From the development of an app to conserve fuel on bus routes to a startup working with MIT to advance fusion power, climate entrepreneurship is all around us – and with more investment dollars behind it. The size and scope of financing for clean tech development continues to reach new levels. Most recently, Earthshot Ventures launched a new venture capital fund to “invest in entrepreneurs solving climate’s toughest challenges.”
Earthshot invests in both hardware and software companies from Seed through Series B funding. The fund spun off from Elemental Excelerator and brings a team that has invested in more than 150 climate startups.
While clean tech venture capital experienced a bit of a boom-and-bust stage in the early 2000s, the landscape looks much different today. Investments were about $300 million per year from 1995-2005 and increased to $4.3 billion in 2011. Thus far in 2021, clean tech VC has totaled more than $11 billion. And that’s just VC. In the midst of a pandemic, the investment and spending on decarbonization totaled more than half a trillion dollars.
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In addition to Earthshot, other well-known venture capital firms are seizing opportunities to inject money into startups that, if successful, would improve the environment and reduce the risks of climate change. Kleiner Perkins, DJF, Sequoia Capital and Khosla Ventures are just a few of the noteworthy names pouring big money into climate innovations. A number of climate-specific ventures have emerged in recent years, too, including Congruent Ventures, Energy Impact Partners and Greentown Labs. Perhaps the most well-known is Bill Gates-led Breakthrough Energy Ventures. In January, Breakthrough announced it raised its second round of $1 billion that will fund approximately 40-50 climate-focused start-ups.
Another innovative, private sector-led funding model is philanthropic VC. For example, Prime Coalition is a “nonprofit organization focused on addressing the critical funding gap for transformative early stage solutions to climate change. Prime’s unique model blends different forms of catalytic capital to support innovative technologies with potential to reduce or sequester greenhouse gas (‘GHG’) emissions at the gigaton scale by 2050.” Catalytic capital differs in that its investors may accept more risk or wait longer for returns, but the investment could result in game-changing technology. Those game changers could pay off big for investors and the planet.
An April report by the International Energy Agency on global trends in clean energy innovation provides more encouraging news. Patents for low-carbon energy technologies grew significantly from 2004-2014, and after a bit of a slump from 2014-2016, climbed again from 2017-2019. Importantly, the report emphasizes, “Countries are specializing nationally and collaborating internationally to foster local technology advantages.” Free and open markets encourage innovators in different countries to specialize, producing goods in which they have a competitive advantage. The result is greater productivity, greater trade flows and greater deployment of a wide variety of clean energy technologies.
As a matter of public policy, the Biden administration’s climate agenda has centered on more government spending. For instance, the Democrats’ $3.5 reconciliation bill includes extending and introducing new tax subsidies and a $150 billion program to overhaul the electricity sector. While the government can play an integral role in jumpstarting new technologies through research and development, many of the provisions recklessly spend taxpayer dollars, fail to responsibly re-prioritize existing federal resources, enable corporate welfare and distort competitive energy markets.
On the other hand, Washington is paying too little attention to how policymakers can improve entrepreneurs’ access to capital. Congress and the Securities and Exchange Commission could implement reforms that would expand everything from crowdfunding and small bank lending to changing who could qualify as an “accredited investor.”
Nobel Prize economist Milton Friedman told the Wall Street Journal more than 60 years ago, “The market gives people what the people want instead of what other people think they ought to want. At the bottom of many criticisms of the market economy is really lack of belief in freedom itself.”
What people want may be everything from a cheaper solar cell to a technology that hasn’t been invented yet. The role for public policymakers is to make it easier for entrepreneurs and investors to do what they do best: innovate, raise levels of prosperity and contribute to solutions that are good for the planet.
The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.
