Climate tech couldn’t escape the frothiness that engulfed the startup world earlier in the decade. For both founders or venture capitalists, it was tempting to raise money. Interest rates were low, money was cheap, and investors looking for better returns were hungry to get in the game.
Instead, Clean Energy Ventures took a different approach, and it appears to be paying off.
“When COVID hit, we really had to do some introspection and say, ‘Look, we need to be super careful here. This is looking like a bubble.’” Dan Goldman, co-founder and managing partner at Clean Energy Ventures, told TechCrunch. His firm raised its first fund years before the pandemic, but it still hadn’t deployed all the capital. “We tried to remain really disciplined during that period.”
But as the pandemic bubble shrunk, so too did the amount of dry powder in Clean Energy Ventures’s first fund. Late in 2022, Goldman and his colleagues started raising a second. Within six months, the team exceeded their initial target of $200 million. “We took a little bit of a pause and started making investments,” he said.
Institutional investors soon said they wanted in. “That’s when we asked our existing LPs ‘Hey, can we go up a little higher than we originally targeted?’ And they were very supportive of that,” Goldman said.
That little bit extra ended up pushing the total fund to $305 million, a hefty increase from the initial target and quite a bit larger than the firm’s first $110 million fund. Clean Energy Ventures will continue to focus on early stage climate tech startups, though it will also add what Goldman calls “pre-growth” investments.
“Those will typically be larger checks, maybe a little bit higher valuations. The startups will have de-risked the technology, and they’ll have a product in the market, but still be at the early stages of market adoption,” he said. “We’re seeing some gaps in the market around some technologies in that area.”
Such gaps have become a growing concern among investors, who recognize the particular challenges that hardware-heavy climate tech startups face on the road to commercialization. It’s been called the “valley of death” or the “first-of-a-kind” problem, and investors have been experimenting with different approaches to ensure that their most promising portfolio companies can cross the chasm.
For Clean Energy Ventures, the new fund will reserve 30% to 40% of capital for follow-on investments into companies that fit the “pre-growth” profile that Goldman referenced. The firm will also consider 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. Total investment per company, including follow-ons, will average around $15 million, Goldman said.
Among the institutional investors committing to the fund are Builder’s Vision, Carbon Equity and the Grantham Foundation. Goldman said that industry LPs from Turkey, Thailand and Germany committed, too.
“They said, ‘We want to bring more technologies into our countries, we want to build a manufacturing base in our countries,’” he added. “They really like our focus on greenhouse gas emissions.”