This Start-Up Taps Into A Hidden World To Restore Biodiversity And Capture CO2

Executive Summary

Humans often overlook the most important things in life. Scientists are just starting to understand that we are only able to enjoy the shade and grandeur of a stand of Giant Sequoias or revel in the mélange of wildflowers in a meadow thanks to a complex, interconnected ecosystem of tiny organisms we never see in daily life. One start-up, headed by a world-renowned expert in forest soils and the organisms living there, took a moment to smell the flowers. He and his company have found an interesting way to pay landowners to increase biodiversity and slow the progress of climate change.

Funga is an Ag Tech start-up leveraging recent advances in mycology—the study of fungi—to increase the carbon sequestration capacity of commercial pine tree plantations. It was founded by Dr. Colin Averill, a world-renowned expert on mycorrhizal networks, a type of fungi that forms symbiotic relationships with trees that enables the trees to grow quicker and to adapt more easily to climactic changes.

The company generates revenues by selling high-quality carbon credits on the additional carbon stored by trees after the soils are “inoculated” with a community of mycorrhizae and other microscopic soil dwellers that Funga scientists select with the help of vast datasets and machine learning algorithms.

Funga announced in February that it had closed a $4 million financing with several leading venture capital investors. Averill and his team are using that money to develop carbon credit projects in pine plantations in the southeastern United States with plans to soon expand globally.

Funga’s Founder and Brief Company History

Funga’s founder and CEO, Averill, is an expert in the role of mycorrhizal networks in forested ecosystems. He is well-respected in his field, having made important advances to scholarship during his doctoral and post-doctoral research at the world-famous Crowther Lab at ETH Zurich, a leading institution for environmental research and the alma mater of none other than Albert Einstein.

Averill says he originally got the idea for Funga in 2021 while working as a researcher at the Crowther Lab and began the process of shaping a business plan and raising start-up capital in 2022. Supported by Averill’s strong background, the scientific rigor with which he is working, and the underlying demand for high-quality carbon credits from corporate buyers, the fundraising proceeded quickly.

Funga announced in February, 2023 that it had closed a $4 million financing round led by Azolla Ventures with participation from Better Ventures, Trailhead Capital, and Shared Future Fund. Averill was able to hire a team of about a dozen scientists and forestry experts, who are working hard to scale up Funga as a business worldwide.

I was curious about how Averill has found the transition from scientist to entrepreneur. He told me that some skills were quite portable—writing grant proposals to fund research projects is similar to preparing a pitch deck to shop around to VCs, for instance. Funga’s vibe is collegial, so feels similar to an academic laboratory.

When discussing cultural differences between academe and industry, he expressed an idea that I had heard from other academics as well: the academic world is a terrific place to explore new ideas, but is not the ideal environment to try to scale these ideas into world-changing movements. Recognizing the desperate need for large-scale, easily implementable solutions to the dual crises of climate and biodiversity loss, he felt called to start Funga.

The Science behind Funga

A few years ago, politicians got very excited about some research out of the Crowther Lab that suggested humans could reverse a decade’s worth of the carbon cycle imbalance causing climate change by planting a trillion trees. President Trump even mentioned and praised the “Trillion Tree Initiative” in his 2020 State of the Union Address.

As if on cue, countries and organizations were touting their tree planting initiatives.

However, research out of Stanford suggests that, unless afforestation programs are structured intelligently, overseen diligently, and managed proactively, tree planting can actually decrease biodiversity and have negligible or negative effects on carbon sequestration.

The big problem with the naive tree planting idea is that we humans, seeing only the trunks, branches, and leaves above ground, have no understanding (and therefore no appreciation) for the complexity of the biosphere flourishing within the soil of a healthy, natural forest.

My favorite Japanese poet and calligrapher, Mitsuo Aida, executed a wonderful work which, translated into English, goes something like this:

“A water main running underground / A sewage pipe under a skyscraper / The most important things do not appear on the surface.” (translated by the author)

Over the past few years, scientists have been taking a closer look at the importance of the soil microbiome—the bacteria, protists, archaea, and fungi that make up a world of life that is normally completely invisible to us surface dwellers—and the revelations from their work have been profound.

Their work showed that the soil microbiome governs the biogeochemical cycling of plant macronutrients (e.g., nitrogen, phosphorous, and potassium) and micronutrients (e.g., boron, manganese, and copper). Mycorrhizae are filamentous fungi that form a critical component of the soil microbiome. Some species of mycorrhizae grow in sheaths around plants’ roots and some even burrow into them—forming a tight, symbiotic relationship between the themselves and the plants.

Mycorrhizae have evolved to capture certain nutrients and minerals necessary for plant growth from the soil and use those nutrients as “currency” which they exchange for sugars (i.e., carbon-containing molecules) created by the plants during photosynthesis. The symbiotic relationship between fungi and plants is so important that scientists believe the partnership was the main factor allowing the emergence of life on land.

If the soil contains too few organisms or a broad enough selection of organisms, the soil is said to lack biodiversity and the trees end up not being provided with the necessary nutrients. In this case, rather than taking in additional carbon dioxide from the atmosphere, trees will be forced to slough it off through the process of “respiration”—breathing out carbon dioxide just like we animals do.

In exchange for the fungi providing nutrients to trees, trees pass fungi a substantial amount of the carbon dioxide they capture during the photosynthetic process. According to a recent scientific study, each year, mycorrhizal networks end up receiving and sequestering the equivalent of nearly two-fifths of the CO2 emissions that humans created from burning fossil fuels during all of 2021.

In other words, the forests we cannot see—the forests of microscopic fungi, bacteria and the like, which live within the soil of the forests we can see—end up doing a lot of the heavy lifting of atmospheric carbon sequestration.

The carbon sequestration services provided by fungi have one big drawback. If the soil is dug up, much of the carbon sequestered there is released back into the atmosphere. Land use changes—converting forestland to farmland, plowing farmland, or cutting roads through forests (i.e., everything that is happening in the Amazon basin right now)—all do great damage to soil ecosystem biodiversity and thus to the soil’s ability to sequester carbon.

Averill reasoned that if carbon sequestration capacity could be lowered by disturbing the soil and destroying the biodiversity there, it could be raised by returning the soil to health. Research that he and some colleagues published in the journal Nature Microbiology showed that, in fact, “…native soil microbiome restoration can accelerate plant biomass production by 64% on average, across ecosystems.”

Averill calls the conversion of natural ecosystems into agricultural land the biggest land use change of the 20th century and sees the possibility of restoring some of that agricultural land with the reintroduction of forests and the most significant land use change of the 21st century.

Climate Impact

The projects in which I am most interested do three things:

1. Help civilization adapt to climate change,
2. Help our ecosystem mitigate the effects of climate change, and
3. Help restore the earth’s biosphere to pre-industrial levels of health.

Funga’s service checks all these boxes.

The adaptation piece is important because we have already opened Pandora’s climate box by throwing off the natural carbon cycle through the combustion of fossil fuels. Everyone complaining about the “strange” and “extreme” weather this year might consider that by 2073, 2023 will be recorded as one of the coolest years in the preceding 50 years with the fewest “extreme” weather events.

Funga helps our civilization adapt to the reality of climate change and mitigate its effects by making forests more resilient to damage caused by higher air temperatures and invasive species.

Mycorrhizal fungi have preferences in living environments; in the same way that plants such as cacti have adapted to hot, dry environments, some mycorrhizae have also evolved to tolerate hotter, drier climates. Amazingly, when a healthy soil microbiome with mycorrhizae evolved to flourish in a dry environment is inoculated into soil in another location, it confers drought tolerance to the plants living in the new location. Increasing average air temperatures are drying out soils, so making changes to the soil ecosystem that will confer the ability for plants to tolerate the drier conditions better will help.

In addition to drought tolerance, Averill tells me that there is evidence that mycorrhizal networks and a biodiverse soil microbiome can help plants resist infestations of aboveground pests. In other words, as our climate grows inexorably warmer and as invasive species begin to migrate to higher latitudes, one of the best lines of defense for our forests exists in the form of a robust, healthy soil microbiome.

In terms of ecosystem restoration, Funga’s entire business model is based upon bioremediation projects designed to restore the soil ecosystem to a natural and sustainable balance. While this is an ecosystem remediation project that does not jump to front of mind for many of us, because of the positive effects of a healthy soil microbiome to the plants living in that soil, it is a vital one!

Funga’s Business

Averill and his team of at Funga are transplanting healthy communities of soil microorganisms from flourishing, natural forests to plantations of loblolly pine (Pinus taeda) forests. Loblolly pine is the most important commercial timber species in the United States and is widely used for furniture, plywood, composite boards, utility poles and pilings, beams and trusses, and the like.

The business model that Averill and his team have developed relies upon the stimulative and protective effects of a healthy microbiome on the carbon sequestration capacity of a forest.

Funga scientists figure out what soil microbiomes are the best at prompting the growth of a certain species of plant, then transplant it into depleted soils in which a stand of commercial pines is growing. This soil inoculation spurs plants to grow quicker and thus sequester more carbon. Funga sells high-quality carbon credits generated by the additional carbon sequestered.

Averill points out that many companies have attempted to use mycorrhizal inoculants in agriculture (especially in the cultivation of common row crops), but the scientific evidence is that the effectiveness of these commercial programs has been limited. In contrast to these minimally-effective commercial projects, that typically introduce from one to ten species of fungi into a cultivated ecosystem, the communities Funga uses to inoculate pine plantations contain hundreds of species of fungi that are “matched [to the forests] based on environmental conditions like climate and soil type.”

In addition to being able to come up with a novel product as Averill has, the mark of a good entrepreneur is someone who picks the fattest pitches to swing at. Averill has picked a very fat pitch with which to launch his venture.

Loblolly pine plantations cover around 30 million acres in the American south—about a third of the area planted with corn or soybean and nearly two thirds of the area planted with wheat. Even though people usually think about grains when they hear the word “agriculture,” loblolly pine is a major agricultural commodity. One of the first things VCs want to hear is that a business will “scale.” Funga’s business clearly scales.

Pine plantations are essentially CAFOs for trees—companies plant separate stands cyclically, let each stand grow for a relatively short 25 years, then clear cut the trees and spray down everything with herbicide to prevent weeds from growing. If you want step-by-step instructions on how to destroy soil biodiversity, just read through the previous sentence.

By picking soil that has been so brutally managed, Averill and his team have a very low performance hurdle which they believe their technology can easily show good results. Also, Averill tells me that pine trees are recognized to be very tightly linked to their mycorrhizal communities. Because of this tight linkage, Averill has good confidence that providing healthy soil ecosystem communities to commercial pine trees will have a clear and material positive effect on forest growth. He tells me that because he and his team all come from the world of academic forest carbon cycle science, they have created a business model that allows them to create the highest quality carbon credit projects—those that will be clearly “additional” (i.e., provide benefits that would not exist if the project was not done), have high permanence, and which avoid “leakage risk” (i.e., the risk that protection of trees in one area will simply prompt the harvesting of trees in another area).

In addition to the selection of an easy market in which to work, Funga incorporates high-tech tools into the process to maximize the efficiency of the soil restoration / carbon sequestration process.

The team has developed machine learning algorithms to help sort through a myriad of soil and tree species and ecosystems to select whole communities of soil microorganisms that will be most likely to provide a carbon sequestration boost in the trees his clients are growing.

Averill explained to me that “…soil microbial communities are inherently very diverse and complex. A handful of soil easily contains over 1,000 coexisting species of fungi and bacteria. Our data platform can sort through the intact from the degraded, and identify the complex, biodiverse communities that are also linked to forest growth...By developing ways to work with complex, ultra-diverse communities we are more likely to deliver positive outcomes.”

Once the AI routines select a few of the most promising communities, Funga scientists and foresters test them in the field, measuring the difference in growth of the target species when exposed to different communities or to no fungal inoculation at all.

These tests provide a base growth rate (the uninoculated trees) and quantify how much higher the growth rate is for the inoculated trees. This comparison of growth rates offers the perfect yardstick for carbon markets; if inoculated trees are 30% larger than uninoculated ones, they sequester about 30% more carbon dioxide. The delta between the base rate and the improved rate can be converted into carbon credits and sold to companies wishing to offset part of their carbon footprints.

Because Funga is working with managed forests and providing clear quantitative proof of additional “woody biomass” grown after inoculation, Averill says that the credits he is selling are considered by big, important buyers as being very high-quality ones so the recent bad press related to poor quality Nature Based Solution (i.e., tree growing) carbon projects have served as a huge tailwind for his business.

Because Averill’s research shows added resiliency of inoculated trees to climactic shocks and infestations, he can also set aside fewer acres as a “buffer” for the carbon credit project.* Interestingly, Averill says that he is only selling carbon credits on the additional above-ground tree mass rather than both the above- and below-ground sequestration advantages. As the scientific understanding of soil carbon sequestration becomes better understood and the credit certification organizations catch up with the scientific literature, Averill’s solution may be able to claim even larger credit sales for each acre of inoculated forest.

Averill is focusing on the loblolly pine of the southeastern U.S. because it is such a widely grown and important commercial species. However, as Funga’s work becomes more recognized, he believes that he has a compelling marketing story for countries and NGOs trying to figure out how to fund afforestation or reforestation efforts.

Some of you may have the same reaction I did when I mulled over the implications of Funga’s work with pine plantations; Funga is helping trees which are destined to be cut down to be used for lumber. However, cutting down trees does not immediately release the carbon sequestered within to the extent that the wood ends up going into homes or other building projects. The release of sequestered carbon only occurs when a chemical breakdown of the wood occurs—either when the wood burns or when it rots. As such, specially treated wood termed Mass Timber has started to be used—especially in Europe—as a concrete or steel replacement that lowers the carbon footprint of new construction projects.**

In other words, to the extent that wood can be grown and harvested sustainably, it provides a fairly permanent carbon sink if used as long-term building material and also cuts carbon emissions through lowered demand for high-carbon footprint steel and concrete.

Talking to Averill about the difference between his Nature-Enhancing Solution and a mechanical solution like Direct Air Capture, he is careful to point out that these two approaches are complementary rather than competitive. He understands the terrestrial carbon cycle well, so knows that the timescale of trees is measured in decades whereas the timescales of geological storage are measured in epochs. Despite this, he believes—and I agree—that a “silver buckshot” approach makes sense in the attempt to mitigate climate change: throw a diverse set of partial solutions to jointly solve the problems of climate change and biodiversity loss.

Solutions like Averill’s can help provide a cushion for the next few decades that hopefully, humanity will take advantage of in realigning industrial and energy production to sustainable sources.

Erik’s Take

I like Funga’s approach and other experts in the field of mycology with whom I spoke like it too.

Dr. Greg Mueller, Chief Scientist Emeritus, Chicago Botanic Garden, said that he appreciated the work that Averill and his team at Funga is doing and believes it has the possibility to improve the success of reforestation and other large tree planting initiatives. When I asked him if he saw any difficulties to Funga’s plan, he spoke about logistical issues rather than scientific ones.

How will Funga get enough spores of the right sort to transplant to the plantations? Will Funga create “greenhouses” of mycorrhizal fungi they will use, or will they be digging up soil from healthy forests and transplanting it directly? If the latter, how can Funga take enough mycorrhizae to inoculate the commercial forest without damaging the host ecosystem?

When I put these questions to Averill, he told me that “[a] major R&D focus at Funga is tackling this very problem. How can we sustainably source wild microbiology at scale?” This R&D work is underway, and Averill says he is encouraged about the direction the work is going but is not ready to go public with the details just yet. He hints that he and his team are looking to amplify the communities he is transplanting using “…technology that leans into nature’s inherent ability to replicate itself.”

Averill talks about the work he is doing at Funga as “fecal microbiota transplants for the forest.” FMT—a process by which organisms from a healthy person’s gut microbiome are transplanted in a patient suffering from an infection—has been used to treat a painful gastrointestinal condition in humans caused by a bacteria called Clostridium difficile (C. diff). It is also being used in experimental trials to treat other maladies.

While the comparison between Funga’s business and FMT is probably left out of one of Averill’s pitch decks, mulling over his point led me to an epiphany.

Namely, I realized that while we are used to thinking of ourselves as individuals, from a microscopic perspective, we in fact represent vast ecosystems supporting a myriad of species. When the species to which we play host fall out of balance, our own health suffers (A recent book entitled Allergic: Our Irritated Bodies In A Changing World by Theresa MacPhail explores this topic brilliantly).

Climate change is a process brought about by a similar loss of balance. From the earth’s perspective, one of its tiny denizens (humans) have unbalanced the carbon cycle—pumping out fossil carbon stores that have been in place for millions or hundreds of millions of years at such a high rate, natural processes that have evolved to use this carbon and cycle it through the system cannot keep up.

Averill’s team is working on returning balance to one of earth’s component ecosystems—forests. As soil becomes more biodiverse, it becomes healthier. As soil becomes healthier, the trees growing in it do too. When the trees and soil are healthy, the forests can take in more of the 420 parts per million (and counting) of atmospheric carbon dioxide in the atmosphere.

Averill and his team at Funga know, as I know, that, as a civilization, we must start focusing on systematic solutions to mitigate and adapt to climate change. Intelligent investors take note!

Mia Kobayashi-Solomon contributed to this article.

NOTES

* Buffers are established in nature-based carbon credit projects to account for damage due to fire or storms. Essentially, a 20% buffer means that you sell 120 acres’ worth of carbon credits but just receive 100 acres’ worth of payments.

** One of the experts whom I consulted while I was researching this piece, Dr. Roo Vandegrift, did his post-doctoral research at the Biology of the Built Environment (BioBE) Center at the University of Oregon, studying Cross-Laminated Timber as a durable building material. Dr. Vandegrift points out that for Mass Timber to provide a net sequestration benefit, it needs to spend longer in a building than it would have in the forest as a living tree or slowly-decaying log.