Clean Energy Ventures focuses on funding disruptive capital-like technologies and business models in the energy sector, prioritizing technologies that can reduce at least two gigatons of greenhouse gases by 2050.
Despite the challenges faced by climate tech investors in the past, the current landscape, with global demand for clean technologies and specific regulations, presents opportunities for unlocking more capital and educating investors about the potential returns and impact of climate tech investments.
Investing in specialized impact-focused funds, rather than generalist funds, is important for making a legitimate case for impact investing and navigating the unique challenges and relationships in different sectors.
Deep dives
Clean Energy Ventures: Funding Disruptive Energy Technologies
Clean Energy Ventures, an early stage venture firm, focuses on funding disruptive capital-like technologies and business model innovations in the energy sector. Their investment criteria require technologies that can reduce at least two gigatons of greenhouse gases by 2050. The firm actively engages with portfolio companies, providing technical expertise and operational support. They prioritize team assessments and effective team building to ensure the success of their investments. Clean Energy Ventures has a strong track record, with low loss ratios and successful exits. They believe that the current shift towards decarbonization and the demand for new technologies from corporations will generate significant opportunities in the clean energy space.
The Challenges in Climate Tech Investing
Investing in climate tech has historically faced challenges due to the perceived risk and lack of suitable investment models. Many large institutional investors, such as endowments and pensions, have been hesitant to invest in climate tech due to the losses experienced in CleanTech 1.0. The reputational risk and the lack of distributed paid-in capital (DPI) have dissuaded these investors from participating. However, the current landscape is different, with global demand for clean technologies driven by net zero commitments and European regulations. The emergence of specific regulations and commitments has created a conducive environment for climate tech investors. To unlock more capital, there is a need to overcome misaligned timelines, lack of exits, and educate investors about the potential returns and impact of climate tech investments.
Opportunities and Gaps in Clean Energy Investing
Clean energy investing spans across various stages of the capital stack, from early-stage ventures to project finance. The opportunities in the market lie in developing innovative technologies that can meet the demands of sustainability commitments by companies and governments. However, pricing remains a challenge, with high valuations in early-stage investment rounds. Assessing the milestones, their costs, and the potential exit values is crucial for navigating fair valuations. Additionally, attracting capital from institutional investors requires demonstrating a clear path to achieving top decile returns and addressing liquidity concerns. Despite these challenges, the increasing number of funds entering the space indicates a growing interest and recognition of clean energy investment opportunities.
Investing in specialized impact-focused funds
The podcast episode discusses the importance of investing in specialized impact-focused funds, rather than generalist funds. The speaker emphasizes the need for due diligence in order to make a legitimate case for investing in impact-focused funds. They highlight the challenges of investing in different sectors, such as AgTech, CleanTech, and WaterTech, which have unique strategic relationships and adoption cycles. The speaker advocates for specialized funds that have strong relationships with key players in specific sectors. They provide an example of a mandate focused on reducing 2 and F gigatons of greenhouse gases, which is built into the underwriting criteria of clean energy ventures.
Assessing impact and financial returns
The podcast delves into how impact and financial returns are related in impact investing. The speaker explains their approach to measuring impact, using a simple emission reduction calculator to evaluate a company's potential to reduce carbon emissions. They consider the product or service delivered by the company, the carbon reduction per unit, and the projected adoption trajectory. The speaker also discusses the correlation between financial returns and impact, emphasizing that successful companies with higher product sales generate higher returns and greater impact. They highlight the importance of transparent and committed teams, and the need for pricing discipline in assessing growth-stage companies and funding their milestones.
This episode is part of our new Capital Series hosted by Jason Jacobs. This series explores a diverse range of capital sources and the individuals who drive them. From family offices and institutional LPs to private equity, government funding, and more, we take a deep dive into the world of capital and its critical role in driving innovation and progress.
Temple Fennell is the Co-founder and Managing Partner at Clean Energy Ventures, an early-stage venture firm that funds disruptive capital-light technologies and business model innovations that can reshape how we produce and consume energy.
Temple has been investing in climate tech (or "Cleantech" as it used to be called) for a long time, and has the learnings to show for it. This episode covers the origin story of Clean Energy Ventures, their approach, the mix of limited partners that back their fund, and their criteria for investment from an impact standpoint and a financial standpoint. A broader discussion follows about the climate tech capital stack, some of the learnings from Cleantech 1.0, why Temple believes this time is different, the state of institutional capital as it relates to climate tech fund investing, as well as what it will take to get more capital flowing in this direction.
In this episode, we cover:
[02:56]: Origins and overview of Clean Energy Ventures
[04:50]: Distinction between Clean Energy Venture Group (CEVG) and Clean Energy Venture Fund
[07:20]: Temple's background, family investments, and the clean energy space in Charlottesville, VA
[11:11]: Overview of CREO (Clean Energy Renewable Environment Opportunities) syndicate
[13:25]: Key learnings from Cleantech 1.0
[18:15]: CEVG check sizes, portfolio, and support for entrepreneurs
[20:01]: History of CEVG's fund one and their use of SPVs (special purpose vehicles)
[22:12]: Current investment focus and fund status
[25:59]: Approach to impact measurement
[30:20]: Approach to financial returns and causal link to impact
[31:19]: Approach to selecting LPs
[34:15]: Pension fund hesitance due to previous losses in Cleantech 1.0
[38:18]: Why Cleantech 1.0 failed and how this time is different
[41:02]: How limited DPI (distributed paid-in capital) poses challenges in attracting institutional investors
[43:23]: Pricing, exit analysis, and the need for top decile returns
[46:17]: State of the broader market vs. climate tech market, risk assessments, and team dynamics
[48:56]: Gaps and opportunities in the capital stack, preference for capital-light companies, and importance of milestones
[52:21]: Who Temple wants to hear from
[54:58]: Closing thoughts on the differences between "Tech-tech" and Cleantech
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Episode recorded on May 26, 2023 (released on June 28, 2023)
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