Climate tech did not escape the turmoil that gripped the startup world at the start of the decade. For both founders or venture capitalists, raising funds was lucrative. Interest rates were low, money was cheap, and investors were desperate to get into the game in search of better returns.
Instead, Clean Energy Ventures took a different approach, and it appears to be succeeding.
“When COVID hit, we had to really be introspective and say, ‘Look, we need to be very careful here. This is starting to feel like a bubble.'” Dan GoldmanCo-Founder and Managing Partner Clean energy venturesHis firm raised its first fund several years before the pandemic, but still hadn’t deployed all of the capital. “We tried to stay really disciplined during that period,” he told TechCrunch.
But as the pandemic bubble shrank, so did the amount of dry powder in Clean Energy Ventures’ first fund. In late 2022, Goldman and his colleagues began raising a second fund. Within six months, the team had surpassed its initial goal of $200 million. “We took a little pause and started investing,” he said.
Institutional investors soon said they wanted to get involved. “That’s when we asked our existing LPs, ‘Hey, can we go a little bit above the original target?’ And they were very supportive of that,” Goldman said.
This small additional investment brought the total fund to $305 million, well above the initial target and much 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.
“Typically these cheques will be larger, maybe a little bit higher valuations. The startups will have de-risked the technology, and will have a product in the market, but will still be in the early stages of market adoption,” he said. “We’re seeing some gaps in the market around some of the technologies in that space.”
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. This is called “Death Valley” or “first of its kind” problem, and investors are 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 in companies that fit a “pre-growth” profile referred to by Goldman. The firm will also consider “a wide range of different financial instruments” to help bridge the gap, he said. Initial checks will range from $500,000 for small seed rounds to $8 million for Series A. Total investments per company, including follow-on, will average $15 million, Goldman said.
Institutional investors investing in the fund include Builders Vision, Carbon Equity and the Grantham Foundation. Industry LPs from Turkey, Thailand and Germany have also committed to invest in the fund, Goldman said.
“They said, ‘We want to bring more technologies to our countries, we want to build manufacturing bases in our countries,’” he said. “They really liked our focus on greenhouse gas emissions.”
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