The rules for early stage cleantech venture capital investment in 2021

Clean tech venture capital investment strategies for the next decade will be very different from those deployed over the past two decades.

In the first wave of green technology investments, companies invested billions of dollars in companies whose success depended on replacing entire industrial ecosystems. Think thin-film solar and biofuels, the two “big bad bets” that Shayle Kann, partner at Energy Impact Partners, identified in a conversation in 2020 on The exchange Podcast.

Despite successful counter-examples like Tesla, Nest, Enphase and Silver Spring Networks, these failures, combined with the Great Recession from 2008, resulted in the loss of about half of the $ 25 billion in venture capital invested in the sector from 2006 to 2011, according to PricewaterhouseCoopers. This has, in turn, been a major drawback for large venture capital firms, with seed funding for climate technology firms falling to around $ 418 million in 2013.

But by 2019, venture capital funding had resumed. Global counts of venture capital and private equity investments in cleantech that year ranged from $ 9.2 billion, according to Bloomberg New Energy Finance, to $ 16 billion, according to PwC. The difference in these counts indicates, however, that the measurement of growth in space depends greatly on how one defines “clean technology”.

These definitions are especially important for investors in startups trying to compete in a world where renewables have become the source of the fastest growing new generation capacity and where basic clean energy equipment like inverters , batteries and smart meters have become increasingly commoditized products.

Big investors like Breakthrough Energy Ventures and Generate Capital are raising billions of dollars to invest in long-term energy technology bets and major cleantech infrastructure. But early-stage opportunity-driven companies target technologies as well as process and business innovations that can gradually improve on an already existing ecosystem of competitive industries – what Kann called “pickaxes and shovels.” that allow the goods to reach the market ”.

Making incremental improvements to fast growing cleantech sectors

Take Energize Ventures, which has invested $ 165 million in 14 holding companies over the past three years. Energize, whose sponsors include Invenergy, General Electric Renewables, GE Power, Schneider Electric and Wisconsin-based utility holding company WEC Energy, targets investments in the order of $ 5-10 million, focused on adding of added value to large-scale energy developers.

“We consider our [limited partners] be an advantage for us as investors, and at the back, they also tend to be clients for our portfolio companies, ”said Katie McClain, partner at Energize Ventures, in a recent interview. Specifically, as hardware costs have fallen rapidly over the past decade, “the focus right now in the renewable energy space is how [to] reduce these ancillary costs.

Examples include Aurora Solar, which raised a $ 50 million round in November. The company’s software design tool is used by rooftop solar developers, including SunPower and Vivint Solar, to turn location data into detailed forecasts of solar generation capacity, reducing overhead costs that constitute the majority of installation costs per watt for residential solar energy.

On the utility-scale solar front, Energize worked with holding company DroneDeploy to refine its approach from using drones for construction and farm inspections to solar farm surveys once done on foot, she declared. “It’s a lot more efficient, it’s a lot faster and it happens at this scale. Another portfolio company specializing in visual data analysis, Matroid, uses computer vision technology “to go through all of these images and spit out what is useful for their clients and what is not.”

Daniel Goldman, chief executive of Clean Energy Ventures, which raised $ 110 million in 2019 for its start-up fund, described a similar approach to targeting startups looking to fill gaps in existing technology infrastructure.

“Our goal is to fill this gap in the area of ​​seed and Series A investments, companies that are beyond grants and come out of universities that have pilot and demonstration projects, and maybe even early income, ”he said. Although the fund only invests in companies that promise significant carbon reductions, it looks for those that can provide “lean” ways to achieve them, he said.

Holding company ConnectDER, for example, installs its devices over existing meter outlets to connect customer’s solar systems and household energy data in a way that current utility smart meters do not, thereby bridging the gap. gap between distributed energy and visibility and control of utilities. Another portfolio company, SunDensity, is developing glass coatings that could add 3 to 5 percentage points of light-to-electricity conversion efficiency to existing solar panels, he said.

The ConnectDER investment is part of a growing theme for 2021, which is “the transfer of energy from utilities to distributed energy resource managers, solar installers, newcomers taking new technologies to take control of consumption. of energy at a distributed level, ”Goldman said. This trend applies equally to states ravaged by climate change like California, with its forest fires and fire prevention network failures, as it does to “broken” networks in developing countries, he said. he noted.

Meeting the imperatives to expand access to clean energy and social equity

The Biden-Harris administration has already taken major early steps in its clean energy and climate agenda, including a directive for federal agencies to procure clean energy, zero-emission vehicles to reduce their climate impact. But he has also made social equity a centerpiece of his efforts, from commitments made in America to boost employment to commitments to focus investments on low-income and minority communities suffering the most health and economic damage. due to industrial pollution and global warming.

Over the past decade, Hawaii-based Elemental Excelerator has placed “the nexus between climate action and social equity” at the heart of its strategy for investing in public and private sector funds, said the CEO Dawn Lippert in a recent interview. “Businesses are catching up on equity and inclusion,” as well as the “inextricably linked” nature of climate change mitigation and social justice, she said.

Elemental Excelerator’s latest investments range from community initiatives in agriculture and the garment industry to zero-emission aircraft, indicating the broad scope of its investment approach. Several of his latest cohorts of portfolio companies are tapping into widely available data sources to help connect customers to clean energy options.

For example, according to Lippert, “we have installed tens of thousands of electric vehicle chargers,” but many EV charging providers “don’t have coordinated maintenance or availability plans for them,” he said. she declared. The portfolio company ChargerHelp’s mobile app allows electric vehicle operators to report out-of-service chargers and connects users to local workforce development groups that train charger repair technicians.

Elemental Excelerator has also joined the recent $ 100 million investment in OhmConnect, which seeks to enlist hundreds of thousands of homes in a virtual power plant to ease strain on the California grid. In this case, he’s working with the San Francisco-based startup to expand access to “traditionally excluded communities,” where people pay a much higher proportion of total income over energy costs than most Californians, and by following more earning programs that pay to shift power consumption during peak periods of grid demand.

Clean Energy Ventures’ investment in SparkMeter last year addresses a similar challenge in emerging economies in sub-Saharan Africa and South Asia, Goldman said. The Washington, DC-based startup has shifted from providing its metering technology to off-grid microgrids to providing distribution services in search of low-cost yet reliable systems to improve operations and reduce “non-waste.” techniques ”, that is, energy theft or corrupted meter reader activity.

“They can’t afford an SAP, Siemens or GE network management system – it’s not in the cards,” he said.

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