As a (relatively) seasoned observer of investment in technologies to reduce carbon dioxide emissions, I’m delighted to see investors expressing newfound and apparently sincere interest in climate change.
New interest brings with it new nomenclature, and the sectors I once covered as alternative energy, renewable energy, and cleantech are now “climate tech.” Whatever we call it, there’s an opportunity for new technologies to get funded, for new business models to thrive, and ideally for us all to reduce emissions and perhaps even remove carbon dioxide from the atmosphere.
Climate-related technologies and business models were either maligned or ignored by early-stage investors after high-profile venture – and government-backed failures such as Solyndra. To put it in a couple of renowned economists’ terms, is there a “this time it’s different” case to be made for climate tech? Are things different enough for that-which-was-once-called-cleantech to avoid some of its earlier failings? Katie Fehrenbacher of GreenBiz has been covering the sector since the cleantech days, and last week neatly captured the key question for today: “if/when cleantech comes back into vogue in Silicon Valley, what will it look like?”
Many investments might not be fundamentally new. It’s climate. It’s tech. But is it climate tech? In announcing last month that it was investing in energy market platform Leap, Union Square Ventures said “we were excited to find networks on multiple levels: at the grid level, a network of electrons; at the market level, a network of transactions and financial products; and at the data level, a network of connected devices and applications.”
That’s all true, but electrons have been networked by transmission and distribution wires for more than a century. People have been buying them that whole time, and key electrical system components have been networked for five decades. However the vastly reduced cost of networking and the vastly increased number of connected devices with vastly improved computational capabilities is new. Maybe a better way to say it is that this generation of climate tech entrepreneurs has a vastly improved system to attach itself to.
There might not be anything wrong with old ideas brought to new light and life. Eight years ago, Marc Andreessen said that “one of my working theories right now is that basically every single idea from the dotcom era was correct.” Benedict Evans elaborated on Andreessen’s working theory in 2018, wondering “how many ideas people rejected in the bubble because they needed too much consumer adoption or too much capital could also work now.” Pets.com was death by sock puppet in 2000, while Chewy.com had its IPO last year.
That’s a useful question to ask of climate tech, too, given the last decade of technology improvements. The fairly grueling industrial competition in clean power generation technology of the last ten years has freed up entrepreneurs to focus on new areas. The global solar market is more than five times bigger than it was in 2010, and solar modules (which are significantly improved in efficiency) are almost 10 times cheaper than a decade ago as well. Technologies with falling costs and increasing efficiencies create their own markets.
They also free up capital for asset-light investments. Here is BloombergNEF’s data on clean energy venture capital and private equity investment. A decade ago, significant early-stage capital had to be invested in power generation technology. Now, that same early-stage capital can take advantage of earlier successes in lowering the price of clean power generation (and perhaps, avoid some failures too).
A final thought, which ties today’s new climate tech to tomorrow’s climatically energetic future: In their foundation’s annual letter this year, Bill and Melinda Gates mention climate change as a key priority. Bill highlights a long-discussed distinction between mitigating climate change (basically, reducing emissions) and adapting to it. Most of the what-is-now-climate-tech investments of a decade ago were in mitigation… but given how much the climate has changed in just 10 years, we may see that a lot of climate tech investment goes into adaptation.
Bill Gates mentions climate-smart crop options as a priority of the Global Commission on Adaptation, which he chairs. Are those climate tech successes, or are they the necessary result of earlier failures? And does today’s failure to arrest climate change create a worthy and lucrative investment for a new generation of entrepreneurs and funders? I think that we’ll encounter many more questions such as this in the coming months and years of exploring climate tech, and I expect that I’ll continue exploring those questions, too.
© 2020 Bloomberg L.P.