The Mr. Burns Test for climate tech startups isn’t dead; it’s evolving

Climate tech startups working to “unf**k the planet” need a nuanced perspective on how they will succeed until — and when — governments act

It seems like there is a gold rush in the climate tech space. Capital is pouring in, both to venture capital and growth equity. Corporations are making commitments faster than ever. ESG funds are all the rage. The movement to “unf**k the planet” is in full swing. 

Amidst this momentum, there is an important debate between new and old climate tech investors. Jason Jacobs, host of the My Climate Journey podcast and active climate tech investor via his fund, the MCJ Collective, told me:

“I've observed that some investors that were part of that last wave of climate tech investing fear that the new blood coming in is too optimistic and too ignorant. They don't know what they don't know, and that they're going to make some of the same mistakes that were made last time around. And some of what I've heard from some of the newcomers coming in, is that scar tissue can be valuable institutional knowledge, but can also be shackles in some way and cause people to be cynical in a world where optimism is a requirement for this early stage investing.” 

This schism between optimistic new investors and grizzled old investors is perhaps best illustrated by the argument over whether the “Mr. Burns Test” still applies. 

For those who never watched The Simpsons, Mr. Burns was the villain. He ran the nuclear power plant where Homer worked, and he carried the capitalist mentality to its hilariously evil logical extreme, caring only about profit and not a lick about people or the planet. 

In his dubious honor, cleantech VCs created the “Mr. Burns Test”. Shayle Kann, a well-known cleantech VC investor, defines it this way:1 

“If you are a believer in the Mr. Burns test, you will not invest in a company if that company’s sole or primary value proposition is climate change mitigation or carbon reduction. The value of a product or service has to be something else because — the thesis goes — people, companies, whoever will not buy things at scale if all they do is reduce or remove emissions.” 

Tesla is a great example of a cleantech company that passes the Mr. Burns Test with flying colors: sure, it’s an electric vehicle, which is essential for reducing our carbon footprint. But it’s also an incredible car with a clear value proposition which plenty of consumers love. Because of that, Tesla survived the cleantech 1.0 bubble and has delivered exceptional returns to investors. In contrast — the conventional wisdom goes — most cleantech 1.0 companies who did not pass the Mr. Burns Test destroyed shareholder value. 

So why are new cleantech / climate tech investors abandoning the useful Mr. Burns Test? 

Abe Yokell, another well-known cleantech VC, gave an answer in a conversation with Shayle Kann:2 

Shayle Kann: “Because there is such renewed excitement around this sector and climate tech, there is a raft of new entrants to the investing world who are excited and really engaged and deploying capital. Then there are a group of folks who have seen the first wave and stuck it out and now we’re considered the OG climate people… As we welcome all these new entrants, what do you think are the things that they are likely to get right, that our cohort may miss?”

Abe Yokell: “I think there are some things… around the Mr. Burns Test that have become abundantly obvious to early investors that we're not seeing. Some of the activity around the price on carbon — probably the biggest portfolio is Lowercarbon Capital — they’re investing in a lot of stuff that in many ways without a price on carbon does not pass the Mr. Burns Test. I think they are probably going to be dramatically right and will just absolutely clean up.” 

Here’s my interpretation of Abe’s point: to believe that newbie investors will “absolutely clean up” with a portfolio of companies that fail the Mr. Burns Test, you have to believe in a future where governments force people and/or corporations to care about climate change via regulation. Among the many ways to achieve that is to put a price on CO2 emissions or enact regulation to limit the amount of emissions.

In short, many new climate tech investors are making a calculated bet on a future where regulation makes carbon emissions expensive and scarce. In that scenario, a startup with, say, a killer way to remove carbon from the atmosphere is likely to crush it. 

Yes. But wait! As a Climate Tech Entrepreneur, you need a plan that will convince your investors, yourself, and your team that you will (at least) survive until those regulations exist, and then you’ll win. Enter the Survivor Test.  

The Survivor Test has two parts:  

  1. If your business does not pass the Mr. Burns Test today, how will you survive until carbon emissions are priced / regulated?

  2. When climate regulation finally happens, why will you win big? 

To answer these questions, I offer three pieces of advice: 

  1. Develop a nuanced perspective on the future climate policy landscape

  2. Have clear answers to how you’ll make money today, tomorrow, and when regulation hits

  3. Be ruthlessly quantitative about your pool of early customers 

1. Develop a nuanced perspective on the future climate policy landscape

Jonathan Goldberg, a growth equity investor in the carbon removal space, said, “the first thing I would emphasize is that while there are certainly some parts of the market who will pay a green premium and do things like that, one should assume that the willingness to pay for this stuff is zero.”3 Until carbon is priced, it will always be more profitable to pollute than not.4  

So if you are building a climate tech company that knowingly fails the Mr. Burns Test — good luck, godspeed, and bravo — and don’t fall into the trap of ignoring government action. Do the opposite: get deep. Develop a nuanced view of what the climate policy landscape could look like 2, 5, and 10 years down the road. As you build your scenarios, the questions to wrestle with are:  

  • What policies are likely to be put in place…

  • … in which countries / jurisdictions / states…

  • … in what time frame? 

Those are not easy questions to answer, and so I recommend interrogating two opposing perspectives: one with a fairly mainstream view on carbon pricing and one heterodox viewpoint:

  • Mainstream view: the Inevitable Policy Response forecast by the UN’s Principles for Responsible Investment offers a well-informed perspective based on significant research. While it reads a bit rosy, it is a cogent framework you can use to develop a small handful of potential policy scenarios.

  • Controversial view: David Victor and Danny Cullenward’s Making Climate Policy Work is a provocative, well done assessment of popular market mechanisms, a compelling explanation of why they don’t work, and a proposal for what will work (and which will achieve the same outcome for most climate entrepreneurs and investors). 

Between these two approaches and using the three key questions above, you can develop scenarios to explain how you’ll make money today, tomorrow, and when transformative climate regulation rolls out. Which leads me to...

2. Have clear answers to how you’ll make money today, tomorrow, and when regulation hits

One of the best South Park episodes of all time was Underpants Gnomes from Season 2, which took aim at tech startups that had gaping holes in their business plans. See below for the Underpants Gnomes business plan, in which profit results from...well, they’re not sure. 

If your business fails the Mr. Burns Test, make sure this isn’t how you sound when talking to investors: 

  • Phase 1: remove carbon from the atmosphere

  • Phase 2: government puts a price on carbon 

  • Phase 3: profit and the planet is unf**ked

Because “government puts a price on carbon” is closer to the gnomes’ “?” than we all would like, you need a crisp perspective on: 

  • Today before carbon is priced: Who will be my customers and why? 

  • Tomorrow when we have a messy patchwork of sub-global regulations: Who will be my customers and why? 

  • In the glorious but distant future when we have a globally coherent carbon price: Who will be my customers and why? Why won’t I be regulated out of business? 

Which leads to my third recommendation. 

3. Be ruthlessly quantitative about your pool of early customers 

For many climate tech startups who fail the Mr. Burns Test, the first level answer for how they will make money today is, “Sell to corporations with bold climate commitments!” That’s a great answer as long as your financial projections are based on an accurate assessment of the size of the customer pool and willingness to pay.

Climate entrepreneurs are surfing a megatrend, which is the exponential growth of companies making climate commitments. The latest data suggests that as of June 2021, commitments this year are greater than all of 2020 combined.5 That’s amazing.

Peering beneath the commitments, it’s sobering (but not surprising) to see a lag from commitment → plan → action. Most corporations are making the commitment first and then figuring out how to achieve it. And making that plan is no easy feat. Here’s a quick back-of-the-envelope calculation to illustrate the point. 

Step 1: Of the 2,000 largest companies in the world, ~20% have made climate commitments.6 

Step 2: Of those ~400 companies, only 20% have plans that meet a minimum standard of credibility.7 Companies without a decent plan are unlikely to have a budget for this, and without a budget, they are not likely to write checks to cutting edge startups. 

Step 3: The carbon market is growing and quickly, but the average price per credit is persistently low: year-to-date it’s a shocking $3.13.8 Some corporations will pay more, but many want to see their blended average cost per tonne stay well below $10. How many companies are willing to pay substantially more? I have no idea, but if we assume 20% are innovative buyers (which feels generous today), that’s ~15 companies 

Step 4: Now that you’ve narrowed it down, you still need to win their business. Each company has a unique angle or set of buying criteria. For example, Stripe was focused on extremely durable solutions (i.e., permanent for 1,000 years or more).9 Given innovative, forward-thinking buyers tend to be picky, I’ve assumed a 66% win rating, meaning your startup gets 10 contracts

Step 5: In order to get a sense of average contract size, we should look at the most transparent RFPs from really innovative companies: Stripe, Microsoft, and Shopify. Those 3 companies have run rigorously-designed public RFP’s, so we can examine them more closely10. When we do that, my assumption of an average contract size of $1M per startup seems generous:

  • Stripe committed $9M across two rounds of RFPs and awarded 10 climate startups. That’s less than $1M for each company11

  • Shopify committed $5M to 11 startups in its first round, so a little less than $500K per winner12

  • Microsoft bought 1.3M carbon offsets in their first RFP. If we assume they paid their target average price of $15/tonne, that’s $750K for each of the 26 winners of their first RFP13 

So in this rough analysis, a killer carbon removal solution might have locked in $10M in revenue. Those are not necessarily the sorts of revenue ramp numbers VCs are used to. 

Will this market grow? Yes! The trend is clear.

Will it be huge one day? Unequivocally.

Will the growth of this market let your startup enjoy a compelling revenue ramp until governments step in with coherent climate regulation? ¯\_(ツ)_/¯

I was discussing this article with a seasoned climate tech investor at a top-tier fund, who summarized the situation well:

“One of the most troubling observations that many of my old-guard climate colleagues and I have made is this: the new ebullient capital is betting on a pseudo-binary hedge that doesn’t leave room for an obvious clean ramp to scale via organic market pull. This is perfectly fine if this is knowingly done, planned for, and capitalized for.  But therein lies the rub…” 

If you abandon the Mr. Burns Test wholesale, you’re likely not doing this sort of careful planning. But the Survivor Test will force you to do that planning. That will maximize your individual chance for success, which will maximize our collective chances for success in the fight against climate change. 

The investment momentum to unf**k the planet is heating up. It’s inspiring and head spinning. If you’re a startup building a product with an embedded green premium, know the game you’re playing. It’s not only about the right idea — it’s about the right idea at the right time, and that “time” is not quite here yet. So just because much of the Twittersphere is leaving the Mr. Burns Test behind, don’t be fooled that it’s gone completely. It’s evolved. Failure to recognize that risks another cleantech bubble bursting. That will hurt a lot of entrepreneurs, startup teams, VC’s, and LP’s, but much much worse — it could f**k the planet. 




Yes, I know — Yvon Chouinard famously said, “I know it sounds crazy, but every time I have made a decision that is best for the planet, I have made money.” But Patagonia, along with the small handful of companies who can honestly say the same, are the exception that proves the rule. 




Big thanks to Microsoft, Stripe, and Shopify. They are being bold and transparent in a way that is not common. And their commitment is helping to set a path for climate tech innovators as we reinvent the entire economy.