Can we innovate our way out of the climate crisis? Venture capitalists sound off on saving the Earth
Eager investors keep coming. It’s the Amazon employee who has seen the company’s stock price rise steadily; the former venture capitalist who wants a crack at big financial returns in a newly hot sector; parents or parents-to-be who are panicked about leaving a global warming-ravaged Earth to their kids.
Their backgrounds and motivations vary, but they’re all ready to write checks to back companies that are taking a shot at the climate crisis.
“Capitalism and market forces got us into this warming planet,” said Mike Rea, “and it’s the only thing that’s going to get us out of it.”
Rea is executive director of E8, a Seattle-based investment network focused on climate tech. He’s being hit with a steady stream of inquiries from potential investors. E8 launched 15 years ago and expects to reach 140 members by the end of the year, a 40% increase over last year. It’s currently raising a new fund while also making $1 million in investments through Decarbon8, a philanthropic funding arm launched just last year.
It’s a scenario being repeated among investors internationally, from those backing the earliest stage entrepreneurs to those writing checks for profitable, global businesses scrambling to scale. After years of barely breaking $1 billion in VC deals worldwide, climate tech has become a feverish area for funding.
- By the first half of this year, companies in the sector internationally landed $14.2 billion in capital — which is just shy of the VC total for all of 2020, according to research by PitchBook.
- Add to that reports of multi-billion dollar climate-focused mega funds being raised by private equity firms including Texas-based TPG and Toronto’s Brookfield Asset Management.
- Among venture capitalists, three firms in Vancouver, B.C. recently raised VC funds totaling $144 million, while U.S. investors have raised nearly $846 million, according to PitchBook.
- Even the crowdsourced funding platform Indiegogo reported that “greentech” fundraising efforts raised 282% more money in the first half of 2021 than the first half of 2020.
- Despite the promising trends, Pitchbook reports that climate tech only made up 2% of all VC tech deals so far this year in the U.S. and worldwide; the sector landed roughly 7% of the capital from tech funding in the U.S.
For veterans of “climate tech” or “energy transition,” the new found passion for the sector — which spans renewable energy, batteries, decarbonized transportation, green construction and low-carbon agriculture — is long overdue.
“I’ve always believed that the rest of world would come around at some point because these problems have to be solved,” said David Kenney, executive director of VertueLab, a Portland-based nonprofit founded 14 years ago. “It sounds so dramatic to say it, but we literally have to solve these problems or we die.”
Climate tech companies across the globe and the Pacific Northwest have been landing big checks for carbon-reducing technologies. Over the past 12 months, climate-focused businesses in Washington, British Columbia and Oregon have netted more than $742 million in VC dollars, according to GeekWire research.
The Pacific Northwest is playing its own role in fostering the next generation of companies. Efforts include:
- Accelerators including Amazon’s newly launched AWS Clean Energy Accelerator, the Cascadia CleanTech Accelerator and Techstars Seattle.
- Angel and early-stage investors such as E8 and Decarbon8, VertueLab and Craft3. VC firms including Seattle’s Founders’ Co-op and Portland’s 3×5 Partners are investing some of their resources in more mature climate tech companies.
- Large corporate and private funds dedicated to climate innovation including Amazon’s $2 billion Climate Pledge Fund; Microsoft’s $1 billion Climate Innovation Fund and Amazon founder Jeff Bezos’ $10 billion Bezos Earth Fund. Bill Gates’ Breakthrough Energy has initiatives that invest in commercial stage demonstration projects as well as a VC fund that has raised $2 billion.
SJF Ventures has been investing in impact-focused companies for more than two decades. David Griest, a Seattle-based managing director with the firm, said in the past everyone assumed that a business could either do good or make money. Now so many more companies are built on business models that do both.
“There are companies where the environmental impacts scale with the financial impacts: the more solar panels you deploy, the more cell phones you recycle, the more pasture-raised eggs you sell, they entirely align with financial performance,” Griest said. “This isn’t a charity.”
Climate tech’s resurgence
While climate tech has become a hot sector, it has had to shake off past failings. The poster child of this rocky history is Solyndra, a California-based solar power company that went bankrupt in 2011 despite $1 billion in private investments and $500 million of taxpayer support. Other clean technology efforts also tanked in the late 2000s and early 2010s, tarnishing the field.
“We saw this in the time of the Great Recession, where a lot of clean tech funds lost a lot of money tied to solar and biofuels,” Kenney said.
Griest’s firm was able to weather those periods, and recently SJF Ventures raised its fifth fund, which came to $175 million — a more than 10-fold increase from where it started.
“We’ve been very, very fortunate over the years,” he said. “We focused on capital-efficient companies. A lot of the ups and downs have been early-stage, capital-intensive, large-scale projects that just didn’t pan out for a variety of reasons.”
But could the recent surge shade into irrational exuberance and fuel a dot-com bubble for green tech?
Kenney worries that there’s too little investment in early-stage startups that stoke the clean tech pipeline. Without enough backing for up-and-coming entrepreneurs, there will in time be too few solid, later-stage options for VC funding, he noted.
“All that [later stage] capital is going to either lose interest,” he said, “or start making investments in things that really aren’t thoroughly vetted, or they start taking on more risk than is appropriate for their investors’ profile and some of them will lose some money.”
The decarbonization revolution
The nature of venture capital is that not every investment pays off. But on balance, the three investors we spoke with were optimistic about the future of the climate sector, and its potential for delivering returns as well as making a meaningful difference in slowing global warming.
Griest sees a lot of promising companies looking for funding.
“Across the board, we’re seeing more and more opportunities that are really compelling,” Griest said. “And that’s exciting to us as renewables become more competitive with fossil fuels, that’s an exciting market dynamic that enables more businesses and investment opportunities.”
Since the start of 2020, investors worldwide have been raising giant VC funds for climate tech investing. The largest amounts are being amassed in China, with the U.S., Canada and Sweden also raising considerable sums, according to research by Pitchbook (see chart for details).
And yet the challenges posed by the need to shift from carbon-emitting engines and processes in every field imaginable is beyond daunting. The world is already suffering the effects of hotter temperatures with raging wildfires, more severe hurricanes and disastrous flooding. How much carbon-cutting can new innovations deliver, and how quickly?
“One of the reasons I like being in this space is seeing how dramatically technology can change sectors in a very short amount of time,” Kenney said. “We saw that with the internet. If the decarbonization revolution — which isn’t quite a sexy sounding as the internet revolution — if it catches on because it’s mandated, or because it is cheapest, or because the products are better, or for whatever reason, technology can scale really fast.
“You go back to the Industrial Revolution, that was a pretty dramatic change, pretty fast in the way we made everything and the way we moved people. I’m hopeful,” he said, “because I believe technology has a lot of promise.”
For Rea, he emphasizes that there are options for getting involved whatever your investment price point, and to truly bolster your climate impact, come at it from multiple directions.
“It’s not just enough to do policy, and we’ll see what happens. And it’s certainly not just enough to be an investor and not care about policy,” he said. “If you care about this, you’ve got to be doing both on some level, in the investment and the policy department.”