Sara Chamberlain
About three years ago, climate tech moved back into the spotlight. The long drought of investor capital came to an end and a new wave of energy and climate tech startup activity began. But the opportunity is quite different from the cleantech boom and bust of 10 to 15 years ago. Some of the differences are easily recognizable, such as the onslaught of later-stage investor appetite from private equity funds and asset managers, but in commercializing early-stage innovations, it takes a trained eye to distinguish opportunity from obstacle, and to successfully translate lessons from the past to build and scale the next generation of innovations.
Reflecting on the past 20 years of my career, the last 10 of which I’ve spent investing in early-stage cleantech innovation, I now appreciate the incalculable value of watching a market evolve. I have studied patterns of success and failure, accumulating an exceptionally rich data set along the way and most importantly, I have learned from mentors, colleagues and many passionate and highly talented entrepreneurs.
We launched Energy Foundry in 2013, just as the bottom dropped out of the cleantech venture capital market. The early-stage investor ecosystem was scarce, which was in stark contrast to just a few years earlier when a tidal wave of venture capital and government stimulus flowed into cleantech startups. Plenty has been written about that particular cycle in history…why it was a success, why it was a failure? Really, all that matters is applying the right learnings to make the most out of the opportunity in front of us, where market demand, investor appetite, and climate innovation all appear to bein sync.
Building Strong Businesses from the Seed Stage
The 2012 exodus of venture capital from cleantech was abrupt and immediately noticeable for pre-seed and seed-stage cleantech companies, many of which could simply not convince investors to make another bet in the sector. This stage became the natural gap for Energy Foundry to fill, even though seed-stage investing is perhaps the most challenging because you have to assess and then manage technology risk, customer risk, and financing risk. We put together an investment strategy and an operating model that was specifically tuned to the earliest stages.
Two important ingredients were relationships and non-dilutive capital. Despite VC dollars drying up, the pace of federal energy R&D spending continued and a handful of incubator/accelerator platforms were tirelessly supporting technologies at their most formative stages. Organizations such as Cleantech Open, Greentown Labs, Elemental, Evergreen Climate Innovations, Austin Technology Incubator, and LA Cleantech Incubator were, are, and will continue to be some of our most valued partners. We collectively knew it was a big challenge and a big opportunity to work with the best university and national lab inventors to commercialize cleantech innovation, so that’s what we set out to do.
With leverage from our partners and continued opportunity to access non-dilutive capital, we focused our portfolio on hitting milestones that would build businesses, cautioned them about ramping burn too quickly, and constantly pressure-tested our view on product/market fit and unit economics. One important lesson is that cleantech innovations need time. Whether it’s to achieve a technology breakthrough or to learn true customer sales cycles, seed stage companies need time, and they need to carefully manage cash. This style of venture does not match that of many other firms, but it has served us and our portfolio companies well.
We invest at the earliest stages because that’s where the trajectory of the business is determined, and when we combine our depth of industry knowledge and relationships, it sets the company on the right path.
Finding Market Alignment
Another element that has evolved dramatically is market readiness for climate innovations. When financial VC firms backed away a decade ago, many corporations stepped in with a variety of innovation engagement models. The engagement was beneficial but in the early days, didn’t always pull through disruptive innovation because it was still hard for corporations to identify the right technologies at the right time, or at the right stage of maturity. What’s vastly different this time around is that corporations are investing in tools, resources, and entire departments to measure and improve the ESG posture of their operation, from cradle to grave. Corporations are leaning into their core competencies for driving scale, manufacturing optimization or supply chain, and viewing innovation as a tool for driving competitive advantage (versus a risk to be managed).
Noisy competitive landscapes will create some inertia, but having been triangulating these surges for more than a decade (and over 7k+ companies), it becomes easier to find the diamond in the rough. We will continue to link arms with everyone in the ecosystem, including partnering with corporations and customers who are integral to forward progress toward each milestone.
