Lots Of Public Money And Few Specialized Investors

In 2009, Silicon Valley’s most beloved solar panel company, Solindra, was set to go public for $6 billion, at the time about €4.6 billion.

The company had raised $1.2 billion, including more than $500 million from the Obama administration, to develop its unique technology to address the rising costs of polysilicon, a critical component of solar panels. Then, The company started planning its IPO.

Two years later, Solandra filed for bankruptcy after the US Office of Inspector General used false information to mislead the Energy Department in a subsequent investigation.

Solindra’s example was Boom of clean technologies between 2006 and 2011, a period in which investors invested $25,000 million (about 24,500 million euros at current exchange rates) in companies that pledged to tackle the climate crisis and lost half of their lives in the process. money was lost.

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According to an MIT report, the Series A phase at the time of the boom also had the lowest proportion of cleantech companies. More than 90% of cleantech companies that received checks after 2007 did not return the initial investment.

However, clean technologies are back under the guise of climate change.

According to data from Pitchbook, global venture capital investment in climate companies has been gradually increasing and more than doubled last year to more than $30 billion between 2020 and 2021.

and this time, This area is growing in Europe. Checks issued to European climate tech startups doubled from €2.7bn to €5.3bn in the same period. So far they have raised 3,600 million in 2022.

That figure is still a small fraction of more mature European tech sectors such as fintech, which have received 4x more exposure in 2021, but climate tech companies are raising big money in individual deals.

London Carbon Rating Company silvera In January raised $32 million (about 30 million euros) and the carbon capture company climeworks 650 crore received in April

Governments have also given money. Last year, the European Investment Bank invested 27.6 billion euros in companies and projects related to the climate crisis, representing 51% of its total investments.

This flow sounds alarm in some areas. Is there a risk of becoming the second cleantech bubble in the race for green portfolios?

According to one European venture capital investor, who prefers to remain anonymous, the high volume of state investments was one of the weak points of the cleantech boom at the time.

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“While there’s a lot of public money in an area that makes people feel good, many people don’t pay as much attention to detail as they should,” says this person. “system manipulation” because It’s not the government’s job to be a “venture capital fund.”

experts are missing

The revitalized climate technology industry includes many complex technologies including carbon accounting, battery manufacturing, satellite imagery, meat substitutes and direct air capture.

But investors, including climate funds, lack the expertise to properly assess some of these more specific areas, say some observers in Europe.

“Lack of expertise is one of the main problems of climate technology, This was a problem during the cleantech 1.0 crisis and, undoubtedly, it will be during the cleantech 2.0 or climate technology cycle”, says Arne Mortani, partner at Kiko Ventures.

“Specialization is even more important as venture capital competition increases. Many founders seek venture capital for much more than a big paycheck.”

There is some concern from LPs that the fund impacts venture capital funds, Mortney says, “but not as much as it should be.” Kiko Ventures has a structure”Evergreen“, which means he does not take cash out of LPs, but shares that he has heard of LPs being taken out during the backdrop of economic uncertainty.

In Europe the density of the General Effects Fund can be problematic; One investor says Europe lacks specialized venture capital firms with hardware expertise that can properly test companies.

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However, some venture capital companies share business Insider which were backed by investors with in-depth knowledge of the sector, such as certain business angels or sector-specific funds. Others turn to scientists and economists with great knowledge of their subjects.

bubble in sight

For Abrar Chowdhury, an Oxford academic who analyzes the climate technology ecosystem, the sector is forming a bubble Due to the concentration of venture capital funds in several sectors.

In his opinion, too much money has been invested in a small number of sectors focused on reducing emissions, and not enough invested in adapting to climate change. these investments -Electrification, hydrogen and direct air capture, for example- They say they have little impact on climate change today.

Venture capitalists focus on these technologies because they are easy to scale, says Choudhary. adaptation measures, such as those that can secure food and water supplies, It is not that easy to climb them.

“To me, the bubble is that there are too many actors in that space and not enough people in the spaces to really help us deal with these changes,” he says.

“Yes, we have energy storage, butHow are you going to help people with this heat wave? How will it help them survive? I think that’s the climate spot that’s missing.”Assures that temperature has exceeded 40 degrees for the first time since being recorded in most of Europe.

“That’s where innovation isn’t happening at the same level of clean energy, battery storage and transportation.”

Chowdhary believes the current wave of climate technology is “Easy to Pick Fruit” With investors looking to invest in sectors that were already mature and “didn’t really need to foster that climate”.

“Should venture capital firms do this? Because that’s just checking a box that anyone can invest in,” he says.

“But is this moving forward? Because really the role of venture capital companies is to build other areas as well, right? To open up other areas, and I think this is where venture capital companies aren’t going because they don’t see that opportunity to scale.,

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In addition, the Oxford academic says governments should ensure they prioritize funding for climate technology, as state investment in this area “really loses importance” during a recession.

role of common investors

For European general investors, who mainly specialize in software, climate matters. “You have to do this yes or yes”the announcement personal signA partner in London-based early stage investor LocalGlobe.

“If the generalist funds what they know – software – they are accused of not supporting real solutions to climate change; if they try to finance some of them, they are charged with a lack of experience. Accused of creating bubbles,” he added.

Many Climate Funds Explain business Insider Partner with specialized funds to address the problem of specialization in a later round – for example, energy-focused or food-focused venture capital funds.

Others say that even when they lack specific knowledge, they can help small businesses scale and connect with late-stage funders such as Coteau or SoftBank, which are the French carbon management company Sweep and Carbon, respectively. Accounting companies support Clarity AI.

Even then, Venture capital is only scratching the surface of what is really needed to solve the climate crisisAmalie de Alvis, CEO of the non-profit accelerator Subak and former CEO of Microsoft for Startups, explains.

“The reality is that not all climate solutions will be profitable with 10x returns in 5 years,” says de Alvis.

“The difficulty is that we are creating a false narrative around climate investing. We are saying that we have all this money that is ready to be deployed, however it may be the wrong kind of money that has been put in the wrong place. being kept on.”

The booming climate technology sector in Europe creates fear of a bubble like in 2011: lots of public money and few specialized investors