Investors investing billions in climate tech don’t plan to stop now

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Bill Gates worries about a dark period ahead for the global economy. “We are going to be going through a winter period for several years,” he warned last week to a room full of dynamic green entrepreneurs, lamenting at a TechCrunch event that their success had come up against bad timing.

Silicon Valley is bracing for an economic downturn, and those working in clean energy and green tech might have a feeling of deja vu. Fifteen years ago, venture capitalists created special funds to invest in the sector, only to disappear when the markets deteriorated.

In recent years, there has been another boom in climate technology, with billions of dollars pouring into companies dedicated to renewable energy and reducing emissions. Now, as the markets soar, industry veterans say there’s enough real money being made and a broader, deeper set of backers to avoid repeating history. “There’s too much interest in going back to cleantech 1.0,” says Bill Lese, managing partner at Braemar Energy Ventures.

During this first wave, solar power, wind power and electric cars were too expensive and unproven; Tesla needed a government loan. This time around, renewables are cheaper than fossil fuels, and investors are touting “the Tesla mafia,” a group of companies spun off from the old electric car makers. Ten years ago, Peter Gajdoš, chief climate officer at venture capital firm Fifth Wall, worked for Richard Branson’s Virgin Green Fund, an investment vehicle that then held $220 million, one most important at the time. Today, Gajdoš works for a company that aims for double that amount for a single fund. It invests in companies working on updates to smart grids, industrial engines and cement production.

According to BloombergNEF, a clean energy research group, climate tech startups raised $53.7 billion in 2021, including huge amounts of money for electric scooters and fake chicken farmers. Unlike the previous boom, this influx includes large asset managers and companies that support solutions to the climate crisis to achieve their ESG goals or out of moral qualms. This resulted in huge financial commitments that remain uninvested, missing from the first cleantech rush. “It’s fundamentally different,” said Jim Kapsis, a veteran of cleantech pioneer Opower who runs consultancy Ad Hoc Group. “There will be agreements that will not be concluded. Probably, like the rest of the market, these were deals that shouldn’t be done. »

There is also a prevailing sentiment that the industry might excel while others are failing apps, cryptocurrency technology, or enterprise software. The gas price shock and the war in Ukraine have put the spotlight on renewable energy sources.

That’s not to say climate tech is immune to harm. In May, equity investors began withdrawing money from ESG equity funds. Venture capital funding in the sector slowed in early 2022, even before the economic tailwinds, according to a recent report by Pitchbook. Investors are advising climate startups to be more careful with their money. They speak of “size correction” and “flight to quality” – euphemisms for financing rounds and corporate valuations more in tune with commercial realities. “The VC will drown some of their own children,” Kapsis says. Although he adds that he has yet to hear of any layoffs or meltdowns in the sector.

Voyager Ventures, one of the newest climate-focused funds, which raised $100 million in April, has backed startups working on energy efficiency software and the carbon-free production of nickel, a material whose price has increased enormously. The volatility in energy markets has only underscored the value of his portfolio, particularly in Europe, says Sarah Sclarsic, co-founder of Voyager. “Macro trends just point in that direction,” adds partner Sierra Peterson. The partners say they haven’t changed their strategy despite the recent downturn.

There was little talk of changing course or scaling up at the TechCrunch event this week. In the afternoon, investor Gajdoš moderated a session titled “Why the Next Great Entrepreneur Must Come From Climate Tech”.

Behind the scenes, he said many of his tech-shunning sponsor partners were still allocating money to climate funds, driven by corporate and government promises to cut emissions. Some LPs are braking, but not as hard as they did during the cleantech crash.

Additionally, he believes the sector now operates outside of regular market cycles. “The climate doesn’t care about inflation. The oceans are warming up. Forests are burning,” Gajdoš said. “These problems are still there, and someone has to solve them, which creates opportunities.”

Mark Bergen writes the Cleaner Tech newsletter on the intersection of climate and technology.

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