Climate tech couldn’t escape the froth that engulfed the startup world earlier in the decade. For both founders and venture capitalists, it was tempting to raise money. Interest rates were low, money was cheap, and investors looking for better returns were eager to get in on the game.
Instead, Clean Energy Ventures took a different approach and it seems to be paying off.
“When COVID hit, we really had to take an introspection and say, ‘Look, we have to be extremely careful here. This looks like a bubble.” Dan Goldman, co-founder and managing partner at Clean Energy Businesses, he told TechCrunch. His company raised its first capital years before the pandemic, but still hadn’t used all of the capital. “We’ve tried to stay really disciplined during this time.”
But as the pandemic bubble deflated, so did the amount of dry dust in Clean Energy Ventures’ first fund. In late 2022, Goldman and his colleagues began collecting a second. Within six months, the team surpassed their initial goal of $200 million. “We took a little break and started making investments,” he said.
Institutional investors soon said they wanted in. And they were very supportive of it,” Goldman said.
That little bit extra ended up pushing the total fund to $305 million, a big increase from the original goal and quite a bit more than the company’s first fund of $110 million. Clean Energy Ventures will continue to focus on early-stage climate technology startups, though it will also add what Goldman calls “pre-growth” investments.
“These will usually be bigger checks, maybe a little higher valuations. Startups will have de-risked the technology and have a product on the market, but will still be in the early stages of market adoption,” he said. “We see some gaps in the market on some technologies in this area.”
Such gaps have become a growing concern among investors, who recognize the particular challenges hardware-heavy tech startups face on the road to commercialization. It’s called the “valley of death” or the “first-of-its-kind” problem, and investors are experimenting with different approaches to ensure their most promising portfolio companies can cross the chasm.
For Clean Energy Ventures, the new fund will retain 30% to 40% of capital for follow-on investments in companies that fit the “pre-growth” profile that Goldman said. The company will also look at a “wide range of different financial instruments”, he added, to help bridge the gap. Initial checks will range from $500,000 for a smaller seed round up to $8 million for a Series A. The total investment per company, including follow-ons, will average about $15 million, Goldman said.
Institutional investors committed to the fund include Builder’s Vision, Carbon Equity and the Grantham Foundation. Goldman said industry LPs from Turkey, Thailand and Germany also committed.
“They said, ‘We want to bring more technologies to our countries, we want to build a manufacturing base in our countries,'” he added. “They really like our focus on greenhouse gas emissions.”
