budgeting their paycheck to also skimping on their monthly carbon-emissions spend-related output in a bid to play their part in achieving net zero.
Connect Earth differentiates through its plug-and-play API, seamless user experience, and most importantly equipping financial institutions with the tools to optimise their ESG strategy. Connect Earth has a differentiated product offering, positioned in a vertical with a clear need for their service, and can ride the growth of the market fuelled by government mandates and the network effects of businesses joining the carbon emission reporting train in order to not get left behind.
Company Summary
Connect Earth
Connect Earth converts transactions into carbon footprint estimates with the goal of bringing the financial sector closer to climate action. Using a carbon tracking application programming interface (API), Connect Earth help financial institutions, ClimateTechs, and FinTechs measure and reduce their carbon footprints, and the footprint of their end cusomers.
Problem
At first glance Connect Earth is solving three key challenges for financial institutions:
Meeting the increasingly stringent requirements for carbon footprint reporting due to regulations such as Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulations (SFDR) which aim to drive more climate-friendly business operations
Gaining insights into their carbon emissions output which is generally significantly ballooned by their portfolio companies' emissions, to allow the institution to navigate their ESG strategy accordingly
Lack of products which provide end-users insight into their carbon footprint which are being demanded more and more by consumers
There are two key themes driving these fundamental problems:
Difficulty and costly impact of measuring business operation emissions
In order to report company emissions, companies need to first be able to measure them. Sounds obvious, right? The difficulty lies in accurately measuring these metrics, especially outside of direct operations further up/down the supply chain (known as Scope 3 emissions). Startups have seen a gap in the market for carbon accounting services and investors share the same sentiment demonstrated by the 32x increase in venture capital funding in Carbon Offset & Tracking startups from 2019-2023, according to Dealroom. Indirect emissions are proving difficult to capture accurately due to the reliance on supplier and distributor data input. Emerging startups are using the opportunity to differentiate in this area by utilising blockchain and other "proprietary" technology to trace emissions along the supply chain. There is a clear need for affordable and precise carbon accounting services as more companies are demanded to report emissions and new legislations continue to surface.
Shifting consumer behaviour
As the clock continues to tick closer to the ambitious climate-related deadlines set by governments around the world, businesses are facing heightened pressure to rapidly pivot their operations to meet new regulation standards. Not only this, but consumer behaviour is shifting. As concerns for the wellbeing of the planet grows, consumers are now demanding greener products, and are more conscious about where they spend or store their money based on the environmental efforts the financial institution is taking to tackle climate change. A sustainability survey by Stifel Institutional Group finds that a whopping 87% of respondents said that purchasing from a sustainable company is important to them and 37% are willing to pay a premium for sustainable offerings. This clearly demonstrates the shift in consumer behaviour which is forcing enterprises to adjust or risk declining net revenue retention (NRR) metrics in the long-term.
Founders
Core Products
Connect Earth has two core SaaS products aimed at financial institutions and Climate Tech companies.
Carbon Insights - estimates daily spend based transactions
Carbon Reports - offers carbon accounting as-a-service to financial institutions and SMEs
Carbon Insights
Imagine you log into your online banking and instead of the £3.75 you spent on a Iced Caramel Latte at Starbucks yesterday, you also see a green leaf with "5 kg CO2" embedded next to it. This is the kind of insight Connect Earth's API bring to the forefront of everyday consumers. Gone were the days, where the only thought you had when you checked your online banking was how much you spent last week on your favourite coffee. Now, you get to see what your carbon impact is with every single transaction you make. Not only does this give consumers direction of where to start on how to make a difference with every day purchases (by choosing low carbon brands), but it engages consumers on how to reduce their footprint with the personalised suggested "tips and tricks" provided by Connect Insights. In turn, this increases the customer engagement and retention for the financial institution. With the shift towards carbon-conscious spending, Carbon Insight's clean and friendly user interface makes it easy for consumers to see where and how they can reduce their footprint allowing them to continue their journey as a custodian of the planet. This also works if the end customer is a business, and not an individual, making it easier for SMEs to understand where they can lower their spend-related direct emissions and explore new cost-efficient ways to manage their energy output.
Ultimately, Connect Insights is all about embedding and measuring carbon emissions data using a carbon tracking API. The API aims to empower consumers in championing low carbon brands in their daily transactions, bringing carbon footprint data into the daily lives of millions. The product estimates the carbon footprint of all end customer transactions, business or individual, and provides recommendations to lower their carbon footprint.
Key Features:
Comprehensive coverage providing carbon data estimates for every single day-to-day transaction
Personalised insights and recommendations for consumers to take tangible actions based on the carbon data
Highly accurate data using updated and improved data models/databases
Connect Report
The other core offering, Connect Report, is a "carbon accounting as-a-service" API, targeted at commercial banks, B2B banks and FinTechs who cater to SME customers which use spend-based transactions. Connect Report allow financial institutions to gain oversight of their customers carbon emissions essentially allowing the financial institution to measure their own scope 3 emissions, while the SME gets insights into their own emissions. Banks struggle with measuring their indirect emissions, i.e. the emissions of the customers they provide their financial products to, which is generally significantly larger than the banks own emission. With the insight gained from their portfolio companies' emissions, financial institutions can tailor their portfolio towards more sustainable businesses by offering green loans and other financial products. This allows financial institutions to shape their ESG strategy and pave the path for their customers to become more sustainable through Connect Report's tailored recommendations. This in turn attracts greener customers and increase brand reputation for the financial institution, which is becoming increasingly important as investors are choosing more environmentally-friendly firms to store their beloved capital. For the SMEs, they gain insight into their direct and indirect emissions, including their main sources and "hotspots", allowing them to take actionable steps to reduce their carbon output. What makes Connect Report even more interesting is that SMEs is able to measure and report all in one place, in their business bank account, providing a smooth and simple user experience, which allows more time to focus on their core business.
In a nutshell, Connect Report embeds carbon accounting into financial products. The carbon accounting solution enables SME customers of financial institutions with the capabilities to measure their carbon footprint in line with various reporting standards e.g. GHG Protocol. Connect Report is integrated directly into the bank account of the SMEs and calculates their carbon emission using data inputs from business operations.
Key Features:
Analysis and identification of main emission sources
Personalised actionable recommendations to reduce emissions
Performance benchmarking to allow comparison against SME industry competitors
Clear and digestible reports for ease-of-use
Connect Insight's Customer Journey
Source: Connect Earth
Connect Report's Customer Journey
Source: Connect Earth Whitepaper
Source: Connect Earth Whitepaper
Source: Connect Earth
Customer Benefits
Simple, easy-to-integrate, and personalised API, offering a smooth customer experience and white-labelling capabilities with easily-digestible reports
All-in-one climate reporting and insight capabilities, providing a one-stop shop for financial institutions to measure, report, and offer carbon reduction recommendations to their individual and SME customers
Enhances customer acquisition, engagement, and retention through personalised carbon footprint reduction recommendations for consumers while enhancing digital adoption
Provides clear portfolio oversight – allows financial institutions to shape their ESG strategy to increase brand reputation, attract more green-focused customers, and shift overall portfolio towards low carbon-emitting customers
Reporting in line with current reporting standards e.g. GHG and PCAF, allowing businesses to meet stringent regulatory standards such as the CSRD, reducing regulatory risks
Business Model
Connect Earth uses a B2B SaaS business model aimed at defined target customer segments: B2B & B2C Banks & Fintechs, Commercial Banks, and ClimateTechs. In tight economic conditions, e.g. in 2023 and early 2024, this business model is especially attractive to investors as B2B companies have better capabilities to weather the storm compared to their B2C peers, partly due to the reduced price sensitivity of the former during sales cycles.
B2B SaaS model has attractive gross margins (usually >70%), predictable recurring revenue, and long-term visible cash flow during the lifetime of the contract due to the subscription-based model. This is a more attractive model for Connect Earth's target market especially in current unfavourable economic conditions as they are likely to lack the financial backing for upfront expenses. Additionally, as consumers vie for more flexible pricing models by shifting away from CapEx to OpEx, SaaS businesses have seen significant increase in uptake. This leads into the modular nature of Connect Earth’s API which can act as a white-label product based on customer requirements and reduce the typically long sales cycle of B2B deals. This flexibility to tailor to consumer demands is akin to the ease-of-integration of Connect Earth’s products and offers further cross-selling and upselling opportunities during the length of the contract term. Despite the longer sales cycle in B2B SaaS transactions, transaction values in B2B sales are generally higher than in B2C due to bulk orders and enterprise-level solutions, generally resulting in a higher customer lifetime value (LTV) but also higher customer acquisition cost (CAC). Hence, Connect Earth need to leverage their sales team's capabilities to keep their LTV/CAC ratio on the attractive side.
Pricing
Connect Earth uses a freemium pricing model. There is a basic access which provides 1000 API calls per month (including email support). More advanced features such as customer API calls, access to real company data and emission factors, and MTLS authentication, is available at a fee through premium access. This pricing model helps to build a large base of initial users allowing Connect Earth to build customer relations to eventually drive upsell to the premium service. This "try before you buy" means financial institutions get to recognise the value of Connect Earth's products before they decide to go all in and purchase more premium features. In a relatively nascent market where carbon accounting is still seen as a tick-box exercise for many companies, the freemium model lowers the barrier of entry for users, and physically using the product themselves should increase the conversion rate of free to paying customers provided that their key pain points are being solved. Connect Earth can leverage user behaviour to understand what their target customer wants and iterate their platform as they continuously garner learnings from the market. Connect Earth have already penetrated the UK and US market with customers such as KBC bank which caters largely to SMEs.
Strategic Partnerships
Market Snapshot
Forecast Period
2023-30
Market Size (2023)
~$9-12B
Market Size (2030)
~$45-60B
Compound Annual Growth Rate (CAGR)
~20-25%
Estimated Total Addressable Market (TAM)
$3B
Source: Venture Views Analysis (Market size calculations are based on average 3rd party market research reports). The TAM is calculated using both a top-down and bottom-up approach and is based on the European and US market only.
The carbon accounting software market is growing significantly due to the demand from enterprises to monitor and reduce their emissions, triggered primarily by the increase in global government regulations and ambitious commitments. The significant increase in VC investment globally demonstrates the immense demand for carbon-related technologies within this sector and there are a growing number of emerging startups entering the space to meet this demand. The market is relatively nascent and fragmented with a few early market entrants that have solidified their stance in the market such as Persefoni and Watershed, in their respective verticals.
With the expansion of the carbon credit market, this will only further drive the growth of the carbon accounting/reporting landscape in tandem with the increased government and regulatory pressure for businesses. The Corporate Sustainability Financial Disclosure coming into force, should give the much needed nudge for many more large financial players to take action, further promoting the uptake of carbon accounting/reporting offerings. The 2030 market size is estimated to grow to an eye-watering $45-60 billion with an impressive 25% CAGR (2023-30), indicating there is ample room for Connect Earth to grow and capture market share with the right business strategy and execution, alongside achieving promising returns for investors. The current competitive landscape is largely shifted upstream towards startups and early growth stage companies. Connect Earth will have to leverage it's unique product differentiation to stand out from the crowd, which is already evident through the traction gained in both their UK and US customers and partnerships.
I believe the carbon accounting market is likely to become commoditised in the medium- to long-term which is likely to drive average revenue per user (ARPU) down for players who are not able to adapt to consumer demands and policy shifts, and leverage cutting-edge technologies such as AI. However, the survivors over the next 5-10 years will be those who either specialise in Scope 3 emission (which offers significant opportunity due to the current challenges), focus on user experience and educational initiatives, or offer end-customer focused features beyond standard carbon accounting. Connect Earth's Carbon Insight is one step ahead by already moving downstream of the value chain, allowing consumers to see their carbon footprint right in the palm of their hands. Additionally, Connect Earth's focus on the financial sector positions them in a lucrative vertical, as initiatives like the Net-Zero Banking Alliance, in which 141 banks and growing ($75 trillion AUM), have committed to financing climate action. The network effect leveraged in this agreement will only attract more banks further driving the demand for carbon accounting and insights services within the financial sector.
Here a few key trends that are propelling the market on an upward trajectory:
Increasing global government initiatives to reduce greenhouse gas (GHG) emissions to meet Net Zero targets
Technological advancements and deployment of technologies such as AI, blockchain, and digital twin within supply chain and logistics to track carbon emissions
Increased corporate demand for sustainable products and services to comply with reporting standards and accurate Scope 3 emission measuring technology
Growing need for better brand positioning to attract "green" customers in a bid to reduce own scope 3 emissions
Growing carbon credit market to offset emissions by achieving carbon-neutrality
Competition
Source: Venture Views Analysis. The list is not exhaustive.
As mentioned in the "Market" section, the competitive landscape is currently fragmented with a diverse mix of emerging startups and large corporations such as Visa (Ecolytiq) and Mastercard (Doconomy Aland Index) entering the market through acquisitions and partnerships. I strongly believe in the medium term we will see consolidation within the market, with larger firms acquiring niche and specialised startups to enhance their capabilities and expand their customer base. This opens up potential exit opportunities for Connect Earth outside of an initial public offering (IPO) in the medium to long-term.
Complying with ongoing regulations has been a key requirement that market players have had to constantly adapt to, along with fending off increasing competition from emerging players by focusing on personalised UI experience, AI implementation, personalised recommendations, and global expansion outside of their initial core markets. Connect Earth is well positioned to continue to innovative and grow within this market as their unique offering of both carbon insights and carbon reporting is relatively distinctive. Other competitors typically focus on one offering or the other, but Connect Earth has moved further along the value chain to cater to the end consumers of their target customers and into the educational realm by offering insights on reducing carbon footprint.
Cogo is arguably Connect Earth's closest competitor as they offer both carbon reporting and insight capabilities, based within New Zealand, UK, Japan and other regions, and similarly target SMEs. Cogo already has a few well-known banks under their belt such as NatWest, Coutts, and RBS, leveraging their early market entry advantage, being around for over 10 years. However, due to the size of the market there is more than enough room for market share and revenue growth for competitors based on the 18,000+ banks and FinTechs across the US and UK market and the current fragmented landscape.
Selected Competitor Highlights:
Meniga
Meniga is a global white-label digital banking platform. Founded in 2009, Meniga gives digital banking customers insights into their personal financial situation, providing carbon insight, financial management, and other financial-related offerings. Meniga provides services to a wide range of banking clients across more than 30 countries, helping their customers to drive digital engagement and revenue. Some customers include Unicredit and mBank.
Value Propositions:
Technology agnostic platform, integrating with both legacy and modern hardware
Value add services such as certified offsetting programs and sustainable banking options
Personalised actionable tips and tricks to help customers reduce their carbon footprint
Provide accurate results, regardless of geography, to customers using an advanced Carbon Index (independently assured)
Cogo
Cogo is a carbon management solutions company providing carbon footprint management to a wide range of clients. Cogo targets SMEs, corporates, and small businesses helping them to provide their customers with insights on the carbon impact of their spending. Tackling the hard-to-abate scope 3 emissions, Cogo help corporates to measure their indirect emission in line with strict reporting standards. Some client examples include NatWest and Eliq.
Value Propositions:
Personalised actionable insights to increase customer engagement and promote carbon emissions reduction
B2B and B2C capabilities, providing carbon footprint tracking direct to consumers through open banking or to businesses through integration into their financial software
White-label offerings to meet flexible and tailored client demands
Carbon reporting in-line with regulatory requirements such as TCFD
Supplier specific emissions for Scope 3 accuracy, via free tool for SME suppliers to input their data
Key Risks
Unfavourable macroeconomic environment – Quantitative tightening measures across core markets, such as increased interest rates and rising inflation, can affect company budgets across the board and shift investment priorities away from sustainability-related spending.
Increasing greenwashing practices to hinder the demand for carbon accounting software – market demand for carbon accounting and reporting might not be as high as anticipated due to greenwashing strategies overshadowing climate reporting services or the relaxing of sustainability commitment and pressure among consumers and governmental bodies.
Continuous regulatory and compliance shifts – the industry is heavily reliant on government regulations which is commonly subject to change. Non-compliance with these regulations can lead to legal issues and reputational damage for market players
Concentrated customer base within business SME accounts within the UK – 80% of SME business accounts are within the top four banks in the UK market, hence, UK-based revenue for Connect Earth's Carbon Report product is heavily reliant on securing contracts with the big banks or capturing a large share of the banks with the remaining 20% SME business accounts.
Competition risk upstream and downstream – growing market entrants within the carbon accounting and reporting space pose a threat to increasing market share for Connect Earth. Additionally, increased competition is making product differentation more difficult and competition has the potential to drive prices down across the market. Also, large players can diversify into this space to expand their customer base potentially capturing market share from smaller players.
Latest Investors
Latest Round Amount: $5.6 million
Lead:
• Gresham House Ventures
Other Latest Round Participants:
• Love Ventures
• Global Brain & The Norinchukin Bank
• Portfolio Ventures
• Super Capital
• Strategic Angel Investors
• Market One Capital (Follow-on Investor)
• Mustard Seed MAZE (Follow-on Investor)
• Venista Ventures (Follow-on Investor)
Estimated Post-Money Valuations ($USD)
Source: Venture Views Analysis
*The VC Method includes a range of assumptions. If you would like access to the analysis and assumptions used, please send us an email in the 'Contact' page
Source: [1] https://startupbase-hungary.dealroom.co/companies/connect_earth_1
Traction/Key Customers
Bank Purely (US Bank)
KBC (UK Bank)
Cogni (US FinTech)
Recent News
March 2023 – Connect Earth raised $5.6 million in a Seed round with the goal of achieving rapid growth. Connect Earth plans to launch new products and drive the company’s expansion into the US.