Biodiversity startups: emerging forces in conservation

Biodiversity loss is one of the most pressing environmental issues we face today. The Kunming-Montreal Global Biodiversity Framework (GBF), adopted by the 2022 United Nations Biodiversity Conference, highlighted that “Biodiversity is fundamental to human well-being, a healthy planet, and economic prosperity for all people, including for living well in balance and in harmony with Mother Earth. We depend on it for food, medicine, energy, clean air and water, security from natural disasters as well as recreation and cultural inspiration, and it supports all systems of life on Earth.”

Beyond its ecological impact, biodiversity has far-reaching implications for businesses, affecting their operations, reputations, and financial health. For instance, pharmaceutical companies rely on Limulus amebocyte lysate (LAL), a critical substance derived from horseshoe crab blood, to detect even trace levels of bacterial toxins. Declining horseshoe crab populations present a serious challenge to these companies, as there is currently no equally effective natural alternative.

Despite the critical role of biodiversity and growing public interest in its preservation, only a few studies in finance have explored the economic implications of biodiversity loss (Karolyi and Tobin-de la Puente, 2023; Flammer, Giroux, and Heal, 2023). To encourage more rigorous research in this area, the Review of Finance recently issued a call for registered reports on Biodiversity and Natural Resource Finance. Among the selected submissions is a promising report by researchers Andrew Karolyi (Cornell), Sean Cao (Maryland), William Xiong (SUNY Binghamton), and Frank Xu (Lancaster). Their study aims to investigate biodiversity startups, a unique but understudied type of organisation that directly links entrepreneurial innovation with biodiversity conservation.

Why study biodiversity startups?

Much of the research on biodiversity has focused on large, public corporations, some of which already have biodiversity-related projects. For example, Google’s Wildlife Insights initiative provides a platform to share, identify, manage and analyse wildlife images, creating a global wildlife database. However, these efforts are often side projects within large firms. In contrast, biodiversity startups – though small – are entirely focused on biodiversity and could become vital players in its conservation.

Despite their potential to contribute significantly to biodiversity preservation, these startups face unique challenges in attracting investment compared to traditional startups. In 2022, biodiversity-focused ‘nature tech’ companies received just $1.56 billion in venture capital funding, while climate tech companies attracted $41 billion. Several factors contribute to this financing gap. First, biodiversity startups often lack resources for promotional events, like investor roadshows, that conventional startups rely on to attract funding. Second, their pool of investors is limited, as they primarily appeal to impact investors who prioritise social and environmental returns over financial gains. Lastly, mainstream financial media tends to focus on large corporations, offering limited coverage of early-stage startups with environmental goals. This lack of media attention poses an additional barrier because biodiversity is still a relatively new concept, and many investors, even those focused on impact, may not yet understand its urgency and importance.

The current landscape of biodiversity startups

Using manual annotations and large language models enhanced through prompt engineering, the research team has identified 173 biodiversity startups in Crunchbase and 3,532 in PitchBook, two prominent databases for startup data. Although biodiversity startups are still relatively few compared to other sectors, their numbers are steadily growing.

These startups typically fall into 2 main categories. The first category includes ventures that directly combat biodiversity loss. For example, Treefera has developed an AI platform that analyses satellite imagery to provide accurate, auditable data on trees and biodiversity, helping clients engage in conservation and reforestation efforts. Similarly, Carbonwave farms Sargassum, a type of seaweed, and transforms it into valuable materials, contributing to environmental sustainability. The second, larger category comprises startups focused on promoting biodiversity awareness and engagement. Internet of Elephants, for instance, uses games and social media to attract a broad audience to wildlife conservation, making the cause accessible to millions.

Can social media help biodiversity startups raise capital?

Anecdotal evidence suggests that social media, particularly Twitter, can be instrumental in helping startups gain the attention of venture capitalists. In a recent knowledge exchange, investor Andrew Saunders noted, “There are a multitude of effective tools one could implement to use Twitter for deal sourcing. In brief, proficiently leveraging Twitter to deal source can occur by following industry leaders, creating lists, and using strategic hashtags.” Research by Wang, Wu, and Hitt (2024) supports this view, indicating that social media can be a valuable resource for startups seeking investment.

The research team believes social media platforms like Twitter could play a crucial role in helping biodiversity startups engage with investors and secure funding for three main reasons. First, Twitter is a cost-effective solution, allowing biodiversity startups to reach potential investors without the expense of traditional investor roadshows. Many of these ventures already use Twitter to promote biodiversity awareness, effectively reducing marketing costs. Second, the ideal investors for biodiversity startups – impact investors who prioritise social and environmental benefits – are active on social media. Traditional channels may not connect easily with impact investors, but on Twitter, many showcase their interest in impact investing and often share their portfolios, making it easier for biodiversity ventures to identify and engage with them. Third, Twitter offers these startups control over their messaging and promotion, something they may not achieve with traditional media, which tends to overlook smaller, niche organisations.

The registered report will focus on 3 main hypotheses:

• first, it expects that Twitter usage will be particularly effective in attracting impact investors, such as non-profit organisations and philanthropic funders, more so than conventional venture capitalists
• second, it hypothesises that Twitter’s role in bridging funding gaps became especially pronounced during the COVID-19 pandemic, a time when in-person networking was restricted
• third, it anticipates that Twitter will be particularly impactful for biodiversity startups with high information asymmetry – such as those located far from investors or led by CEOs with limited professional connections

Biodiversity startups have the potential to become vital forces in addressing the biodiversity crisis. However, they face distinct financial challenges that limit their growth and impact. The proposed study aims to understand these financial obstacles and explore how social media might help alleviate them. By shedding light on these issues, it hopefully will inspire further studies into biodiversity startups and prompt the exploration of innovative financial solutions to support their mission.