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BFD Expert Voices - Climate Deals

BFD Expert Voices

Climate-tech investors are having difficult conversations with startups about repricing valuations down from the top of the market in 2021, Katie reports.

Why it matters: The valuations for climate tech, along with broader tech startups, were sky-high two years ago, but the reality of more expensive capital, higher interest rates, and challenged public markets has now set in.

What they're saying: According to a conversation with a group of climate-tech investors at the SOSV Climate Tech Summit that will be aired Tuesday afternoon, investors are wading into these tricky valuation conversations.

"Probably 50-ish percent of the companies that are B and C rounds out there, who have viable businesses, they're actually good functioning companies, they were just completely mis-priced at the last round, and that's where you're going to have some tough conversations," said Fifth Wall's Greg Smithies.

"For those who priced high, it actually feels quite a healthy thing to be resetting valuations to a place that feels much more realistic to build a resilient, steady company," said S2G Ventures' Kate Danaher.

Zoom in: Smithies warns portfolio companies to avoid doing skinny valuation resets, or what he calls "Diet Coke" rounds.

His advice is that if a startup is going to reset its valuation, don't do a small bridge round and then hope you can grow to the valuation. "A small bridge round is just a bridge to nowhere."

Instead, you should go "heavy-handed," and "push down the valuation as far as possible and reset yourself into this new reality," says Smithies.

The world is never going back to 20 times forward revenue and 0% interest rates, says Smithies.

Yes, but: Investors can have contrasting interests to founders that might want to maintain a certain level of valuation.

What's next: Tune into the entire conversation that touches on the benefits of raising funds from category-specific climate investors and the hottest areas of ocean tech, building tech and ag tech.

1 big thing: Navigating the valuation conversation

Illustration of dollar bills on a roller coaster track.

French startup Ayro closed a €19.2 million (~$20.3 million) Series B to expand construction of its towering sails for oceangoing ships, the company tells Alan exclusively.

Why it's the BFD: Incorporating advanced sails with cleaner-burning fuels may be the only way to fully decarbonize the maritime industry and enable companies to meet tightening emissions regulations.

What's happening: Ayro is one of a handful of startups building multistory sails for large ships, cutting their fuel consumption by as much as 50%.

Driving the news: Swen Capital Partners led the company's all-equity round through its ocean-focused fund, Blue Ocean.

Existing investors Ocean Zero and Bpifrance joined, as well as new investors AmInvest, Colam Impact, Normandie Participations and another Swen-managed fund, FCPI Capital Innovant N°2.

Blue Ocean managing director Christian Lim is joining Ayro's board.

Of note: The Series B closed in mid-August, around the time the company began sea trials with four 120-foot sails it installed aboard the Canopée freighter ship.

The ship is transporting space-launch components from Europe to French Guiana for Arianespace, a French satellite launch company.

State of play: The Canopée trials are one of several such efforts, spurred by public pressure, rising fuel costs and a new pair of regulations.

The UN's International Maritime Organization last year instituted a "Carbon Intensity Index," which rates and potentially penalizes high-polluting ships.

Meanwhile, the European Union's Emissions Trading System, which had excluded shipping, will begin requiring shippers to buy offsets for the pollution they produce starting next year.

What's next: Ayro plans to expand its existing manufacturing site in Normandy to make as many as 20 of its Oceanwings sails next year for shipbuilders.

2. The BFD: Sailing into €19.2M

The Canopée began sea trials this summer with four Oceanwings sails, each 120 feet tall. Photo: Courtesy of Ayro

Venture capital firm Anzu Partners closed its third fund at $200 million, the firm tells Katie.

Why it matters: It's a challenging time to raise funds to back early-stage highly technical startups, compared to the heights of 2021.

Details: Anzu Partners said the fund, its largest closed to date, brings its assets under management to about $1 billion.

Fund III has already deployed $123 million to 12 companies, including three energy-storage startups — AM Batteries, e-Zinc, and South 8  Technologies.

The investors write checks at the earliest seed stage, like with EnCharge AI, but have funded revenue-generating, more mature companies like Arduino.

The firm, which is distributed, said limited partners in the new fund  include new and returning public and private institutions, single and  multifamily offices, and accredited investors globally.

Big picture: The amount of venture capital that went into climate-tech startups in the first half of 2023 dropped compared with last year, particularly for generalist funds.

But government support from the Biden administration for energy technologies has helped to maintain momentum in the sector.

Anzu says more than $117 million in government funding and grants has been awarded to Anzu Partners' portfolio companies.

3. Exclusive: Anzu closes third fund with $200M

Animated illustration of a charging battery stylied as a neon light.

🪧 Advertising exclusive: Ara Labs, best known for its car-top advertising screens, is in the midst of raising a $50 million Series B round to expand its display advertisements on EV charging stations, two sources close to the situation tell Axios Pro colleague Richard Collings.

The round will consist of $40 million in debt and $10 million in growth equity. Ara Labs recently received a term sheet from a $1 billion fund to provide the financing, one of the sources says.

🎥 The Jigar Show: The Department of Energy's Loan Programs Office is co-hosting a new event called Deploy23 in Washington, D.C., today and tomorrow. 

The event features talks and interviews with heavyweights like DOE Secretary Jennifer Granholm and industry leaders like Redwood Materials co-founder JB Straubel.

✈️ FAA grants for SAF: The Federal Aviation Administration has opened up a multimillion dollar grant program intended to accelerate the sustainable aviation fuel (SAF) rollout, writes Alex Fitzpatrick for What's Next.

The Biden administration is trying to reach net-zero aviation emissions by 2050 — but we're a long way off from zero-emissions aircraft, if they ever arrive.

🌋 Geothermal groundbreaking: Geothermal startup Fervo Energy says it's started drilling on a site in Utah that could deliver 400 MW of geothermal energy starting in 2026, with full production in 2028.

4. Temperature check

a box of matches that pictures a small outline of the earth and text that reads "Temperature Check"

• Sensible Weather, an LA-based climate finance platform, has raised a round from Amex Ventures, along with Wonder Ventures, Infinity Ventures, and Industry Ventures. https://axios.link/3rwakqj

• ReCircle, a Mumbai-based waste-recovery startup, has raised a pre-Series A round led by Flipkart Ventures, 3i Partners, Acumen Fund Inc and a pool of HNI investors. https://axios.link/3ZuqrBp

• GeologicAI, a digital rock analysis startup based in Calgary, Alberta, has raised $10m from Export Development Canada as an extension to its Series A financing round led by Breakthrough Energy Ventures, bringing the total round of funding to US$30 million. https://axios.link/3Pw0v3I

• Avatar Ventures, a Canadian energy-focused venture studio, announced a first close of $750k for its first $3m fund, Avatar Leadership Fund 1, led by Cenovus Energy and several family offices and high net-worth individuals from Calgary and Toronto. https://axios.link/3t6MLVF

• Sepion Technologies, an Alameda, Calif.-based battery-materials startup, has opened up a 25,000-square-foot production facility to produce separator coatings for batteries. https://axios.link/3PTrTKs

• Flo, a Canadian EV charging company, has received a C$60m revolving credit facility from National Bank of Canada. https://axios.link/3ZvDwdy

5. Hot deals

• Gabriel Caillaux, has become the head of climate for General Atlantic. Caillaux was previously the head of EMEA for General Atlantic. https://axios.link/3LElrEC

• William F. Oplinger has been promoted to president and CEO of Alcoa. Oplinger was previously executive vice president and chief operations officer of Alcoa. https://axios.link/3Zyuah3

6. It's personnel

Tuesday Trivia: To kick off Deploy23 today we have some Jigar Shah-themed trivia: What's the name of the company that Shah (now director of the DOE's Loan Programs Office) founded two decades ago, shaping his view of clean-energy business-model innovation? Hit reply to this email with your answer.

🎃 Katie is here for the pumpkin onslaught at her local stores. Bring it on. 

👻 It's spooky season in Alan's household. Send him your movie recs. Scary yes, disturbing no. So "The Conjuring," "It Follows," "Cabin in the Woods" — not "Hereditary," thank you very much. 

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 those navigating tricky discussions.

September 26, 2023

1 big thing: Navigating the valuation conversation