Investments in cleantech have dwindled for years, and a new analysis from the Brookings Institution offers little in the way of a silver lining. But as generalist investors shun the sector, some cleantech-focused investors say the skepticism is unwarranted.
U.S.-based cleantech investing, as a share of total venture capital, fell to 7.6 percent in 2016, compared to a 16.8 percent share in 2011, the Brookings Institution found in its report released in May. What’s more, the cleantech investments that are happening are disproportionately consolidated in fewer metro areas compared with the rest of the VC industry, the report also found.
Last year, nearly 90 percent of all cleantech VC funding went to late-stage or Series B and growth-equity rounds, while seed and Series A funding dropped to 13 percent in 2016 from 32 percent in 2001, according to the report.
“These findings are in line with a growing body of evidence that suggests that the traditional VC model may be ill-suited for many cleantech sectors,” the report said. It called on federal and state government to preserve and expand funding for clean energy programs, including the Advanced Research Projects Agency-Energy and the U.S. Department of Energy’s loan guarantee program.
But some VCs focusing on cleantech have a different take, believing that investing in environmentally focused technologies can be just as profitable as other sectors receiving venture capital, provided that investors are patient and conduct their research.
“We believe that this is probably the biggest economic opportunity in the history of humanity, but because we’re dealing with large systems it will unfold over 30 to 50 years,” said Devin Whatley, a partner at the Ecosystem Integrity Fund, which invests in such sustainable technologies as solar energy, garbage and biomass conversion, and analytics software for due diligence of renewable energy assets.
Whatley and Partner Jamie Everett spoke with VCJ before the Brookings Institution released its report. “Unlike what some people in Silicon Valley think, [a widespread shift to clean energy] is not going to happen overnight,” Whatley said.
After the most recent blowup in cleantech investing when companies like Solyndra consumed millions in venture capital before collapsing, most generalist investors left the sector and those who stayed held out for safer late-stage investments, Everett said.
“What they concluded, is this takes longer and costs more than other areas of VC,” he said. “We don’t buy their conclusions. I think they’re wrong about it. It’s just business. It doesn’t take any longer or cost more than other areas of VC. Look at Uber and how much capital that takes.”
Whatley and Everett prefer a more nimble approach to cleantech investing, raising smaller funds and investing in industries with which they have deep experience.
The San Francisco-based sustainability-focused venture firm is currently raising Ecosystem Integrity Fund III, which is targeted at $100 million, according to a regulatory filing.
“We believe a lot of those generalists got into an area they didn’t properly understand,” Everett said.
Action Item: To check out the Brookings Institution report, visit http://brook.gs/2rd3ghm
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