The Models We Use to Value Climate Deeptech Are Missing Half the Equation
We're applying software valuation logic to companies solving problems software never could.
I’ve been sitting with the climate deeptech exit problem for a while. The capital requirements, the early acquisitions, the multiples that barely close for traditional VC. I knew something was structurally off, but I couldn’t locate the argument precisely.
A conversation with an investor changed that. He evaluates every deal through a single lens: quality-adjusted life years. A framework from healthcare economics, applied to climate finance. The moment he described it, the pieces connected.
If climate deeptech functionally alters an existential outcome, the models we use to value it aren’t just imprecise. They’re missing the point entirely.
That’s what this piece is about. I wrote it with Darren Clifford, the Founder and Managing Director of Adapt [us] Capital., whose framework is the intellectual core of the argument.
Deeptech startups need roughly twice the capital of software companies to get to the same stage. The exits, when they come, tend to arrive early, with acquisitions at Series B or C rather than IPOs, and at multiples that make the return math barely work for traditional VC. We’re applying a valuation methodology built for software to companies that do something software never could: alter existential outcomes.
I had a conversation recently with an investor who evaluates deals through a different lens: quality-adjusted life years (QALYs). It’s a framework borrowed from healthcare economics. A QALY assigns a value to a year of human life lived in full health. It’s used to assess whether a medical intervention is worth the cost.
The logic is uncomfortable in a finance context, because it puts a number on something markets haven’t priced.
If a drug extends life by two quality-adjusted years across a million patients, that has a quantifiable value. Healthcare systems use this to decide what to fund. Investors in certain biotech funds use it to assess impact.
Climate deeptech is doing something structurally similar. The interventions aren’t pharmaceutical, but the mechanism is the same: a company succeeds, and the future is materially different for a large number of people, whether it’s carbon emissions, air quality, flood events, heat mortality, or agricultural disruption at scale.
The QALY framework is one attempt to make that visible. It doesn’t translate directly to a DCF model, but it surfaces a question worth asking: if the product actually works, how much human welfare is preserved or created? And if that number is real, why isn’t it showing up anywhere in the valuation?
The standard answer is that markets price what they can capture.
A climate company can charge for improved QALYs to an individual: that’s embedded in the value proposition customers pay for. What it can’t capture is the societal QALY: the avoided flood death, the improved health outcome for someone its product never directly reaches. The market prices the first. It ignores the second entirely.
So investors use the proxies available: revenue, EBITDA, comparable exits, IRR targets set by LP mandates that have nothing to do with climate at all. Those comparable exits are anchored to hardware comps that have no existential upside baked in. The multiple gets set by what similar-looking businesses have sold for, not by what a successful outcome actually does to the world.
“We use eQALY because impact measurement without a common unit is just storytelling. We need to be able to compare a cooling company in India to a soil sensor company in Canada on the same basis,” says Darren Clifford, Managing Partner at Adapt [us]. “QALYs are that basis: they translate very different types of harm avoided into a number we can hold ourselves accountable to.”
“The societal side of that equation isn’t something companies can price into their products,” adds Darren. “That’s a policy problem. Subsidies, penalties, procurement standards: those are the tools that exist to internalize what individuals won’t pay for on their own.”
Climate deeptech gets priced like a hardware business with uncertain exits. If the models systematically exclude the outcome from the valuation, the resulting exit multiples aren’t wrong by accident. They’re incomplete by design. Investors working from incomplete models will keep leaving returns on the table. That propagates backward through the whole capital structure.
The QALY lens, or something like it, offers a different starting point: what would the valuation look like if we priced the outcome, not just the revenue model?
Some capital is already moving this way: impact-linked instruments, outcome-based finance structures, grant capital stacked against commercial tranches. They’re imperfect workarounds for a problem that lives upstream, at the valuation level.
If a company functionally alters an existential outcome, the multiple attached to that exit is not just a financial calculation. It’s a statement about how much we think that outcome is worth.
The market hasn’t answered that question yet. But some investors are starting to ask it.