• Prospinity allows college students to share in their success through income-share agreements.
• Just a year old, the startup already has hundreds of Ivy League students using its product.
• Prospinity raised $2 million to expand to new universities in a deal led by Slow Ventures.

When they were freshmen at Yale, Aarya Agarwal and his roommate, Samvel Antonyan, struck a handshake deal.

If either of them ever started a company that went supernova, they would sign away 10% of their income to the other.

"We shook hands, and at the moment, it was a bit of a joke," Agarwal said. "But we realized the deal actually made a lot of economic sense. It was a way to multiply by two times our chances of doing something super improbable."

Now, their startup, Prospinity, allows college students to enter into similar contracts. Through its platform, smart young people can join "success pools" of other smart young people who put a few percentage points of their annual income into a shared pot. Each year, the pot gets distributed evenly among the group. The idea is that if one of them becomes the next Mark Zuckerberg or Bill Gates, they will all succeed.

Just a year old, Prospinity is already used by students at Yale, MIT, Princeton, and Harvard, with job offers at firms like Blackstone, Bridgewater, and Amazon. Now, Prospinity has raised $2 million in a round led by Slow Ventures managing director Kevin Colleran to reach more students beyond the Ivy League.

Prospinity and Slow Ventures declined to comment on the valuation. Patrick Chung, a managing partner at Xfund and an investor in Sam Altman's first company, Loopt, also joined the round.

Slow Ventures has explored income sharing as an investment strategy before. It set aside $20 million from recent funds to buy equity in influencers, taking a percentage of their future profits for a set amount of time in exchange for upfront capital. Regulatory filings show Slow is now raising $275 million across two new funds, which Fortune first reported.

How Prospinity works

When Prospinity rolls out to a new university, it researches the student body and selects a handful of high achievers to create or join a success pool. They can hop onto Prospinity, check out the profiles of existing members, and filter by university or industry. Prospinity is now recruiting students from the University of California, Berkeley, to join the platform.

Prospinity says the contracts are legally binding and can ensure everyone pays their fair share over the agreement's term, typically 10 years. Pool members can also set a minimum income; if someone's earnings fall below the threshold, they're excluded from that year's distribution. Prospinity takes a 5% distribution cut in exchange for providing the technical and legal infrastructure to execute the contract.

While the company's hundreds of members are mostly still in school, they can start collecting distributions as other pool members contribute.

Agarwal, who studied computer science and economics at Yale before he dropped out to focus on Prospinity, said the company's premise is loosely based on the power law, a principle in venture capital that describes how a small number of investments often create the majority of returns, while the rest either break even or fail.

"As markets get more efficient, you're going to see more and more of these distributions where a few people make it big, and then everyone else tends to be left behind," Agarwal said. "I think success pools are going to be a very important way to hedge against that sort of uncertainty."

The company's founders, Agarwal and Antonyan along with Andrea Zanon and Andrea De Berardinis, belong to a larger success pool that agreed to share 2% of their income over a 10-year horizon.

Prospinity rolls out to more students

Hassaan Qadir, a Yale senior who took a semester off to start a company developing software for biology researchers, joined a Prospinity pool. He later folded the startup and accepted an internship at AppLovin, a Palo Alto company that provides marketing services to mobile app developers. Qadir plans to start another tech company someday and said being part of an income-sharing agreement with other founders gives him more chances of hitting the entrepreneurial jackpot.

Law school students, finance associates, and aspiring entrepreneurs compose his success pool of about 30 members.

"Theoretically, someone that you know is going to become really successful," Qadir said. "It's not totally up to who works the hardest."

Aron Ravin, another member of that same Prospinity pool, hopes to capture some potential upsides of being an entrepreneur as he climbs the corporate ladder. He joined that Prospinity pod during his senior year at Yale and now works as an associate at a prominent hedge fund. Ravin stands to make good money in finance, although he said he may not hit the jackpot as someone starting the next Uber or Palantir might.

Ravin declined to share how much of his income he's contributing to the pool but said it's between 1% and 5%. At a Prospinity mixer in New Haven, Connecticut, he mingled with some international students working on a sustainability venture, which got him thinking.

"It's a little promiscuous of me," Ravin said, "but maybe I'll join another pool in the future. Share the love."

• After a slower-than-anticipated year for healthcare funding, investors expect sunnier skies in 2025.
• 13 VCs from firms like ICONIQ Growth and AlleyCorp share their predictions for digital healthcare next year.
• They expect more M&A, funding for AI agents and clinical decision support, and Medicare shake-ups.

The healthtech sector will see more private-equity-backed M&A and a fierce battle between AI-scribing startups next year, according to thirteen investors in the healthcare VC market.

At the beginning of the year, healthcare venture capital appeared poised for a rebound. Investors hoping to do deals again after a two-year funding drought watched as healthcare startups flooded back to the market to grab more cash.

Those VCs raced to break out their checkbooks for hot new AI startups in the first quarter, from scribing startups like Abridge to automated prior authorization players like Cohere Health.

A confluence of macroeconomic factors — from still-high interest rates to fundraising struggles for venture firms to the uncertainty of a looming presidential election — dampened the anticipated resurgence. 2024's funding appears to be, at best, on pace with 2023 levels, with $8.2 billion raised by US digital health startups in the first three quarters of this year compared to $8.6 billion through Q3 2023, per Rock Health.

Now, with interest rates expected to drop and a new administration on the way, VCs are anticipating sunnier skies in 2025.

A pickup in healthcare M&A and IPOs

After a slow year for healthcare M&A, investors want to see more deals in 2025.

With interest rates expected to come down — and investors facing pressure to deploy capital — private equity buyers should be more active in 2025, said .406 Ventures managing director Liam Donohue.

And Flare Capital Partners' Parth Desai said he's already seeing private-equity-backed healthcare companies looking to buy smaller startups. Their goal, as he understands it, is to make tuck-in acquisitions in 2025 that improve their growth stories as they look ahead to potential IPOs in 2026.

"Maybe they're not phenomenal outcomes, but at the end of the day, they'll create some liquidity," Desai said of those acquisitions. "I expect that to be one of the first exit windows starting to manifest in 2025."

Investors were hopeful but unsure that the IPO window would meaningfully reopen for digital health startups in 2025, despite startups like Hinge Health and Omada Health signaling their intentions to test the public markets.

Venrock partner Bryan Roberts said he expects the healthcare IPO market to remain relatively quiet. LRV Health managing partner Keith Figlioli suggested we won't see IPO activity kick off until the second half of the year after other exit windows open.

VCs said they're mostly looking for smaller deals next year, from mergers of equals to asset sales. Figlioli and Foreground Capital partner Alice Zheng said we'll see even more consolidation and shutdowns in digital health next year as startups run out of cash.

"Investors will have to make tough decisions on their portfolio companies," Zheng said. "We want to support all of them, but we can't indefinitely."

Healthcare AI competition will get fierce

Healthcare startups using AI for administrative tasks were easily the hottest area of healthcare AI investment in 2024. Investors think the crop of well-funded competitors will face increasing pressures next year to expand their product lines.

ICONIQ Growth principal Sruthi Ramaswami said she expects the group of AI scribing startups that landed big funding rounds this year, from Abridge to Ambience Healthcare to Suki, to scale significantly next year using the fresh cash as hospitals scramble for solutions to the healthcare staffing shortage.

As these startups scale, however, they'll face pressure to expand beyond ambient scribing into other product lines, like using AI for medical coding and billing, said Kindred Ventures managing partner Kanyi Maqubela. Scribing technology could become a commodity sooner than later, with many providers trying free off-the-shelf scribing software rather than contracting with startups, Maqubela said.

"It'll be a race to who can start to build other services and build more of an ecosystem for their provider customers," he said.

Some AI startups, like Abridge, have already been vocal about their plans to expand into areas like coding or clinical decision support. The best-funded AI scribing startups may be able to acquire smaller startups to add those capabilities, but other scribing companies will be more likely to get bought out, Maqubela said.

Flare Capital Partners' Desai suggested that healthcare companies already focused on RCM will try to pick up scribing solutions as the tech becomes a must-have for hospitals. He pointed to Commure's $139 million take-private acquisition of Augmedix in July.

Ramaswami said that demonstrating a high return on investment would be critical for these startups as hospitals pick their favorites among various AI pilots.

Health insurance in flux in Trump's second term

While many VCs quietly celebrated the potential for more M&A and IPOs in 2025 following Trump's election in November, the incoming administration could bring some big shake-ups for healthcare markets.

Trump could move to boost private health insurers, including Medicare Advantage plans, in his second term, Venrock's Roberts said. That could be a boon for young insurers like Devoted Health and Alignment Healthcare fighting for Medicare Advantage market share, as well as startups contracting with insurers to improve healthcare payment processes.

He suggested the new administration may even roll back changes made in the Center for Medicare and Medicaid Services' latest reimbursement model for Medicare, which went into effect this year and resulted in lower payments for many Medicare Advantage plans in the agency's attempt to improve payment accuracy.

Brenton Fargnoli, a general partner at AlleyCorp, said he expects to see health insurers respond to these risk adjustment changes and move to control higher-than-expected medical costs over the past year by launching a bevy of new value-based care partnerships in 2025 for specialties, including oncology, cardiology, and musculoskeletal care.

Some healthcare experts are also concerned that the federal government could cut funding for Medicaid plans. These changes could force states to scramble for new strategies and potentially new partnerships to control healthcare costs for their Medicaid populations.

"If there is a significant shift in direction at the federal level, I think you're going to see certain states do much more than they have in the past to try to continue to address health disparities," said Jason Robart, cofounder and managing partner of Seae Ventures. "As it happens, that creates opportunities for private companies to leverage their innovative solutions to address the need."

Similarly, Muse Capital founding partner Rachel Springate said that while investors in reproductive health startups will be closely watching state-level regulatory changes that could impact their portfolio companies, those startups could see surges in consumer demand as founders step up to fill gaps in reproductive care access.

Some of the Trump administration's proposed moves could stunt progress for health and biotech startups by stalling regulatory oversight. Robert F. Kennedy Jr., Trump's pick to lead Health and Human Services, has said he wants to overhaul federal health agencies, including the Food and Drug Administration and the National Institutes of Health. Marissa Moore, a principal at OMERS Ventures, said the promised audits and restructuring efforts could lead to major delays in critical NIH research and FDA approvals of new drugs and medical devices.

What's hot in AI beyond scribes

In 2025, AI will be an expectation in healthcare startup pitches, not an exception, said Erica Murdoch, managing director at Unseen Capital. Startups have pivoted to position AI as a tool for improved efficiency rather than as their focal point — and any digital health startups not using AI, in turn, will need a good reason for it.

With that understanding, investors expect to see plenty more funding for healthcare AI in 2025. While many tools made headlines this year for their ability to automate certain parts of healthcare administration, .406 Ventures' Donohue and OMERS Ventures' Moore said they expect to see an explosion of AI agents in healthcare that can manage these processes autonomously.

Investors remain largely bullish about healthcare AI for administrative tasks over other use cases, but some think startups using the tech for aspects of patient diagnosis and treatment will pick up steam next year.

"We will begin to see a few true clinical decision support use cases come to light, and more pilots will begin to test the augmentation of clinicians and the support they truly need to deliver high quality, safe care," said LRV Health's Figlioli. He hinted the market will see some related funding announcements in early 2025.

Moore said she's also expecting to see more investments for AI-driven mental health services beyond traditional cognitive behavioral therapy models — "for example, just today I got pitched 'the world's first AI hypnotherapist."

Dan Mendelson, the CEO of JPMorgan's healthcare fund Morgan Health, said he's watching care navigation startups from Included Health to Transcarent to Morgan Health's portfolio company Personify that are now working to improve the employee experience with AI. The goal, he says, is for an employee to query the startup's wraparound solution and be directed to the right benefit via its AI, a capability he says he hasn't yet seen deployed at scale.

"These companies are racing to deploy their data and train their models, and we'd love to see a viable product in this area," he said.

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OpenAI’s efforts to develop its next major model, GPT-5, are running behind schedule, with results that don’t yet justify the enormous costs, according to a new report in The Wall Street Journal. This echoes an earlier report in The Information suggesting that OpenAI is looking to new strategies as GPT-5 might not represent as big […]

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On November 15, Peter Wang posted a message requesting ideas for a new incubator and fund to support experimental projects built on the burgeoning Bluesky/AT Protocol ecosystem. Four weeks later, Skyseed emerged with an initial commitment of $1 million. This turnaround, a speed underscored by the fact that the fund doesn’t even have a website […]

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After three years of tense reductions, the skies are clearing over Silicon Valley, and startup investors seem broadly optimistic about a resurgence in tech dealmaking.

We asked venture capitalists at 35 firms like Andreessen Horowitz, Insight Partners, IVP, and Sapphire Ventures, to tell us what's hot and what's not in tech next year, how potential regulatory changes could rouse a sleepy exit market, and where artificial intelligence goes from here.

In 2025, venture capitalists expect a loosening of antitrust regulations under the new presidential administration. This could reignite acquisition activity by strategic buyers, which would allow funds to distribute proceeds from those deals to their own investors, or limited partners, and raise new funds to invest in the next generation of startups, said Brian Garrett, managing director at Crosscut Ventures.

In recent years, startups weren't the only ones facing a cash crunch. Established funds raised the lion's share of funding dollars, while many newish and boutique funds struggled to raise. A torrent of dealmaking, combined with Trump's return to the White House and an end to the political uncertainty, could mobilize investors in these funds who had been sitting on the sidelines to whip out their checkbooks, said Ivan Nikkhoo, a managing partner at Navigate Ventures.

"Uncertainty breeds defense, optimism breeds offense," said Matt Murphy, a partner at Menlo Ventures and early Anthropic investor. "We're going into a cycle where acquirers are feeling they need to play offense and startups feel like it's time to invest in leadership. And the IPO market is open for best-in-class assets."

From IPOs to robotaxis, these are the tech trends to watch in 2025, according to venture capitalists.

Infrastructure cools off, apps soar

Jai Das, president and partner at Sapphire Ventures: "A larger number of 'application layer' companies will have a breakout year with several crossing $100 million in revenues. I predict 50 companies will cross $50 million ARR while still growing 60%+, and at least 10 will hit $100 million ARR. A lot of these companies will be prosumer companies, but there will be several business application companies as well."

Ben Lerer, managing partner at Lerer Hippeau: "When you get the cost of compute going down as quickly as it has, and the number of options in terms of foundational models growing as it has, you end up with a really interesting time for the application layer to thrive. If you're a startup, you can go with the flavor of the month — not just a ChatGPT wrapper, or a Claude wrapper, or a Gemini wrapper, or you name it — but some combination of all of them to optimize functionality, results, and the cost of those results."

Lower rates kick the IPO market into gear

Sofia Dolfe, partner at Index Ventures: "2025 is the year we will see the IPO market opening back up. There are already signs that this is on the horizon: we're seeing gradual recovery, rates have started to come down, and there are many later-stage companies with the financial profiles to go public."

Michael Yang, senior managing partner at Omers: "Two kinds of companies will go public as the IPO window opens back up next year. First, the truly great businesses that are really scaled and have forecastable growth and would've gone public earlier if the IPO market was more favorable, and second, companies that entered into structured financings with dirtier terms that need to go public for timing reasons."

Nima Wedlake, managing director at Thomvest Ventures: "The IPO market will remain closed for most tech companies, with a high bar for entry — $300 million-plus ARR, fast growth, and cash-flow breakeven or better."

As crypto prices surge, founders return to the drawing table

Nihal Mehta, general partner at Eniac: "Guidance on what the regulations could be for crypto and AI would encourage founders to build productively within those areas."

Jai Das, president and partner at Sapphire Ventures: "The new administration is crypto-friendly, bringing with it an expected acceleration of crypto-based business models (especially those using stablecoins). I predict we'll have another crypto mania in 2025."

Some venture funds go belly-up

Wesley Chan, cofounder and managing partner at FPV Ventures: "In 2025, I predict a lot of contraction for VCs, except for top funds. We're still in a downturn. Some firms shut down, a lot of firms are not doing new deals, and you will see a lot of junior-mid level employees leave."

The great funding bifurcation continues

Molly Alter, partner at Northzone: "The 'sexiest' deals will continue to raise at sky-high valuations, but for the rest of the pack, companies will need to show very specific metrics to command a strong valuation. There will be a great bifurcation into the 'haves' and the 'have-nots.'"

Don Butler, managing director at Thomvest Ventures: "Startup shutdowns will increase, particularly at the seed stage, as companies run out of cash. This will influence valuations, with investors likely focusing on startups that have shown resilience or achieved meaningful milestones."

Matt Murphy, partner at Menlo Ventures: "Valuations will rise as growth rates and market multiples recover, but many companies still might not grow back into their ZIRP valuations. People are over that and won't let it get in the way of pursuing opportunity. Valuations for GenAI companies will continue to be outliers based on any historical metrics."

Robotaxis cover new terrain

Brian Walsh, head of Wind Ventures: "2025 will be the year that we enter the age of 'robo taxis' with, first, Waymo now well along its adoption S-curve in San Francisco and expanding quickly, and, second, Tesla favorably positioned with quickly maturing best-in-class autonomy technology (no human in the loop) and an existing large fleet to scale it."

Kasper Sage, managing partner at BMW i Ventures: "Autonomous fleet deployments will gain traction in controlled, high-density environments such as for applications like campus environments and logistics for heavy industries."

Trump policy heralds return of megadeals

Aaron Jacobson, partner at NEA: "With the change of administration, I expect the return of mega M&A deals. We are going to see a 'WhatsApp' like $20 billion-plus M&A outcome for a leading AI company."

Michael Yang, senior managing partner at Omers: "Big Tech will be back at the M&A table with a new administration and regulatory regime in place. They've been quieter in recent times but should be chomping at the bit to capitalize on what is still a buyer's market."

Funding rounds become even more fluid

Sasha McKenzie and Van Jones, both deal leads at Wellington Access Ventures at Wellington Management: "The concept of letter rounds in VC is becoming more amorphous. We're seeing $30 million and $100 million seed rounds, raising questions about what seed even means anymore. The model is shifting towards evaluating how quickly founders can run and how disciplined they are with results, rather than hitting historically stated milestones (e.g., $1 million in revenue to raise a Series A). There will be more nuance in how VCs evaluate progress, focusing more on the operator and their ability to balance vision with execution, based on the capital they have."

Multi-agent systems take center stage

Aaron Jacobson, partner at NEA: "Chatbots are overhyped. Agents are under-hyped. Enterprises will move beyond the low-hanging fruit of 'GPT-wrappers' to deploy digital workers that can reason and take action to make a real business impact."

Praveen Akkiraju, managing director at Insight Partners: "If 2024 was the year of LLMs, we believe 2025 will be the year of agentic AI — where highly capable state-of-the-art reasoning LLMs are combined with orchestration frameworks like memory, tool calling, and user-in-the-loop processes to build AI agents that can address progressively complex business workflows."

Seema Amble, partner at Andreessen Horowitz: "In the short term, human workers will be the reviewer in the loop; in the future, as trust is established over time, I expect many data-derived actions will shift toward being entirely a set of narrowly defined task-driven agents."

S. Somasegar, managing director at Madrona: "The world where we each have a digital assistant that works with a collection of AI agents is probably five to ten years out. But having AI agents that can do specific tasks really, really well is happening sooner and I think we will see a ton of progress on this in 2025."

Tender offers grow for a selective group of companies

Ravi Viswanathan, founder and managing partner at NewView Capital: "The venture secondaries market will continue to be an important source of liquidity — a trend we think is here to stay due to structural dynamics of the venture asset class."

Simon Wu, partner at Cathay Innovation: "The size of tender offers has grown from millions to billions as the desire to own top-performing names by mutual funds and VCs increases, thus allowing some of the best names to stay private longer. Tenders are likely to get bigger to a selective group of companies in tandem with a more active IPO market next year."

Industry-specific software takes over

Molly Alter, partner at Northzone: "Vertical SaaS will become more highly valued than ever, due to the increasing difficulty of differentiating a product in horizontal categories."

Cathy Gao, partner at Sapphire Ventures: "Vertical software will evolve rapidly as AI moves to the agentic phase, enabling end-to-end automation of complex, industry-specific workflows that were once beyond the reach of software. By pairing deep domain expertise with intelligent automation, vertical AI will unlock new use cases, deliver outsized ROI, and become table stakes for staying competitive."

Fintech roars back

Alexa von Tobel, managing partner at Inspired Capital: "Given the new political climate, we, of course, expect to see less regulation across the board. I think we'll see acceleration in a few core categories, including fintech."

Marlon Nichols, managing partner at MaC Venture Capital: "Fintech is an area I'm excited to invest in, particularly fintech startups leveraging AI to create transformative personal finance tools."

Sydney Thomas, general partner at Symphonic Capital: "We are watching the regulatory environment towards fintech ease which has enabled massive speculation on what asset class will win. … This also means, many startups will be required to regulate themselves, which isn't always an easy thing to do."

Robots join society

Claire Yun, investor at Piva Capital: "Generative AI will continue to accelerate and supercharge robotics; simultaneously, we will see a choke point in human labor as an aging domestic workforce and protectionist policies create a sharp supply and demand imbalance. The result will be a colorful Cambrian explosion of robots as they step in to fill this gap."

Bob Ma, partner at Wind Ventures: "Urban areas will have fleets of robots on sidewalks, while drones will manage suburban and rural deliveries. Enhanced speed, cost-efficiency, and sustainability will redefine retail and e-commerce, with regulations supporting wider adoption and innovation."

Yuri Lee, partner at IVP: "As AI advances enable robots to move from structured, repetitive tasks to more complex and dynamic real-world applications, we'll see rapid progress in robotic perception, manipulation, and decision-making capabilities."

Small language models rise in popularity

Tasneem Dohadwala, partner at Excelestar Ventures: "Small language domain-specific models are starting to show more value. Instead of using vast swaths of the internet to train large models, these smaller models can be trained on specific datasets, such as medical journals, newspapers, or email collections. As a result, they are highly tailored and more accurate in reflecting a user's particular constraints and voice.

Michael Yang, senior managing partner at Omers: "If 2024 was the year of the LLMs, 2025 will be the year of small language models (SLMs) and proprietary data sets spawning the next generation of enterprise SaaS applications. Companies have realized that data in their midst can be harnessed in new and better ways than the 'structured workflow apps' of old and by leveraging targeted SLMs, they can do work differently, more efficiently."

Founders flock to private equity

Brad Bernstein, managing partner at FTB Capital: "Despite the IPO market showing better performance in Q3'24 with proceeds already surpassing 2023 totals, structural issues like regulatory burdens and governance challenges still pose obstacles for small and mid-cap companies. Private equity markets are stepping in to fill the gap, with growth equity deals comprising a larger share of activity and providing opportunities for startups in high-growth sectors like insurtech and healthcare tech."

Jai Das, president and partner at Sapphire Partners: "With the new administration, I predict we will see an uptick in exits, and much more tech M&A activity. We'll also see PE firms buying up a lot of companies once boards and management teams realize these businesses won't be able to grow at 30% at scale and ultimately, IPO."

Open-source foundation models come for OpenAI and xAI's lunch

Aaron Jacobson, partner at NEA: "Open-source foundation models will close the gap with the leading proprietary models. On top of this we will see a significant shift away from pre-training models from scratch to fine tuning OSS models and distilling them to smaller models for faster performance."

Mo Jomaa, partner at CapitalG: "I predict that in 2025 we will continue to see open source technologies consume the infrastructure layer in software. We have seen this trend play out in several categories already, including data and analytics (which led to our investment in Databricks) and observability (which drove our investment in Grafana). Enterprises will continue to adopt open source because it helps them save money, avoid vendor lock-in, and shape the product roadmaps of the technologies that they procure."

Record deals and dollars flow to cyber and national security

Andrew Schoen, partner at NEA: "We will see a surge of investment into technologies critical to restarting the US industrial base and enhancing national security. A record number of deals and dollars will go into AI, automation, cybersecurity, and frontier technology serving manufacturing, supply chain, and defense markets."

Jake Seid, general partner at Ballistic Ventures: "Over the next 18 months, we're going to see a lot more cybersecurity exits. While this may include an uptick in M&A activity, I expect we'll see cybersecurity companies go public in 2025 and in the first half of 2026 given how large the market for cyber products has become."

Trump's tech advisors bend his ear

Samir Kumar, general partner at Touring Capital: "We should expect a lot less regulatory headwinds in 2025 for AI given David Sacks will be the AI and crypto czar for the new administration. This is likely to even result in the repeal of President Biden's executive order on AI."

Francesco Ricciuti, associate at Runa Capital: "In the US, Trump is bringing prominent people from the startup and VC world in the government, and I wouldn't be surprised if the regulatory landscape will evolve towards entrepreneurship and technology."

On the first day of Y Combinator the founders of PearAI got “cancelled." They used the hate to launch a new product, raise $1 million.

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OpenAI has announced its latest AI reasoning models, o3 and o3-mini, which aim to tackle complex problems with greater precision and efficiency. These models represent a significant leap in AI capabilities, building on the foundation set by the o1 series […]

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Welcome to Startups Weekly — your weekly recap of everything you can’t miss from the world of startups. Want it in your inbox every Friday? Sign up here. This week was full of news, likely because it is also the last “real” week of 2024. Which is another way for us to say goodbye for […]

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Chip company Nvidia gets the green light from the European Union to complete its acquisition of Run:ai. The EU came to a unanimous decision today that Nvidia could go ahead with its acquisition of Israeli GPU orchestration platform Run:ai, according to reporting from Bloomberg. The European Commission determined that if the merger went through, other […]

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In the first half of 2024 alone, more than $35.5 billion was invested into AI startups globally.

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• Startups like Equatic and Climeworks develop ways to remove carbon dioxide from the atmosphere.
• Carbon removal helps businesses meet ESG goals and offset emissions through a carbon credits system.
• This article is part of "Transforming Business," a series on the must-know leaders and trends impacting industries.

Out on a barge in Los Angeles, a team of engineers is hard at work tweaking the designs of a collection of machines with multiple tubes attached to tanks filled with air and different minerals.

The team works for a startup called Equatic, which uses a process called sea electrolysis to remove carbon dioxide from the atmosphere. Seawater runs through an electrolyzer, which separates the water into an acid and a base. Rock minerals neutralize the acid, and the base mixes with CO2 from the atmosphere. This results in carbonates that can safely return to the ocean.

Carbon removal technologies, like those developed by Equatic, can transform businesses by helping them reduce their legacy carbon footprint. For many companies with environmental, social, and governance goals, investing in carbon removal through the purchase of carbon credits helps them offset their emissions and get closer to their goal of being "net zero." For rapidly developing industries like artificial intelligence that massively consume energy, implementing carbon removal could help offset emissions in the long term.

The idea of Equatic emerged in the research labs at the University of California, Los Angeles, with a team led by its cofounder Gaurav Sant, a sustainability professor at the school.

Sant said that his team began thinking about how to activate and expand the capacity of oceans, which already naturally absorb CO2 from the atmosphere. Processes such as sea electrolysis have been used for decades, though scaling ocean carbon removal technology has started only in the past few years. Sant said his experience as a cement chemist helped him consider ways to reduce carbon emissions.

"There was very little attention that was being paid truthfully to reducing the carbon intensity of cement production and concrete construction," Sant said. "The journey started with low-carbon cement and low-carbon concrete, and from there, it sort of went into a bunch of other things."

For startups that want to break into the industry and market their product's integrity, they must make carbon removal measurable. At the development plant in Los Angeles, Equatic engineers measure the machinery's ability to remove carbon and produce hydrogen. They then quantify carbon removal results. They also publish their findings in peer-reviewed scientific research papers.

Equatic is developing the world's largest ocean-based carbon removal plant in Singapore, a demonstration project in partnership with the country's National Water Agency. The plan for the new plant is to remove 4,000 tons of CO2 annually and create 300 kg of carbon-negative hydrogen a day, according to its website. If these projects succeed, Equatic intends to take its idea to a commercial scale.

For Climeworks, a Zurich carbon removal startup, scaling has taken place gradually over the past fifteen years. The company uses direct air capture technology at its plants to suck CO2 out of the air and then later mineralize it into a solid rock form and store it underground.

"What carbon removal can offer to businesses is making sure that CO2 in the atmosphere, or climate in general, is not a barrier to growth," Jan Wurzbacher, the CEO of Climeworks, said.

The carbon credits market has shortcomings

While these companies plan to scale commercially, startups like Equatic sell carbon credits to businesses and individuals who want to reduce their carbon footprint. Two of Equatic's customers are Boeing and Stripe. Climeworks counts Microsoft, Boston Consulting Group, and Shopify as clients.

The carbon credits market is highly unregulated, dotted with stories of credits sold but followed by incomplete actions and scams. An investigation by The Washington Post found that some carbon credit ventures reaped profits from protected public lands in the Brazilian Amazon forests and failed to share profits with locals. Essentially, these ventures gave the impression that they would reduce emissions but used lands they had no rights to, possibly invalidating the credits they said they would offset for companies such as Netflix, Salesforce, and Boeing.

"Some 'cheaper' carbon credits that you can buy are not easily verifiable," said Indroneil Ganguly, an environmental and forests sciences professor at the University of Washington.

Critics of carbon credits argue that this system allows businesses to continue polluting. Some businesses, such as Occidental Petroleum, invest in carbon removal and use the process to extract more fossil fuels. While telling businesses to cut emissions would be ideal, Wurzbacher said that cutting them entirely or converting to more sustainable practices could be costly and not immediate.

Carbon removal can be expensive

Even at the rapid scaling rate of these carbon removal startups, their emissions removal is only a small drop in the sea. In 2022 alone, the global aviation industry emitted 800 megatons of CO2. In comparison, Climework's first commercial plant in Iceland, called Orca, can remove 4,000 tons a year, the company says. Climeworks said its larger Mammoth plant would be able to remove 36,000 tons.

The biggest hurdle for carbon removal startups like Equatic and Climeworks is cost. A plus side of Equatic's sea electrolysis process is that it creates hydrogen, which can be used as a clean energy source and lower the technology's costs.

"So you push the price down, right, and that's what stimulates the market," Edward Sanders, the CEO of Equatic, said.

What's more, carbon removal is a voluntary purchase and an elastic good, meaning that it depends on the desire of individuals or businesses to participate, and the demand can shift significantly with price.

"The way in which we are going to get the necessary volumes is going to be at a price point they can accept and still manufacture the goods they are making and clear the services they do," Sanders said.

The cost to permanently remove 1 ton of CO2 right now is between $600-$1,000. Scaling up existing technology requires more laborers and building very specific machinery, Wurzbacher said. Both Climeworks and Equatic have received grants from the US Department of Energy, including a grant for Climeworks to subsidize its expansions in Louisiana and Texas.

This year, Climeworks expanded beyond permanent carbon removal and began offering a new solutions branch of its business. If the direct air capture method is too expensive for customers, Climeworks finds a portfolio of other options they can use, such as reforestation and biomass storage.

The incoming Trump administration raises questions about the future of carbon removal and whether companies will be motivated to cut emissions. 

Both Climeworks' and Equatic's respective CEOs said that while timelines and execution could change, these solutions still had bipartisan support and political momentum. Also, carbon removal itself is inherently adaptive.

"The nice thing about direct air capture," Wurzbacher said, "is that you can basically do it anywhere in the world and have your customers at a very different place."

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