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Illustration: Sarah Grillo/Axios

Silicon Valley got a black eye a decade ago when its big venture capital foray into expensive and nascent cleantech didn’t pan out—but its recently renewed interest in a wider scope of technologies that can tackle the climate crisis could be different this time around.

Why it matters: Climate change is one of the most pressing challenges of our time, and the tech industry’s innovation could be a powerful tool to stem it.

Flashback: Several years after the Dotcom bust, a number of prominent venture capital firms like Kleiner Perkins, DFJ, and Khosla Ventures bet big on clean tech as the next big thing.

  • Venture capital jumped from about $300 million a year in cleantech investments between 1996 and 2005, to $1.7 billion in 2006, and peaked at $4.3 billion in 2011, according to the NVCA.
  • And while some investors did well and backed successful companies, the spectacular crumblings of companies like Solyndra and Fisker kept a lot of VCs and limited partners away for many years.

Fast forward: The climate crisis has sparked an interest from Silicon Valley and venture capitalists, with influential investors like startup accelerator Y Combinator, Union Square Ventures, and Sequoia Capital getting more serious about investing in potential solutions.

This time around, investors tell Axios that there are some fundamental differences:

  • Broader belief in climate change: The understanding that climate change will have profound consequences for the planet and the people on it is so much more widespread today. “It’s no longer something that will affect our great-grandchildren—it’s affecting us now,” DBL Partners managing partner Nancy Pfund tells Axios.
  • Stronger capital environment: “It’s no longer just a venture capital game,” says Spring Lane Capital co-founder Rob Day. “One reason the last wave of VC did not turn out really well is because at the end of the day, these are physical asset plays—even software plays are tied to physical assets.” Today, there's not only capital across all stages of VC, but also other types of investors to fund projects like factories.
  • Larger scope of investments: Beyond investing in the same areas like renewable energy and batteries, today’s climate tech VCs are looking at agriculture and other food production, eco-friendly transportation, and a wide variety of startups that can have an impact on society’s greenhouse gas emissions. “Nowadays, I’m equally—if not more—excited about our food bucket and that didn’t really exist before,” says Congruent Ventures managing partner Josh Posamentier.
  • Proven success: Companies like Tesla and OPower that came out of the last boom, along with newer successes have helped legitimize the sector and serve as a counterpoint to the skepticism that followed the cleantech bust.

Between the lines: Investors are hoping the industry will avoid one of the biggest mistakes of the last wave: plowing too much money into expensive factories and nascent unproven tech.

  • “The was too much capital for the state of the opportunities, technologies weren’t quite ready” says G2VP partner Brook Porter, who previously helped lead Kleiner Perkins’ (successful) green investing growth funds.
  • And advances in core technologies have not only brought down costs, but also made way for startups to innovate with new commercial applications or business models instead of building factories.

Yes, but: Like the rest of venture investing, there are still big risks—and unknowns.

  • For one, while there’s enthusiasm about carbon removal and offsets, some experts are still skeptical, citing the lack of a price on carbon and the need for higher quality offsets.
  • Other investors still worry that big headline-making failures or disappointing returns could once again put limited partners off. And this time, “it would take more than 10 years for them to come back,” warns Posamentier.

The bottom line: Investors are much more hopeful now that their dollars and the entrepreneurs they're giving them to will move the needle.

Go deeper

Felix Salmon, author of Capital
Apr 9, 2021 - Economy & Business

BlackRock's new green ETF

Illustration: Sarah Grillo/Axios

There's a big new player in the green ETF game: LCTU, the BlackRock U.S. Carbon Transition Readiness ETF, launched today and already has more than $1 billion in assets thanks to seed investments from CalSTRS, Temasek, and other big institutional investors.

Why it matters: Individual investors who want broad stock market exposure but who also believe in the sustainability thesis now have a big-name ETF to invest in.

How it works: LCTU has exactly the same sector weights as the market as a whole — it doesn't underweight sectors like energy, or overweight cleaner areas like technology. Instead it applies BlackRock's sustainability algorithm within sectors, to decide which companies to overweight and underweight.

  • The idea is that if investors start buying LCTU in large quantities, that will help capital flow to the kind of companies that are best prepared for a low-carbon future.
  • What they're saying: "Sustainable investing allows us to use the strength of our investment portfolio to proactively manage climate change," says Bob Qutub, the CFO of RenaissanceRe, another of the seed investors in the fund.

Our thought bubble: A new ETF, no matter how big it gets, will never move the needle on climate change, since all it can ever do is buy and hold stocks of existing public companies.

  • If you believe in the thesis that green companies will outperform the market, however, then maybe the excess performance of the fund will be able to cover its 0.3% annual fee.

Climate spending is a story of the century

Illustration: Aïda Amer/Axios

A successful global effort to slash carbon emissions demands huge investments to finance the unprecedented transformation of energy systems and related infrastructure — and it's a capital shift that's already well underway.

Why it matters: Private investment is already ramping up, and President Biden wants to spend hundreds of billions of dollars. Independent experts say the spending that will be needed to achieve net-zero carbon emissions by 2050 — a goal now embraced by the U.S. and many other countries — would be on the scale of the Industrial Revolution.

Biden's budget would boost climate, clean energy spending

Emissions rise from the Kentucky Utilities Co. Ghent generating station in Ghent, Ky., on April 6, 2021. Photo: Luke Sharrett/Bloomberg via Getty Images

President Biden's first budget request to Congress contains large increases in climate-change-related spending, on the order of $14 billion above the prior year's levels, according to a White House summary.

Why it matters: It provides details on how the White House hopes to translate its vow to act aggressively on global warming, both at home and abroad, into specific funding levels and agency-by-agency plans.

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