Climate tech couldn’t escape the froth that engulfed the startup world at the start of the decade. Whether they were founders or venture capitalists, it was tempting to raise money. Interest rates were low, money was cheap, and investors looking for better returns were hungry to get in the game.
Instead, Clean Energy Ventures took a different approach, and it appears to be paying off.
“When COVID hit, we really had to do some soul searching and say, ‘Look, we have to be very careful here. It looks like a bubble. Dan Goldman, co-founder and managing partner of Clean Energy Ventures, told TechCrunch. His company raised its first funds years before the pandemic, but it still hadn’t deployed all the capital. “We tried to stay very disciplined during this time.”
But as the pandemic bubble dwindled, so did the amount of dry powder in Clean Energy Ventures’ first fund. In late 2022, Goldman and his colleagues began raising a second. In six months, the team exceeded its initial goal of $200 million. “We took a little break and started investing,” he said.
Institutional investors quickly said they wanted to participate. “That’s when we asked our existing LPs, ‘Hey, can we go a little higher than we originally planned?’ And they were very supportive of that,” Goldman said.
That little extra ended up bringing the total fund to $305 million, a big increase from the original goal and a bit more than the firm’s first fund of $110 million. Clean Energy Ventures will continue to focus on early-stage climate technology startups, although it will also add what Goldman calls “pre-growth” investments.
“It will generally be bigger checks, maybe a little higher valuation. Startups will have de-risked the technology and have a product in the market, but will still be in the early stages of market adoption,” he said. “We see gaps in the market around certain technologies in this area.”
Such shortcomings have become a growing concern among investors, who recognize the particular challenges hardware-heavy climate technology startups face on the path to commercialization. It’s called the “valley of death” or “first-of-its-kind” problem, and investors have experimented with different approaches to ensure their most promising portfolio companies can cross the chasm.
For Clean Energy Ventures, the new fund will reserve 30% to 40% of capital for follow-on investments in companies that fit the “pre-growth” profile that Goldman referred to. The company will also consider a “wide range of different financial instruments,” he added, to help bridge the gap. Initial checks will range from $500,000 for a small seed round to $8 million for a Series A. Total investment per company, including follow-ons, will average about $15 million, a Goldman said.
Institutional investors committing to the fund include Builder’s Vision, Carbon Equity and the Grantham Foundation. Goldman said industrial investors from Turkey, Thailand and Germany have also signed on.
“They said, ‘We want to bring more technology into our countries, we want to build a manufacturing base in our countries,'” he added. “They really like our focus on greenhouse gas emissions. »
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