The Rule of 44

I spent the last two weeks travelling for, among other events and cities, DC Climate Week and SF Climate Week.

I met formally with six companies with fascinating technologies - and informally with nearly a half dozen more.

I passed on all of them.

Not because of the technology.

Not because of the team.

Because of one thing: 

They didn’t understand price.

This is becoming a pattern.

Different sectors.

Different stages.

Different geographies.

Same issue.

Some founders still believe they can charge more than the incumbent.

Others believe price parity is the goal.

Both are wrong.

We’ve spent the better part of a decade talking about the “green premium.”

The idea that customers will pay more for a cleaner solution.

It sounds reasonable. It feels right. It signals virtue.

It’s also mostly fiction.

Customers don’t pay more just because something is green.

Not at scale. Not consistently. Not in a way that builds venture-backable businesses.

So founders adapt.

They abandon the premium and aim for parity.

“If I can just match the cost of the incumbent, I win.”

No. You don’t.

Procurement doesn’t work that way.

And this is where most climate tech business models quietly break.

The real benchmark isn’t the incumbent price.

It’s the cost of staying with the incumbent.

That cost is almost always higher than it appears.

Reliability history.

Operational familiarity.

Financing structure.

Switching risk.

Continuity of operations.

None of these show up cleanly in a line-item comparison.

But they are very real.

When a customer evaluates a new solution, they are not comparing:

• Old price vs. new price.

They are comparing:

• Known system vs. uncertain system.

And uncertainty carries a premium.

In most industries, that premium sits somewhere between 25% and 60%.

Meaning a new solution doesn’t need to be as good as the incumbent.

It needs to be materially better.

This isn’t unique to climate tech.

It’s true for any challenger technology.

Software displacing legacy systems.

New medical devices replacing standards of care.

Next-generation engines replacing installed fleets.

The shape is always the same.

Climate tech is not different in kind.

It is different in magnitude.

So if the green premium doesn’t exist…

And price parity isn’t enough…

What actually works?

The Rule of 44

I’ve started using a simple framework to explain this to founders and investors.

Because what climate tech lacks right now is not ambition.

It’s discipline.

The Rule of 40 did that for SaaS.

It compressed the central tension - growth vs. profitability - into a single number.

It wasn’t perfect.

But it was useful.

It created a shared language between founders, investors, and boards.

Climate tech needs the same thing.

The Rule of 44

Customer Margin Improvement + Carbon Threshold Adjustment ≥ 44%

If you hit it…

The deal is category leading.

Why 44?

Because that’s what CO₂ weighs.

And because the discipline should be anchored in the physics of the problem itself.

But the number matters less than the behavior it forces.

Because once you start applying it, something interesting happens.

Most deals…don’t clear it.

Customer Margin Improvement (CMI)

This is the part that matters most.

And the part most founders get wrong.

It’s not about your price.

It’s about your customer’s margin.

Your product needs to expand your customer’s economics in a meaningful way.

Not incrementally.

Structurally.

Across the deals that actually scale, the pattern is consistent:

Below ~15% → pilots

20–35% → scalable businesses

Above ~35% → demand is no longer the constraint

This is where adoption flips.

Not because the product is better.

But because the economics are undeniable.

No CMI…no procurement.

No procurement…no scale.

This is the universal rule.

Climate tech is not exempt from it.

Carbon Threshold Adjustment (CTA) 

(What People Have Been Calling “Green Premium”)

This is where the confusion starts.

Customers don’t pay more for green.

They capture value elsewhere.

That value can come from:

• Regulation that carries commercial consequences

• Environmental commodity markets

• Premium end customers

• Tax credits

• Contracted offtake agreements

But here’s the key:

It has to be real.

It has to be durable.

And it has to show up in the customer’s P&L.

Most of what gets labeled “green premium” doesn’t meet that bar.

A corporate ESG narrative isn’t value.

A future carbon market isn’t value.

A policy that might change isn’t value.

And a tax credit, on its own, isn’t value either.

It’s an input.

Not a threshold adjustment.

This distinction matters.

Because it changes the entire sales conversation.

You’re not asking a customer to pay more.

You’re recognizing that part of the value you deliver is already being captured somewhere else.

And when that value is real…

It reduces the burden on Customer Margin Improvement.

Putting It Together

The Rule of 44 forces a simple question:

Where does the value come from?

Do you deliver it through margin improvement?

Through carbon value?

Or both?

If the answer is neither…

The deal doesn’t close.

And this is exactly what I saw over the past two weeks.

Brilliant teams.

Strong technologies.

Large theoretical markets.

But when you ran the math…

They were stuck at 15%.

Or 20%.

Or minus 25%.

Interesting.

But not investable at scale.

Why 44 Matters

The number is high.

Deliberately so.

Most climate tech companies won’t hit it today.

That’s the point.

The Rule of 40 didn’t describe average SaaS companies.

It described the ones that mattered.

This does the same.

~20% builds pilots

~30% builds real businesses

44%+ builds category leaders

Below 44 isn’t failure.

It’s a different conversation.

But if you’re building for venture-scale outcomes…

You need to know where you sit.

The Shift That Matters

For years, climate tech has been underwritten on narrative.

Impact.

Alignment.

Signaling.

Those things mattered.

They helped build the category.

But they don’t scale it.

What scales is economics.

And that shift is happening now.

Quietly in some sectors.

Rapidly in others.

The winners in the next decade won’t be the ones with the best story.

They’ll be the ones that make their customers more profitable.

That’s the unlock.

The Real Insight

Climate tech doesn’t win because it’s necessary, even if it is.

It wins because it’s better economics.

From:

“We should do this.”

To:

“We would be irrational not to do this.”

That’s where capital flows.

That’s where adoption happens.

That’s where Gigacorns get built.

If you’re building…run the math.

If you’re investing…demand it.

CMI + CTA ≥ 44%

Everything else is just storytelling.

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To read more, you can purchase The Gigacorn Hunter: Seven Principles for a Climate Investor here.

If you would like access to the white paper from which this article has been summarized, send me a DM and I will send it along.