Can we innovate our way out of the climate crisis? Venture capitalists sound off on saving the Earth

Solar panels. (Photo by American Public Power Association on Unsplash)

Eager investors keep coming. It is the Amazon employee who see the company’s share price rise steadily; the ex-venture capitalist looking to make big financial returns in a new hip sector; Parents or parents-to-be who panic about leaving their children with an earth ravaged by global warming.

Their backgrounds and motivations vary, but they are all ready to write checks to support companies that stand a chance at the climate crisis.

“Capitalism and market forces brought us to this warming planet,” said Mike Rea, “and it’s the only thing that will get us out of there.”

Mike Rea, managing director of E8. (E8 photo)

Rea is the Executive Director of E8, a Seattle-based investment network focused on climate technology. He is met with a steady stream of inquiries from potential investors. E8 was launched 15 years ago and expects to have 140 members by the end of the year, an increase of 40% over the previous year. The company is currently raising a new fund while also making $ 1 million investments through Decarbon8, a philanthropic funding arm that was created just last year.

It’s a scenario that repeats itself internationally among investors, from those supporting entrepreneurs in the early stages to those writing checks to profitable, global companies looking to scale. After years of barely cracking $ 1 billion in VC deals worldwide, climate technology has become a feverish area for funding.

  • In the first half of this year, companies in the industry raised $ 14.2 billion in capital internationally – which, according to a study by PitchBook, is just below the VC total for 2020 as a whole.
  • There are also reports of multi-billion dollar climate-focused mega-funds raised by private equity firms such as TPG, based in Texas, and Brookfield Asset Management, based in Toronto.
  • Among the venture capitalists, three Vancouver, BC firms recently raised $ 144 million in total VC funds, while U.S. investors 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 in the first half of 2020.
  • Despite the promising trends, Pitchbook reports that air conditioning made up only 2% of all VC tech deals this year in the US and globally; the sector landed around 7% of the technology funding in the US

For veterans of “climate technology” or “energy transition”, the newfound passion for the sector – which includes renewable energies, batteries, decarbonised transport, green building and low-carbon agriculture – is long overdue.

“I always believed the rest of the world would come someday because these problems needed to be resolved,” said David Kenney, executive director of VertueLab, a Portland-based nonprofit founded 14 years ago. “It sounds so dramatic to say, but we literally have to solve these problems or we will die.”

David Kenney, President and CEO of VertueLab. (VertueLab photo)

Climate technology companies around the world and in the Pacific Northwest have filed big checks for carbon-reducing technologies. In the past 12 months, climate-minded companies in Washington, British Columbia and Oregon have raised more than $ 742 million in VC dollars, according to GeekWire studies.

The Pacific Northwest has its own role in fueling the next generation of businesses. The efforts include:

SJF Ventures has been investing in impact companies for more than two decades. David Griest, a Seattle-based executive for the company, said in the past everyone assumed that a company could either do good or make money. So many more companies today are building on business models that do both.

“There are companies where the environmental impact scales with the financial impact: the more solar panels you use, the more cell phones you recycle, the more pasture eggs you sell, they are fully in line with financial performance,” said Griest. “This is not a charity.”

The resurgence of air conditioning technology

Although climate technology has become a hot sector, it has had to shake off the mistakes of the past. The figurehead of this rocky story is Solyndra, a California-based solar power company that went bankrupt in 2011 despite $ 1 billion in private investment and $ 500 million in taxpayers’ money. Other clean technology efforts also declined and tarnished the field in the late 2000s and early 2010s.

“We saw this during the Great Recession, when a lot of clean tech funds lost a lot of money tied to solar and biofuels,” said Kenney.

Griest’s firm has survived those times, and recently SJF Ventures launched its fifth fund, which totaled $ 175 million – more than 10-fold more than when it was launched.

“We have been very, very lucky over the years,” he said. “We focused on capital efficient companies. Many of the ups and downs were capital-intensive, large-scale projects in the early stages that simply didn’t work out for various reasons. “

But could the recent surge turn into irrational exuberance and fuel a dot-com bubble for green technologies?

David Griest, Managing Director of SJF Ventures. (SJF Ventures photo)

Kenney fears that too little investment is being made in early stage startups that fuel the clean tech pipeline. Without sufficient support for aspiring entrepreneurs, over time there will be too few solid, future options for VC funding, he noted.

“All that [later stage] Capital will either lose interest, “he said,” or start investing in things that really aren’t scrutinized, or start taking more risks than is appropriate for the profile of their investors, and some of them will lose some money. “

The decarbonization revolution

It is in the nature of venture capital that not every investment pays off. Overall, however, the three investors we spoke to were optimistic about the future of the climate sector and its potential to generate returns and make a significant contribution to slowing global warming.

Griest sees many promising companies looking for funding.

“All along the line, we are seeing more and more opportunities that are really convincing,” said Griest. “And that’s exciting for us, as renewable energies are becoming more competitive compared to fossil fuels. It’s an exciting market dynamic that enables more businesses and investment opportunities. “

Investors worldwide have been collecting huge VC funds for investments in air conditioning technology since the beginning of 2020. The largest sums are accumulated in China, but the USA, Canada and Sweden also raise considerable sums according to research by Pitchbook (see graphic for details).

Yet the challenges that arise from the need to switch from CO2-emitting engines and processes in every imaginable area are overwhelming. The world is already suffering from the effects of hotter temperatures with raging forest fires, more severe hurricanes and devastating floods. How much CO2 savings can new innovations bring about and how quickly?

“One of the reasons I love being in this field is to see how dramatically technology can transform sectors in such a short amount of time,” said Kenney. “We saw that on the Internet. If the decarbonization revolution – which doesn’t sound quite as sexy as the internet revolution – if it catches on because it’s mandated, or because it’s cheapest, or because the products are better, or whatever, the technology can scale very quickly.

“You’re going back to the industrial revolution, that was a pretty dramatic change, pretty fast in the way we did everything and moved people. I am confident, “he said,” because I believe technology holds great promise. “

For Rea, he emphasizes that there are ways to get involved and really increase your climate impact regardless of your investment price, and from several directions.

“It’s not enough just to be politicians and we’ll see what happens. And it is certainly not enough just to be an investor and not care about politics, ”he said. “If that’s important to you, you have to do both, in both the investment and the policy department.”

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