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BFD Expert Voices - Climate Deals

BFD Expert Voices

Pent up demand for growth funding, blistering summer heat, continued momentum of the Inflation Reduction Act funds and a post-Labor Day news cycle all contributed to a bonkers week of climate tech deals, Katie reports.

Why it matters: Climate tech deals seem to be picking up pace, amid the much-lamented lack of growth equity, and investors say they're getting ready for a busy fall and winter season.

Yes, but: The deals announced could have closed months earlier — the rollout saved for back-to-school week. So caution is required in terms of reading too heavily into the packed week that was, yet the positive signs are hard to miss.

Catch up quick: This week saw the announcement of multiple equity growth deals, each worth hundreds of millions of dollars, across green steel, batteries, and other climate tech.

Swedish green steel maker H2 Green Steel raised $1.6 billion.

Battery materials and recycling startup Ascend Elements raised $542 million.

Boston-based green steel tech developer Boston Metal raised $262 million.

Composting-tech company Mill is raising $70 million of a $100 million round.

Meanwhile: There was news of dozens of seed and Series A rounds for digital energy, commercial solar, virtual power plants, sustainable packaging, low-carbon fuels, direct air capture, carbon software and more.

Big picture: The first half of 2023 saw a significant decline in announced climate tech funding deals, largely due to a plunge in growth equity. 

But some investors are predicting a return of growth equity coming soon.

One reason some investors see a recovery is the continuing effect of the climate bill. Growth equity for electric vehicles and battery companies in particular seems to be a bright spot, partly due to "the IRA cannon" pointed at that sector, as one investor put it.

Because growth capital was so constrained in the first half of the year, there could be both pent-up demand and backup happening in supply. Allocated funds have to start moving at some point, said another investor.

At the same time, investors are seeing more attractive deals in growth climate tech companies that have reset their valuations after the market correction.

Be smart: The changing climate has been front and center this summer with record heat, floods and cyclones in strange places. Don't underestimate a powerful narrative keeping the need for climate tech solutions top of mind.

What's next: We'll be watching to see how third-quarter numbers look and if the pace in growth equity climate tech deals remains high in the coming weeks.

1 big thing: Growth rounds roar to life

Illustration of an upward pointing arrow made from LED open signs

Climate investor Blackhorn Ventures has raised about half of a planned $200 million industrial fund, the firm tells Alan.

Why it's the BFD: The early-stage fund has already invested in about 15 digital-focused startups working to cut emissions in hard-to-decarbonize sectors.

What's happening: Blackhorn's Industrial Impact Fund II is investing in software-focused startups raising seed and Series A rounds.

Context: The $200 million target is double the firm's first industrial fund.

That $100 million vehicle, closed in 2019, ultimately backed 19 startups.

Zoom in: The fund will make about 30 seed investments and another 10-12 Series A investments, managing partner Melissa Cheong says.

Initial check sizes will be about $1 million for the seed rounds, and $4 million to $7 million for the Series A rounds, typically as lead investor.

Blackhorn plans to reserve about 50% of the fund for follow-on investment.

Of note: Investors include the Tennessee Valley Authority, the Getty Family, and billionaire Jeremy Grantham, co-founder of asset management firm GMO.

What's next: The new fund's investments are heavily concentrated in AI.

They include language-learning and data model startups Datch and Electric Era; generative AI developer Circuit Mind; deep-learning startup Fero Labs; and infrastructure software provider Golioth.

2. The BFD: Blackhorn's new $200M industrial fund

Illustration of bar graph made of blank checks

Founders need to be maniacal about developing the best solution for their market, Spiritus CEO Charles Cadieu tells Katie.

Why he matters: Cadieu just led his Los Alamos, N.M.-based direct air capture startup out of stealth mode this week with backing from Silicon Valley venture firm Khosla Ventures and a carbon removal purchase deal with heavyweight Frontier.

This interview was edited for length and clarity.

"It's an incredibly exciting time...The whole project financing world is starting to see this as becoming very viable with these advanced purchases. And that's going to be a critical linchpin to really scale this market, which we saw with solar and wind.

Economics are going to be the major driver here. And there will be consolidation. I could imagine maybe a small handful of less than five techniques."

What was the big story in climate tech this week?

"Let's go with our news. It's something dear to us, and something we've been waiting to tell the world for some time."

What is going undernoticed in climate tech right now?

"The DAC and sequestration incentives within the IRA.

45 Q gets to $180 per ton that the federal government is paying through either direct payment or tax incentive. That can really demonstrate removal for sub $100, as we're planning to at Spiritus."

What is one tip for climate tech founders?

"My approach is to really have the best solution in the market. I think if you're not somewhat maniacally going for that best solution, it's going to be hard to win over the long term."

"In the summers, I would work in my dad's physics lab. I would do work on solid state physics and materials development for magnetic thin films.

I tried to make a device called a spin valve. That was cutting my teeth on real agony and lots of hours of futility.

But that also kind of developed my perseverance as to how to see deep tech through."

In three-ish words, how would you change the climate tech landscape?

3. Expert voices: DAC's hot summer


Photo illustration of Charles Cadieu surrounded by abstract shapes.

Photo illustration: Gabriella Turrisi/Axios. Photo: courtesy of Spiritus

Plant-based meat startup Meati Foods raised a roughly $50 million Series C extension, Axios Pro colleague Richard Collings reports exclusively.

Why it matters: Funding for meat alternative startups was expected to decline in tandem with sales, which fell 7.3% year-over year as of July, according to Circana.

The latest: Meati appears to be bucking that trend.

Flashback: The company last year raised a $172 million Series C.

That round financed construction of an industrial-scale production facility near the company's headquarters in Boulder, Colorado.

Driving the news: Meati's new extension round drew investors Bond, Congruent Ventures and Revolution Growth.

It pushes Meati's total amount raised past $300 million, based on data provided by PitchBook.

What's next: Meati expects to generate tens of millions of dollars in its first full year of doing business.

The company is considering adding plant-based fish and pork alternatives to its existing chicken and steak lines.

👀 What we're watching: CEO Tyler Huggins told Axios this spring that he was planning a Series D in early 2024.

4. Exclusive: Meati raises $50M for mushroomy meats

One of Meati's chicken-inspired "Crispy Cutlets." Photo: Courtesy of Meati

🦞 Lobstermen expand to seaweed: Maine lobstermen are branching into kelp farming as warming waters off the state's coast shrink lobster populations and drive the crustaceans further north.

Seaweed production in the state swelled last year to 1 million pounds, up from just 30,000 pounds in 2018, per CNBC. It's used in foods, supplements, cosmetics, clothes and bio-plastics.

🚗 The elusive $25k Tesla: Elon Musk was so obsessed with robotaxis that he repeatedly vetoed his own plan to build a $25,000 electric car in favor of them — until skeptical Tesla executives persuaded him to hedge his bet, Musk biographer Walter Isaacson tells our What's Next colleague Joann Muller.

The notoriously stubborn Tesla CEO finally relented when aides revealed a plan to build both a robotaxi and an inexpensive small car side by side in a cutting-edge factory, according to an exclusive Axios excerpt from Isaacson's forthcoming book, "Elon Musk," out Tuesday.

🤖 DOE on AI: The Department of Energy gave Congress an overview of how it's already deploying AI and the potential it sees, Ben Geman writes in Generate.

Deputy Secretary David Turk's testimony to the Senate's energy committee cites examples like the use of "AI-based image analytics and model to assist the Coast Guard with modeling fire spread and evacuation efforts in Maui."

⛏️ Trouble for an aspiring green miner: Three years ago, the founder of Fortescue Metals Group announced plans to transform his iron ore mining giant into a "clean-energy powerhouse," per Bloomberg.

Now, Andrew Forrest is facing a rapid exodus of his company's senior leaders, revealing "long-simmering questions over the billionaire's  leadership, and whether his sweeping green plans are at odds with the  priorities of a lucrative core business."

5. Temperature check

Illustration of an ice cream cone with a melted puddle of ice cream that looks like the earth.

• SoftBank invested ~$1b in Stack AV, a new autonomous trucking startup launched by the founders of defunct self-driving startup Argo AI, which had been backed by Ford and VW, per Bloomberg. https://axios.link/461QYrF ​

• Clearlake Capital and Vista Equity Partners hired William Blair and Rothschild & Co. to find a buyer for EagleView Technologies, a Bellevue, Wash.-based aerial imagery and data analytics company that could fetch $2b, per Reuters. https://axios.link/3LeTbId

• Quantum Capital Group agreed to sell Houston-based renewable energy developer ConnectGen to Repsol for $768m, marking the Spanish company's move into the U.S. onshore wind market. https://axios.link/48imT9o

• Pertamina Geothermal Energy, a division of Indonesian state energy firm Pertamina, is in advanced talks to buy a geothermal unit owned by KS Orka Renewables, established by Chinese compressor maker Kaishan Group, for up to $1b, per Reuters.  ​https://axios.link/3RanFPp

• Divert, a company that processes food waste for digesters, broke ground on a new $100m facility in Longview, Wash. https://axios.link/487Wtqx

• Automaker Stellantis is planning to expand its battery manufacturing capacity to 400 GWh, per Reuters. The company has announced six such factories, three of which are in the U.S. and Canada. https://axios.link/3RdpsU7

6. Hot deals

• Arash Nazhad joined investment bank Moelis & Co. as co-head of a new cleantech banking group. He was previously at Citi. https://axios.link/3r5DpbX

• Rick Polhemus was also promoted to co-head of Moelis & Co.'s new cleantech banking group. He was previously managing director at Moelis. https://axios.link/48kfEhh

• Kailash Vaswani was promoted to CFO of Indian clean energy company ReNew. Vaswani was previously ReNew's president, corporate finance. https://axios.link/45OMpBy

• Damian Finio joined recycling company TerraCycle as CFO. He was previously CFO at Phibro Animal Health Corp. https://axios.link/3ExlG02

• Jeffrey Marootian's nomination to lead the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy was withdrawn by the White House. Marootian became entangled in Sen. Joe Manchin's furor over gas stoves. https://axios.link/44F4Gj3

7. It's personnel

Sept. 5 — Early stage venture firm SOSV has been focused on backing startups that have no, or low, capital expenditures, said Po Bronson, managing director and partner of SOSV's IndieBio, during a tour of its San Francisco labs.

Why it matters: SOSV has been one of the most active early-stage climate tech investors this year, with a strategy to use its lab space to help de-risk science-based and hard-tech startups, Katie wrote.

Sept. 6 — Food-recycling startup Mill Industries raised about $70 million toward a $100 million target for a Series C round, two sources familiar with the situation told Alan and our Pro colleague Richard Collings.

Why it matters: Solutions like Mill's help mitigate food loss and waste, which contribute up to 8% of greenhouse gas emissions, per the EPA.

Sept. 7 — The big names in climate investing are so far the most active funders this year, according to PitchBook data shared with Alan.

Why it matters: The firms are pushing through a market downturn that's kept other venture investors on the sidelines.

8. 🗞️ Catch up quick

🌸 Katie is looking forward to checking out the family-friendly fun that is Flower Piano this weekend at SF's Botanical Gardens.

✈️ Alan heads to the Blueprint and RE+ conferences in Vegas next week. Looking forward to seeing you there — or at Climate Week NYC the week after!

Thank you to Michael Flaherty and Phoebe Neidl for today's edits.

And thank you for reading Climate Deals! Please share with your friends, family and growth funders.

September 08, 2023

1 big thing: Growth rounds roar to life