Investment in Cleantech – or technologies dedicated to enhancing sustainability – hit its first peak about ten years ago. Now, with a growing consensus around the urgency of addressing climate change, Cleantech is once again attracting high amounts of venture capital.
According to a PwC report, Cleantech startups raised over $60 billion dollars in the first half of 2021, which is double the amount in 2020, showing that the trend is once more gathering momentum.
It’s not only startups that are throwing their hats in the game – since the signing of the 2015 Paris Climate Accords, companies like Amazon, Apple, Microsoft and even oil giants BP and Shell have all announced their zero carbon strategies.
So why exactly did the first Cleantech investment boom result in a bubble? According to statistics from MIT Energy Initiative, investment in Cleantech startups between 2006 and 2011 totaled approximately $25 billion. Up to 90% of those startups eventually either filed for bankruptcy or shuttered, resulting in huge losses for investors.
We can attribute the failure of the sector to three key factors. First, Cleantech investments required huge amounts of capital to develop the needed infrastructure, meaning investors had to wait much longer to reap the rewards. Second, the 2008 financial crisis greatly lowered investor confidence and willingness to invest in hot money opportunities, hobbling Cleantech’s growth potential. Lastly, the business model of many startups was predicated on the rising price of fossil fuels, but that competitive edge was snuffed out by natural gas prices dropping from a height of $13 per thousand cubic feet in 2008 to $3 by 2012.
Now, with a much stronger push for climate action, Cleantech 2.0 is finally reemerging as a viable investment option. The difference this time is that startups can develop their solutions on top of previously iterated technologies while developing different business models than those that failed in the past.
For example, many startups in solar energy and moving the focus from manufacturing to market entrance, offering energy rental models as opposed to purchasing, or using satellite imagery and software to calculate a household’s solar power needs remotely, replacing expensive onsite measurement.
Cleantech startups are also providing carbon reduction solutions for various vertical industries. For example, Canada-based startup CarbonCure provides solutions for cement makers to introduce recycled Co2 into their product, simultaneously reducing the footprint for this carbon-heavy industry while increasing the strength of the cement. Notable investors include Amazon and Microsoft.
VCs are also diversifying their portfolios compared to the first Cleantech wave, which was mostly focused on infrastructure for solar power and electric vehicles, investing in companies like Beyond Meat or carbon capture startups like Climerocks and Pachama.
What we see is Cleantech not only making a resurgence but taking hold in wider variety of industries and presenting more resilient business models. As global policies become more complete and companies put more emphasis on sustainability, we can be sure that more and more Cleantech startups will emerge out of the woodwork.
