Here we go again: ‘Clean-tech boom 2.0’ – ‘The last clean-tech investment frenzy ended in disaster’ – ‘Investors plowed $25 billion into clean tech startups from 2006 to 2011—but they lost more than half their money’


By: - Climate DepotNovember 30, 2020 12:21 PM with 0 comments

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https://www.technologyreview.com/2020/11/30/1012660/venture-capital-clean-tech-boom-biden/

How VCs can avoid another bloodbath as the clean-tech boom 2.0 begins
The last clean-tech investment frenzy ended in disaster. Investors insist they’ve learned their lessons.

by James Temple

Last decade’s clean-tech gold rush ended in disaster, wiping out billions in investments and scaring venture capitalists away for years.

But a new investment boom is building again, this time around a broader set of climate-related technologies. Funding has soared more than 3,750% since 2013, according to a PwC report this fall, as numerous climate-focused venture firms emerge and established players return to the field (including some that got scorched the last time). Investments are poised to rise further as market, policy, and technological forces align to make venture capitalists and entrepreneurs more confident.

One of these factors is President-elect Joe Biden’s pledge to push through climate-friendly legislation, regulations, and executive orders. There are also rising hopes that Congress will pass stimulus bills that would funnel massive amounts of money into clean tech, much as the Obama administration did during the global financial crisis.

Regardless of what happens on the US federal level, growing numbers of states, nations, and corporations are committing to achieve net zero emissions in the coming decades. Those targets alone promise to create significant demand for clean energy and other climate-related technologies.

“Climate has many, many problems, with many different solutions—and that will create many opportunities to build big, valuable companies,” Andrew Beebe, managing director of Obvious Ventures, which invests in clean-energy and transportation startups, said in an email. “From batteries to mobility to energy efficiency to carbon capture and beyond.”

The ultimate size and fate of the next boom, however, could depend on how quickly and fully the economy recovers from the devastating covid-driven downturn—and how well investors learned their lessons from the last bust.

What went wrong

The original clean-tech boom was a bloodbath. Investors plowed some $25 billion into startups from 2006 to 2011—but they lost more than half their money in the end, according to an MIT Energy Initiative analysis in 2016. In fact, more than 90% of the companies funded after 2007 didn’t even return the capital invested.

A variety of factors were to blame.

The global recession dried up the market for new or follow-on investments. The collapse of silicon prices as China scaled up solar panel production hammered thin-film startups and others pursuing alternative approaches. And the advanced biofuel sector struggled to compete as the downturn undercut oil prices and the rise of fracking tapped into new domestic natural-gas reserves.

But the MIT analysis concluded that “external economic trends” weren’t the primary problem. The bigger issue was that startups still deep in the research-and-development stage were a poor fit with the venture capital industry, which was counting on the sorts of high returns in three to five years that it enjoyed in software.

Clean-tech companies required too much money and time to demonstrate and scale up their technologies, says John Weyant, a professor of management science and engineering at Stanford, who coauthored a book examining what went wrong.

Advanced biofuels, thin-film solar companies, and all sorts of energy storage startups of the era were simply too immature and too expensive to be commercialized—and in many cases they remain so today. Weyant’s book also concludes that while clean-tech founders may have had ample experience developing technologies, many had little in building manufacturing capacity and operating businesses. That made it hard to compete in commodity fields with powerful incumbent players and ultra-thin margins.

The next boom

A lot has changed since then.

Clean technologies themselves have gotten better and cheaper. Renewables can now largely compete directly on cost with coal and natural-gas plants, following a massive buildout of manufacturing plants and solar and wind farms around the globe. Likewise, the improving price and performance of lithium-ion batteries is making electric vehicles more attractive to consumers and automakers.

“Despite the headwinds of the Trump administration, the march to clean energy and a clean economy is moving full speed ahead,” says Nancy Pfund, founder and managing partner at DBL Partners.