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Eight-year-old Diagram is expanding its startup incubator model into climate.
The Montreal-based venture studio, which launches startups in house, raised $80 million CAD ($58 million) for its fourth studio fund, Diagram ClimateTech Fund. The firm said the vehicle surpassed its initial $60 million CAD ($43 million) target, hitting its hard cap, and is the studio’s first fund focused on climate.
Amélie Foz-Couture, a Diagram partner and co-head of Diagram’s ClimateTechFund, told TechCrunch that Diagram goes deep into different industries, spending several months at a time, on a category to identify pain points and a core set of customers for a potential solution.
“Then we bring on founding teams only once the opportunity is really validated,” Foz-Couture said. “There is a high bar for what makes it into a company. We invest in the best ideas that come out of that process.”
Foz-Couture said this work is meant to give the startup’s eventual hand-selected founding team a head start. Diagram formally incorporates these companies and provides capital, akin to a pre-seed round; a roster of potential customers the firm has relationships with; and some wireframes around the product. After that, startups can turn to Diagram for funding and guidance but are largely on their own and more like the traditional relationship between an investor and a portfolio company.
Now, the startup incubator wants to use the model to build climate startups. Paul Manias, a Diagram partner and co-head of the firm’s climate fund, told TechCrunch that the timing was right to launch a fund in this category. While the Diagram team had a passion for climate tech, their LPs started to get interested in the space, too.
The firm was able to raise capital from investors, including its parent company Sagard, Investissement Quebec (a Quebec government-backed investment vehicle), BDC Capital, and Teralys Capital, among others.
LP interest in climate remains strong despite overall fundraising headwinds, according to PitchBook data. Climate-focused VCs set a new fundraising record for the sector in 2022, having raised $18.7 billion across 64 funds in 2022. While 2023 notched a noticeable decline, $3.9 billion was raised in total, 2024 is on track to surpass last year with climate VCs raising $3.4 billion in the first half of 2024 alone.
Diagram is focused on building capital-lean digital solutions in the climate space across all climate categories ranging from electric vehicles to biodiversity and food and agriculture. Manias said that the firm is focusing on software because SaaS businesses are a better fit for Diagram’s venture model, than, say, a deep tech moonshot project.
He also thinks there is a lot of opportunity in climate software. “The reality is we need both,” Manias said regarding hardware and software climate solutions. “The way we are going to tackle one of the most existential problems we face today is really around allocating capital to all solutions. We need deep tech solutions for sure, but frankly software solutions are implementable and help to address a lot of the challenges that companies face on a day-to-day basis.”
Diagram has already starting building two startups under its climate thesis. Relion is one that offers a platform for operation and maintenance solutions for EV charging infrastructure. It was founded in 2023 and Diagram has since led the company’s $3 million seed round. The other is recently launched Lyteflo, an electric vehicles sales enablement solution focused on battery life.
Diagram was founded in 2016 as an early-stage venture arm of global asset manager Sagard. The firm has more than $400 million in assets under management and has built 25 companies in house in sectors like fintech and web3. The firm has also seen four exits.
