Third Sphere: Impact in Transition

For well over a decade, the team at early-stage venture capital firm Third Sphere had approached climate-focused investing by imagining what a successful outcome might look like—how technologies might reshape energy systems, transportation networks, or infrastructure over time—and then backing the startups capable of building that future. Rather than avoiding capital-intensive sectors such as hardware or infrastructure, the firm deliberately pursued them, backing early-stage companies aiming to transform the physical systems underlying modern economies.

Over thirteen years, Third Sphere had invested in more than one hundred startups pursuing that vision. Several portfolio companies were growing rapidly, and the firm estimated that its top quartile investments alone had already helped reduce 45.7 million tons of carbon emissions while improving resilience for 300 million people exposed to climate risks.

Yet as the team prepared to raise its next fund, a new challenge emerged: not just how to define impact, but how to align it with how companies were funded. Amid an increasingly contentious political and regulatory environment, the very definition of impact was shifting—political backlash against ESG had intensified in parts of the U.S. and European regulations were forcing funds to classify sustainability strategies more precisely. Meanwhile, the rapid expansion of artificial intelligence (AI) was reshaping energy demand and infrastructure investment. To raise capital at scale, the team wanted to understand how limited partners were diligencing impact and evaluating climate venture funds—and whether their expectations had changed.