Climate technology couldn’t escape the froth that engulfed the startup world at the starting of the decade. For founders and enterprise capitalists alike, raising money was tempting. Interest rates were low, money was low-cost, and investors looking for higher returns were hungry to play.
Instead, Clean Energy Ventures took a different approach, and it appears to be paying off.
“When Covid hit, we really had to introspect and say, ‘Look, we have to be extra careful here. It looks like a bubble.” Dan Goldman, co-founder and managing partner at Clean energy ventures, he told TechCrunch. His company raised its first fund years before the pandemic, but still hasn’t used all of its capital. “We tried to be really disciplined during this period.”
But as the pandemic bubble shrunk, so did the amount of dry powder in Clean Energy Ventures’ first fund. In late 2022, Goldman and his colleagues began to lift the second bid. Within six months, the team exceeded its initial goal of $200 million. “We took a little break and started investing,” he said.
Institutional investors soon announced they wanted in. “Then we asked our existing investors, ‘Hey, can we go a little higher than we originally expected?’ And they were very supportive of it,” Goldman said.
This small additional amount brought the total fund to $305 million, a significant increase over the original goal and barely greater than the company’s first fund of $110 million. Clean Energy Ventures will proceed to focus on early-stage climate tech startups, although it is going to also add what Goldman calls “pre-growth” investing.
“Typically it will be bigger checks, maybe slightly higher valuations. “Startups will de-risk the technology and have a product on the market, but they will still be in the early stages of market adoption,” he said. “We see some gaps in the market for some of the technologies in this area.”
Such gaps are a growing concern among investors who realize the particular challenges that hardware-intensive climate technology startups face on the path to commercialization. It’s being called the “valley of death” or “first-of-its-kind” problem, and investors are experimenting with different approaches to make sure their most promising portfolio corporations can cross the chasm.
In the case of Clean Energy Ventures, the recent fund will reserve 30% to 40% of its capital for further investments in corporations that fit the “pre-growth” profile that Goldman mentioned. He added that the company would also consider “a wide range of different financial instruments” to assist bridge the gap. Initial checks will range from $500,000 for a smaller seed round to $8 million for a Series A. The total investment for the company, including follow-on partnerships, will average about $15 million, Goldman said.
Institutional investors in the fund include Builder’s Vision, Carbon Equity and the Grantham Foundation. Goldman said industry representatives from Turkey, Thailand and Germany also got involved.
“They said: ‘We want to bring more technology to our countries, we want to build a production base there,'” he added. “They really like our focus on greenhouse gas emissions.”