Start-up cleantech companies are getting more support from investors and philanthropists to help them cross the death valley curve, with three separate organizations promising hundreds of millions of dollars to help for-profit companies, and their new technologies, get off the ground.
The three groups were announced at the White House Clean Energy Investment Summit last week, which featured comments from Vice President Joe Biden renewing the Obama administration’s support for clean tech innovations. Among the news at the event was a new consortium of institutional investors that have pledged to invest more than $1 billion in companies that will produce “impactful and profitable solutions to climate change.” Investors in the new group include the University of California and the Alaska Permanent Fund.
New Investment Platforms
Also at the summit, two long-standing industry groups, the CREO Network and the Cleantech Syndicate, announced their merger into a new organization called the CREO Syndicate. The group brings together more than 100 family offices, advisors and other investors who represent more than $50 billion in combined capital. Members have invested more than $1.5 billion in clean energy and the environment and plan to invest another $2 billion over the next five years, the syndicate says in a statement. The nonprofit will work to educate investors about opportunities in the environmental and cleantech spaces, and to “foster more collaborative, impactful and profitable investment in these sectors,” the statement says.
Another new organization is the Prime Coalition, a financing platform that will match foundation money with early-stage companies whose products are designed to make a significant impact in the fight against climate change. At the White House event, the coalition announced its first investment, providing funding for a start-up focused on energy storage.
“The White House event was great in that it was a big crowd of active check-writers from lots of different ‘non-traditional’ asset categories” including pensions, family offices and foundations, says Rob Day, partner at Black Coral Capital, a founding member of the Cleantech Syndicate. “While we wait for the VCs and others to figure out that this sector is actually turning exciting again, these other non-traditional investors are the ones coming up with innovative strategies for funding market growth.”
The Prime Coalition’s strategy revolves around arranging funding for early-stage tech companies that have trouble getting funding from traditional venture capitalists. It will seek that funding from foundations — private, corporate and community — that tend to have trouble making such investments because of a lack of expertise and other factors.
Private foundations alone hand out some $50 billion in grants a year. Capturing even “a tiny portion of that would make a huge difference,” says Prime co-founder and Executive Director Sarah Kearney.
Working with “pipeline partners” including ARPA-E, Ag Innovation Development Group and Greentown Labs, as well as numerous venture capitalists, Prime will identify companies that meet their criteria, including being likely to have a significant impact on greenhouse gas emissions and lacking the ability to get VC funding. Prime’s investment committee, whose members will be announced later this summer, will create a shortlist of 10 to 30 companies to present to its foundation members for possible funding. Prime, a non-profit that operates on grants and charges no fees to its users, will also provide legal and other support to lower transaction costs.
Family Offices Targeting Sustainability
“We’re in a unique moment where two very different groups of family office investors are targeting sustainability,” says Matthew Nordan, managing partner at MNL Partners and Prime’s cofounder and investment committee chair. “On one hand there are established wealthy families, usually represented by layers of wealth managers, who see a gap in the funding system for energy/environmental companies and an opportunity to do well by doing good.” The other group is largely made up of newly wealthy people, often from the tech industry, who “want to disrupt the system for backing these types of opportunities, and tend to be much more self-directed. Between these two there’s an opportunity for a new model, and that’s what Prime is driving.”
Kearney notes that tech firms that are “capital light or have a short development timeline” are more likely to get venture capital funding, and Prime will steer clear of those types of firms. Energy storage is likely to be an area of strong interest for Prime, and that’s what the group’s first investment will support. Quidnet Energy focuses on grid-scale energy storage, using pressurized water stored underground to store up large capacities of energy.
Kearney declines to disclose the amount Prime raised for Quidnet but says it was a seed round worth less than $2 million. Funding came in multiple forms, including a recoverable grant, a program-related investment and straight convertible debt. Investors were the Will and Jada Smith Family Foundation, the Sorenson Impact Foundation, and Prime Coalition itself, using funds gathered from a consortium of other undisclosed foundations.
“Quidnet is a high-risk experiment — but if we’re successful, we could offer an entirely new way to think about providing and storing clean energy,” says Quidnet cofounder and chairman Aaron Mandell in a statement. “Prime understands this and has created an incredible network of visionary impact investors who see the value of funding early ventures that are in lockstep with reducing greenhouse gas emissions.”
Institutional Investors to Invest $2.5 Billion
Even more funding is being promised from the coalition of institutional investors announced at last week’s White House summit. The group is “initially allocating a total of $1.2 billion, with a goal of mobilizing $2.5 billion over five years that would not otherwise be invested in climate solutions,” a White House announcement says. The University of California’s Office of the Chief Investment Officer has pledged $500 million while the Alaska Permanent Fund says it will invest $200 million. Other founding members of the group are the New Zealand Superannuation Fund, which is investing $350 million; TIAA-CREF, which is promising $100 million; and early-stage VC firm Tamarisc, which says it will invest $10 million in climate change solutions.
As for the newly formed CREO Syndicate, it represents the coming together of “the two most savvy, influential, and committed communities of cleantech and environmental investors,” according to Jason Scott, co-managing partner of Encourage Capital and founding co-convener of the merged group. The other co-convener is Martin Whittaker, CEO of JUST Capital, who adds that he expects more investors to join the syndicate. “The value of this network will increase as both financial and environmental impacts are realized,” Whittaker says.
The syndicate will foster continued cooperation among family offices, sovereign wealth funds and other institutional investors, Black Coral’s Day says. “That kind of collaboration has been really successful over the past few years in developing the next great success stories,” he says. “Especially because they have the flexibility to invest into implementation, not just tech development, with these innovative new strategies.”
The White House summit overall “really showed that there is a new path emerging for development of energy/environmental technologies that’s purpose-built for their time frames and capital requirements,” Nordan says. Venture capital is often not a great fit for “early-stage, high-risk” technology companies; a better partner may be certain long-term investors — “concessionary capital that cares as much about impact as return,” he says.