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VC Is Pouring Money Into Cleantech Hoping The Boom Will Last

Waldemar Brandt

This will probably ring familiar to people who’ve kept up with green investment trends over the last decade or so: Venture capital money is pouring into clean technology startups as investors see a huge potential market for renewable energy and climate tech, driven by mandates to reduce the world’s carbon emissions.

A record $501 billion got pumped into global cleantech in 2020, according to BloombergNEF. Earlier this year an all-time high was established at the WilderHill New Energy Global Innovation Index, which tracks 125 global companies committed to addressing climate change.

Photo Courtesy Clay LeConey

Closer to home, more than $11 billion in new venture capital has been invested in U.S. clean-energy startups so far this year, according to VC investment tracker Crunchbase. That’s roughly double the amount they got for all of 2020.

The U.S. figure is even bigger when you account for all of the tech companies working to offset global carbon emissions. These companies have raised a record $32 billion in VC capital in 2021, according to a recent report from venture capital analysis firm Dealroom and promotional agency London & Partners. That total also has exceeded the entire amount in 2020. Investments in climate tech have more than quadrupled since 2016.

Meanwhile, a total of 61 climate-tech companies either went public or were acquired by the end of the third quarter, up from 33 during all of 2020. The combined exit value of these deals is more than $28 billion.

Climate tech funding is coming from established VC firms as well as newer firms that specialize in climate challenges, including Breakthrough Energy, Lowercarbon Capital, and Blue Bear Capital.

But the money isn’t just coming from investment firms. Amazon launched its own $2 billion VC fund in 2020, called the Climate Pledge Fund, which aims to invest in startups that can help the online retailer meet its net-zero goals. Microsoft also has a $1 billion Climate Innovation Fund devoted to four key areas: climate impact, underfunded markets, shared alignment, and climate equity.

So does this sound familiar? Because much the same thing happened more than a decade ago. Money got pumped into cleantech as investors made big bets that the industry was poised to take off. Between 2006 and 2011, VC firms put more than $25 billion into clean energy technology, according to a 2016 report from the MIT Energy Initiative.

But things didn’t work out the way investors hoped, with most startups failing to deliver the kinds of returns that VC firms expect. The initial investing boom in renewable energy and cleantech that took place more than a decade ago was soon followed by a years-long drought after venture capitalists lost billions of dollars.

Many experts believe the current boom is different from the last one, however, and they cite a few different reasons: more available capital, stronger data, a bigger lineup of low- and zero-carbon products that didn’t exist in the last cycle, and a wider customer base of governments and companies aiming to achieve net-zero emissions. 

“There are a lot of drivers in the market that are radically different from any period of the past,” Daniel Goldman, managing director at Clean Energy Ventures, said in an interview with Fortune.

Entrepreneur Raffi Garabedian offers a similar take. He has spent 13 years in the solar energy industry and had a front-row seat to the first cleantech boom and bust. A sign of how things have changed this go-round is that the company Garabedian founded in 2020, Electric Hydrogen, raised $24 million in Series A funding in June, led by Breakthrough Energy Ventures, an investment firm founded by Bill Gates.

Photo Courtesy Mortiz Kindler

“If you are a credible startup trying to solve an important problem in cleantech, there is really a lot of interest,” Garabedian told Fortune.

Another change is that this influx of money has become more widely available internationally during the current cleantech boom. As CNBC reported in October, Europe is the fastest-growing region for climate technology, according to a report from Dealroom, a VC analysis firm. European venture cap investment into climate tech start-ups has grown seven-fold since 2016, and London boasts the biggest concentration of climate tech start-ups outside of California’s Bay Area.

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