Clean Energy Ventures raises $305 million to back early-stage climate startups

Clean energy stocks may be underperforming in the public market, but there is still strong interest in companies focused on decarbonizing the private market – with Clean Energy Ventures’ new fund serving as the latest example.

The climate tech company said Wednesday it has raised $305 million for its second fund, five years after closing its first fund. The latter fund was oversubscribed – the initial target was $200 million – but interest from limited partners including The Grantham Foundation, Builders Vision and Carbon Equity led to a higher raise.

The company is already putting the new money to work, focusing on technologies that go beyond traditional green investments in solar and wind energy.

Co-founder and managing partner Daniel Goldman cited industrial decarbonization as one of the most attractive sectors – particularly emissions-reducing technology for the cement and steel industries.

“When you think about where we need to have a material impact, and where there are sectors where technology hasn’t changed in decades, steel and cement are at the top of the list. So we think there are enormous opportunities there. he told CNBC.

Two other areas of focus for the new fund include plastics – both more efficient recycling and cost-competitive production of bioplastics – and grid-enhancing technologies for distributed energy, such as virtual power plants.

Clean Energy Ventures backed 20 companies in its first fund and has already made six investments through its second fund, including Israel-based green ammonia company Nitrofix, as well as sustainable jet fuel company Oxccu, which is based in the United Kingdom. Clean Energy Ventures is also opening a new office in London, with Goldman calling the European opportunities “really incredible,” while also pointing to opportunities in Israel.

A lot has changed in the renewable energy landscape since 2019, when Clean Energy Ventures launched its first fund, including the rise – and subsequent decline – of special purpose acquisition companies. During the Covid era, SPACs proved to be a popular route for clean energy companies to access public markets. Many have performed poorly since then, leading some to argue that the enthusiasm surrounding SPACs caused companies to go public that simply weren’t ready.

But Goldman said the unwinding of the SPAC trades and the poor performance of publicly traded clean energy stocks have not hurt investors’ perception of the value of clean energy investments, or the idea that greener investing comes at the expense of returns. Clean Energy Ventures’ limited partners, which include institutional investors, asset managers, family offices and registered financial advisors, are not impact investors – in other words, they are focused on returns.

None of the companies in Clean Energy Ventures’ first fund have gone public, but the company views IPOs as a “nice to have,” rather than a “need to have.” Goldman said Clean Energy Ventures’ approach has been to focus instead on strategic selling – in other words, backing companies developing technologies that a much larger company, say an energy or industrial giant, might be interested in are.

No companies from the first fund were acquired, although Goldman said there are interested buyers.

Elsewhere in private markets, private equity is playing an increasingly important role in deals related to the energy transition. According to Mike Collier of financial consultancy Weaver, private equity-backed energy transition deals rose to more than $25.9 billion by 2023compared to just $500 million in 2018.

Private equity plays a crucial role because it can be a springboard for companies that have outgrown venture capital but are not yet ready for the public market.

Clean Energy Ventures helps its portfolio companies reach the next stage by partnering with private equity, and Goldman said the company has seen increased interest from that market over the past six months.

‘I don’t tell them [private equity] come in and take technology risks early on, but once you have a demonstration – or the first of its kind – they can feel comfortable coming in for those follow-on projects much earlier than has traditionally been the case,” he said.