Technology sector

Lots of public money and few specialized investors

In 2009, Silicon Valley’s most popular solar panel company, Solindra, was set to go public for $6 billion, at the time around 4.6 billion.

The company had raised $1.2 billion, including more than $500 million from the Obama administration, to develop its unique technology to meet rising costs for polysilicon, a critical component in solar panels. So, The company began planning its IPO.

Two years later, Solandra filed for bankruptcy after the United States Inspector General’s office used false information to mislead the Department of Energy in a subsequent investigation.

Solindra’s example was Boom clean technologies between 2006 and 2011, a period during which investors invested $25,000 million (around €24,500 million at current exchange rates) in companies that pledged to tackle the climate crisis and lost half their lives in the process. the money was lost.

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According to an MIT report, the Series A phase at the time of the boom also had the lowest proportion of cleantech companies. More than 90% of clean technology companies that received checks after 2007 did not repay the initial investment.

However, clean technologies are back under the guise of climate change.

According to data from Pitchbook, global venture capital investment in climate companies has steadily increased and more than doubled in the past year to reach more than $30 billion between 2020 and 2021.

and this time, This field is booming in Europe. Checks issued to European climate tech startups doubled from €2.7 billion to €5.3 billion over the same period. So far they have raised 3,600 million in 2022.

This figure still represents a small fraction of more mature European tech sectors such as fintech, which received 4x more exposure in 2021, but climate tech companies are raising a lot of money in individual deals.

London Carbon Assessment Society silvera In January, he raised 32 million dollars (about 30 million euros) and the carbon capture company the climate 650 crores received in April

Governments have also given money. Last year, the European Investment Bank invested €27.6 billion in companies and projects related to the climate crisis, representing 51% of its total investments.

This flow is sounding the alarm in some regions. Is there a risk of becoming the second cleantech bubble in the race for green wallets?

According to a European venture capitalist, who prefers to remain anonymous, the high volume of public investment was one of the weak points of the clean technology boom at the time.

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“While there is a lot of public money in an area that makes people feel good, a lot of people don’t pay as much attention to detail as they should,” this person said. “manipulation of the system” because It is not the government’s job to be a “venture capital fund”.

there is a lack of experts

The revitalized climate technology industry includes many complex technologies, including carbon accounting, battery manufacturing, satellite imagery, meat substitutes and direct air capture.

But investors, including climate funds, lack the expertise to properly assess some of these more specific areas, say some observers in Europe.

“Lack of expertise is one of the main problems in climate technologyThis was an issue during the cleantech 1.0 crisis and, no doubt, it will be during the cleantech 2.0 or climate cycle,” says Arne Mortani, partner at Kiko Ventures.

“Specialization is all the more important as competition for venture capital intensifies. Many founders are looking for venture capital for more than a big paycheck.

LPs fear the fund will impact venture capital funds, Mortney says, “but not as much as it should.” Kiko Ventures has a structure »Evergreen“, which means that he does not withdraw money from LPs, but shares that he has heard of LPs being withdrawn amid economic uncertainty.

In Europe, the density of the General Effects Fund can be problematic; An investor says Europe lacks specialist venture capital firms with the material expertise that can properly test companies.

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However, some venture capitalists share internal business which have been backed by investors with in-depth knowledge of the sector, such as some business angel or sector funds. Others look to scientists and economists with deep knowledge of their subjects.

bubble in sight

For Abrar Chowdhury, an Oxford scholar who analyzes the climate technology ecosystem, the sector is forming a bubble Due to the concentration of venture capital funds in several sectors.

According to him, too much money has been invested in a small number of sectors focused on reducing emissions, and not enough invested in adaptation to climate change. these investments -Electrification, hydrogen and direct air capture, for example- They say they have little impact on climate change today.

Venture capitalists focus on these technologies because they’re easy to scale, Choudhary says. adaptation measures, such as those that can guarantee the supply of food and water, It is not so easy to climb them.

“For me, the bubble is that there are too many players in this space and not enough people in the spaces to really help us deal with these changes,” he says.

“Yes, we have energy storage, butHow are you going to help people with this heat wave? How will this help them survive? I think it’s the climatic point that’s missing.Ensures the temperature exceeded 40 degrees for the first time since it was recorded across most of Europe.

“This is where the innovation doesn’t happen at the same level of clean energy, battery storage, and transportation.”

Chowdhary thinks the current wave of climate technology is “Easy to pick fruit” With investors looking to invest in sectors that were already mature and “didn’t really need to foster that climate”.

“Should venture capitalists do this? Because it’s just ticking a box that anyone can invest in,” he says.

“But is it progressing? Because the role of venture capitalists is really to build other areas as well, right? To open other domains, and I think that’s where venture capitalists don’t go because they don’t see that opportunity to scale.,

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Furthermore, the Oxford academic says governments should make sure they prioritize funding for climate technology, as state investment in this area “really loses importance” for a while. recession.

role of common investors

For European generalist investors, mainly specializing in software, the climate matters. “You have to do that yes or yes”the announcement personal signA partner of LocalGlobe, a London-based start-up investor.

“If GPs fund what they know – software – they are accused of not supporting real solutions to climate change; if they try to finance some of them, they are blamed for a lack of experience. Accused of creating bubbles,” he added.

Many climate funds explain internal business Partner with specialist funds to address the problem of specialization in a later round – for example, venture capital funds focused on energy or food.

Others say that even when they lack specific knowledge, they can help small businesses grow and connect with late-stage lenders such as Coteau or SoftBank, which are the French management company of the carbon Sweep and Carbon. Accounting companies support Clarity AI.

Even then, Venture capital is only scratching the surface of what is really needed to solve the climate crisisAmalie de Alvis, CEO of nonprofit accelerator Subak and former CEO of Microsoft for Startups, explains.

“The reality is that not all climate solutions will pay off with 10x yields in 5 years,” says de Alvis.

“The difficulty is that we are creating a false narrative around climate investment. We are saying we have all this money that is ready to be deployed, but maybe it is the wrong kind of money that has been placed in the wrong place. be maintained”.