Climate technology couldn’t avoid the exuberance that swept through the startup sector earlier this decade. Both founders and venture capitalists were enticed to raise funds. With low interest rates, affordable money, and investors eager for better returns, entering the industry was an attractive proposition.
Clean Energy Ventures, however, chose a different strategy, and it seems 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,’” said Dan Goldman, co-founder and managing partner at Clean Energy Ventures, in a conversation with Truth Voices. Although the firm had raised its first fund years before the pandemic, it still hadn’t deployed all the capital. “We tried to remain really disciplined during that period,” he explained.
As the pandemic bubble deflated, the available funds in Clean Energy Ventures’s first fund also dwindled. Late in 2022, Goldman and his team began raising a second fund. Within six months, they surpassed their initial target of $200 million. “We took a little bit of a pause and started making investments,” Goldman said.
Institutional investors soon expressed interest. “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 remarked.
This extra push resulted in a total fund of $305 million, a significant increase from the initial target and much larger than the firm’s first $110 million fund. Clean Energy Ventures will continue to concentrate on early-stage climate tech startups, while also incorporating what Goldman calls “pre-growth” investments.
“Those will typically involve larger checks, maybe at higher valuations. The startups will have de-risked the technology and already 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 such technologies.”
These gaps are a growing concern among investors, who recognize the unique challenges hardware-heavy climate tech startups face on their path to commercialization. Often referred to as the “valley of death” or the “first-of-a-kind” problem, investors are experimenting with various approaches to help their most promising portfolio companies bridge this gap.
For Clean Energy Ventures, the new fund will allocate 30% to 40% of its capital for follow-on investments into companies that fit the “pre-growth” profile Goldman mentioned. The firm will also consider a “wide range of different financial instruments,” he added, to help bridge the gap. Initial investments will range from $500,000 for smaller seed rounds up to $8 million for Series A rounds. Total investment per company, including follow-ons, will average around $15 million, Goldman stated.
Among the institutional investors committing to the fund are Builder’s Vision, Carbon Equity, and the Grantham Foundation. Goldman noted that industry LPs from Turkey, Thailand, and Germany have also committed.
“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 appreciate our focus on reducing greenhouse gas emissions.”
