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A cleantech VC renaissance
Predislava Derugin | May 12, 2019
A cleantech VC renaissance
Predislava Derugin
May 12, 2019

Cleantech rocked in 2018. Global venture capital and private equity investment in clean energy jumped a shocking 127% to $9.2 billion (BNEF), and there is much hope for 2019. We're seeing a wave of exciting new innovation - from DER integration, to carbon capture and reuse, to new materials in energy storage, to aircraft electrification, and beyond. And capital is widely available. Corporates, major oil companies, and billionaires are joining the party, and new funds are forming with focus on both software and hardware startups.

This is a fantastic news, after having watched cleatech die a spectacular, fiery death from 2008 - 2011.
The cleantech bust. A quick history lesson.
For those who need a refresher, cleantech got served a three-punch blow. First, investments plummeted with the financial crash of 2008. Then, the onset of cheap natural gas made solar and wind projects less competitive. Finally, the commoditization of silicon solar modules brought prices down and rendered other clean energy innovations an unattractive investment option. More than half of VC investments - over $10 billion dollars - got wiped out between 2006 and 2011. Burned by bad bets, investors ran for the hills. With high risks, low returns, and long time horizons, cleantech got the reputation of being inherently a non-fit for venture capital.

But after the dust settled, it became apparent that the same megatrends that drove the first cleantech wave - such as population growth, urbanization, and climate change - are still in force, suggesting enormous opportunities. Some savvy VCs decided to extract lessons from past mistakes and re-committed to cleantech. By then, the cleantech landscape had changed considerably.
A new playing field for cleantech ventures.
The global transition to a low-carbon economy and growing demand for clean energy led to more diversified investment options, resulting in more attractive, lower risk opportunities for investors. The cleantech venture space has matured, enticing investors to give the space another try.

What's different this time around?

1. We're seeing a shift in the pool of investor types. New corporate players are entering the space. These other investors help to take some of the pressure off of VCs. Players like BMW, Google, Engie and Emerson Electric have stepped up to acquire promising tech companies, providing liquidity for early-stage investors.

2. New, integrated investment strategies are being developed. This has to do with the aforementioned changing pool of investor types. Their different objectives, timelines, and risks call for a shift toward creative investing structures.

3. Technologies like solar have become more mature, providing innovators with better technical and market data. Furthermore, managers from traditional energy companies increasingly join cleantech startups, bringing with them a wealth of knowledge.

4. Better manufacturing and computing options for cleantech hardware help to reduce time-frames and costs associated with launching new science and hardware startups, producing, and testing products. Products can be brought to market faster and with less capital.

5. Investors are interested in sustainability beyond cleantech. The narrow focus on energy and power has made way for a broader range of industries that have a stake in sustainable development.
What's hot today?
Distributed energy resource (DER) aggregation and integration is white-hot, as we shift towards smart buildings, smart grids, and EVs. Transportation is another hot area, with exciting leaps in autonomy, electrification, shared mobility and transportation-as-a-service. Agriculture technology (AgTech) has been on the rise with lots of buzz around indoor and vertical farming, drone and sensor technology, and alternative proteins. Battery storage shows a cooldown in 2019, but that space has been a bit of a roller coaster, and excitement could pick up again. Biofuel and water, on the other hand, seem to be falling out of fashion, if we are to judge by the Global Cleantech 100 list. Hardware also continues to be a challenge for venture capital, although some new funds are focusing on supporting startups in this space.

Overall, while "cleantech" may still be a four-letter word in some VC circles, recent trends show that investors are looking forward, rather than backward. New investment strategies are shaping, and capital is flowing. While it may be too early to tell whether this is a true renaissance, these are certainly sunny times for cleantech.
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