Climate tech hasn't escaped the fever that swept through the startup world at the start of the decade. Funding was attractive to founders and venture capitalists alike: Interest rates were low, capital was cheap, and investors looking for higher returns were eager to get in the game.
Instead, Clean Energy Ventures is taking a different approach, and it seems to be paying off.
“When COVID hit, we really had to do some soul-searching and say, 'This looks like a bubble. We need to be very careful,'” Dan Goldman, co-founder and managing partner at Clean Energy Ventures, told TechCrunch. His firm raised its first fund years before the pandemic but hadn't yet deployed all of its money. “We tried to be really disciplined during that period.”
But as the pandemic bubble deflated, so did Clean Energy Ventures' first fund's investment capacity. In late 2022, Goldman and his colleagues began raising money for a second fund. Within six months, the team had surpassed its original goal of $200 million. “We took a break for a bit and started investing,” he said.
Institutional investors quickly wanted in. “That's when we asked our existing LPs, 'Can we set our target a little higher than we originally intended?' and they were very supportive of that,” Goldman said.
The small addition boosts the fund's total to $305 million, a significant increase from its original target and significantly larger than the firm's first fund of $110 million. Clean Energy Ventures will continue to focus on early-stage climate tech startups, but it also plans to add what Goldman calls “pre-growth” investments.
“Typically these investments are larger dollar amounts and a little higher valuation. Startups de-risk the technology and bring products to market, but they're still in the early stages of market adoption,” he said. “We see a gap in the market for some of the technologies in this space.”
These gaps have become a growing concern among investors who recognize the unique challenges that hardware-centric climate tech startups face on the path to commercialization—known as the “valley of death” or “first try” problem—and are trying different approaches to help their most promising portfolio companies cross the chasm.
Clean Energy Ventures' new fund will reserve 30% to 40% of its capital for follow-on investments in companies that fit what Goldman described as a “pre-growth” profile. It will also look at “a range of financial instruments” to fill gaps, he added. First checks will range from small seed rounds of $500,000 to $8 million for a Series A. Total investments per company, including follow-on investments, will average about $15 million, Goldman said.
Among the institutional investors committing to the fund are Builders Vision, Carbon Equity and the Grantham Foundation. Goldman said industry LPs from Turkey, Thailand and Germany have also committed.
“They're saying, 'We want to bring more technology home, we want to build a manufacturing base in our country,'” he added. “They really like that we're focusing on greenhouse gas emissions.”