There is a flood of money going into what’s called “cleantech”. It ramped up with all the subsidies governments around the world are pouring into cleantech because of “global warming”.
Funds have been raised to specifically stop global warming. If you have the right credentials, there is money for you. Nice for the partner since you get a regular check for five years but I predicted this ends in tears for the limited partners. However, they will get virtue signaling points with their constituents.
Global warming is not a finite problem, hence a venture-backed company can’t solve it. There are problems in the energy sector that are in fact finite and can be made better via a startup. Obtusely, you could say you are “solving global warming” when you are really solving an edge problem. Even if you solve every edge problem, it won’t stop global warming. Let’s be honest. If you are a scientist, there hasn’t been an objective debate on the facts or issues behind global warming. Just the other day new information came out on vents in the oceans that may be a bigger deal than previously expected.
If you don’t understand finance in the arc of the startup life cycle, here is a general primer.
Company starts, raises pre-seed/seed money from angels and small funds at a very low valuation.
Company survives, raises Series A from institutional VCs that are larger
Company survives and keeps raising through Series E, F, or whatever it takes to exit.
Exit is usually a bigger corporation buying them, or a private equity firm buying them. Occasionally a family office will buy a startup if they have positive cash flow. It is extremely rare to do an initial public offering.
When you raise a fund, you have five years to deploy it. There is an incentive to get cash out the door so you can raise another fund that is bigger, or at least the same size. If you have successful exits, you can raise bigger funds.
For the company, it is assumed that each round of financing results in a higher valuation for the company. That doesn’t always happen. The other thing to realize is most companies that get seed funding do not get Series A funding and so on. The value is not an accounting-based value but a negotiated value between the C suite of the company and the investors. Typically, founders sell 20% of their company at each round so very rough back-of-the-envelope math can give you an idea of the valuation. However, that math isn’t always correct since you don’t know all the terms of the deal.
Here are some fundings I am seeing in daily emails.
GlassPoint Closes $8M Series A Funding: GlassPoint, a pioneer in large-scale solar steam facilities, recently secured significant investment led by 300PPM and supported by notable figures such as former Australian PM Malcolm Turnbull and former Alcoa COO Tomas Sigurdsson. This funding will fuel expansion and broaden the company's reach in hard-to-abate industries. This follows GlassPoint's MOU with Ma’aden to create the world's largest solar process heat plant, aligning with Saudi Arabia's sustainability goals.
Carbon Upcycling Technologies, a Calgary, Canada-based circular decarbonization solutions provider, raised $26 million in Series A funding co-led by Climate Investment and BDC Capital’s Climate Tech Fund.
The cleantech VCs still spending big
Climate-focused startup investment is dominated by a handful of VCs, and Crunchbase data shows that even as overall venture funding has fallen, many of these investors have only gotten more active. We look at the biggest spenders in climate tech, and what sorts of companies they’re backing
We are not seeing exits in this space yet. It is too soon. It takes five to fifteen years for a startup to build a business and exit. But, when Cleantech went bust during the Obama years, it wasn’t pretty. Solyndra was a pimple on the butt of cleantech. So much money was wasted and lost.
Of course, this time it is different. Right?
My gut tells me this is all government incentive driven. No business I have ever seen in the “green” space is sustainable without government incentives. Many of them don’t have a business without them. When the subsidies end, so does the game.
The only sign of success for cleantech investors will be to return their funds at three times their size. That means ringing the cash register. Cash on cash return is meaningful. Internal rates of return and the ability to raise money at higher valuations are not that meaningful. No one can eat IRR, and no one can spend valuation.
Cash is king.
Even better, where AI intersects Carbon removal https://news.crunchbase.com/ai-robotics/artificial-intelligence-carbon-tracker-startup-funding/?utm_source=cb_daily&utm_medium=email&utm_campaign=20230803&utm_content=intro&utm_term=content&utm_source=cb_daily&utm_medium=email&utm_campaign=20230703
"No business depending on government subsidies is sustainable!" It's practically an oxymoron. If it's the government it's not really a business. Just another grift.