When it comes to growing a business, Venture Capital (VC) may be the only option. Investors in private equity (VC) are especially important in the clean energy sector, where it can be significantly more expensive to start a company than in traditional technology. With the ultimate goal of achieving a 100% clean energy grid that operates 24 hours a day, VC funds flowing into innovative startups is a must.
Many venture capitalists, on the other hand, are wary of investing in the clean energy sector again after losing $44.5 billion between late 2009 and late 2011. This was the case with the infamous Solyndra scandal. The new energy economy was a complete failure. Cleantech companies that provided substantial returns to venture capitalists had lost their credibility. The federal government invested in cleantech but also lost a significant amount of money, leaving taxpayers with serious doubts. The entire scandal set the tone for the rest of the decade that followed.
Recent years (as of 2020), there has been a resurgence in cleantech investing, with a slew of boutique venture capital firms springing up that are solely dedicated to cleantech investments. Private equity firms (VCs) are looking for companies in this space that are either disrupting a specific part of the industry (for example, smart grid business models and/or technology), bringing forth new efficiencies (for example, from building energy efficiency to solar energy efficiency), or improving operations (e.g., improving forecasting).
Opinion of a professional
An incremental benefit in the power industry can translate into a significant amount of revenue for a small startup attempting to disrupt the industry, and venture capitalists are keeping an eye on things.
In this article, we have compiled a list of the top venture capital firms in the United States that are focused on clean energy. We talk about who they are, how much deal flow they have invested in, what their thesis is, and other relevant topics. Take a look at our top picks:
Best Venture Capital Firms in the USA: Clean Energy Focused
Here is our list of the top VC firms (in no particular order of rank).
- Location: New York City
- Funded: invested $1.1 billion across 3 funds
- Founded: 2015
- # of Exits: 1
- Notable Investments: Arcadia Power, AutoGrid, Ecobee, Mosaic, Sense, Trifecta
Investing in ground-breaking energy startups and assisting them along the way through collaborations with utilities and other larger established companies is the EIP’s guiding principle. According to their website, “Our utility partners benefit from insights into emerging technologies and business models to assist them in preparing for the utility of the future. ”
Opinion of a professional
It is critical in the early stages to find a venture capitalist (VC) who has connections in the industry. Money can be raised from any source, but connections are far more valuable than money. A much faster exit with either the partnering company purchasing your startup or a third-party company can result if your startup’s technology is adopted by established companies early in the process.
- Location: Chicago, IL
- Funded: $22.5 million
- Founded: 2012
- # of Exits: 3
- Notable Investments: see here
In addition to early-stage startups with excellent technologies and teams, Energy Foundry (EF) is a venture capital firm that invests in companies in the energy sector. When it comes to their startups, EF works closely with them to ensure that they have the resources and introductions they need to continue to grow and succeed.
Element 8 Angels (E8 Angels) Fund
- Location: Seattle, WA
- Funded: $37 million
- Founded: 2006
- # of Exits: N/A
- Notable Investments: Arcadia, Level10
Element 8, which was founded in 2000, is one of the oldest clean energy-focused angel investment groups in the United States. It is also one of the most active. Cleantech investors E8 has assembled have all established themselves as having excellent track records in the cleantech industry as a whole. For each investment, E8 matches it with a group of investors who were also involved in that particular round of financing. They provide assistance to the startup in a variety of areas, including technology, hiring, and business development, among others. Consider it to be a sort of energy incubator in the traditional sense of the term.
A professional’s point of view
A fantastic opportunity to pitch your startup in a short period of time to a large group of investors who are also industry experts, E8 is a fantastic opportunity. A number of networking opportunities will arise as a result of this. Depending on the transaction, each investor contributes anywhere between $50,000 and $100,000 of their own money. Because of this, they have a vested interest in the outcome of the game.
Clean Energy Venture Group (CEVG)
- Location: Boston, MA and New York, NY
- Funded: $500 million
- Founded: 2005
- # of Exits: N/A
- Notable Investments
CEVG provides seed capital to energy startups in the early stages of their development. Additionally, they bring decades of energy expertise to bear on the companies’ growth, in addition to providing financial assistance. Their investment thesis is that companies with goals to mitigate climate change while also providing financial returns are attractive investments. Multi-criteria are followed, including clean energy-focused investment, people who are experts, investment returns that must meet specific levels, pre-money valuations less than $10 million, and companies based in the Eastern United States (among other things).
- Location: Oakland, CA
- Funded: $7 million
- Founded: 2013
- # of Exits: 9
- Notable Investments: WattBuy, Leap, SparkMeter
Powerhouse does not only invest capital in startups; rather, its main thesis is to connect startups in an incubator-like environment with industry giants in order to form strategic partnerships with these companies. They are an investment fund that is driven by a network of people.
- Location: Chicago, IL
- Funded: $150 million
- Founded: 2016
- # of Exits: N/A
- Notable Investments: Volta, Aquilon, Aurora
Energize Ventures is a venture capital firm that partners with startups that are developing digital solutions to energy grid problems. Data Analytics, Cyber Security, Distributed Energy Resources, Mobility, Energy Storage, and Operational Efficiency are the primary areas of focus for the company. They prefer to lead rounds with investments in the $5M-$10M range, but they will consider smaller amounts.
In the event that your company is a Software As A Service provider in the cleantech space (also known as Energy as a Service), you have a broader range of options. The majority of venture capitalists invest in software-as-a-service startups. While they may be unfamiliar with cleantech, it is your responsibility to educate them on the industry’s growth potential. You will need to use terminology that is commonly used by SaaS businesses in order to be successful. To learn more about this, please see this article.
If this is the type of startup you are looking for, Andreessen Horowitz and DJF Capital are two venture capital firms to consider.
Top 5 Things to Keep in Mind When Fundraising
1. Company Thesis
It is critical for startups in the cleantech industry to have a thesis that is properly supported. What exactly are you attempting to accomplish? What makes you believe it is so important? Where will it have the greatest impact? You may or may not be aware of all of the specifics of “how” you intend to go about doing it. If you already knew the answer to that question to a hundred percent, you have already solved the problem. Venture capitalists are on the lookout for an exponential problem to solve. They are looking for a problem that will yield a significant return.
2. Expert Team
Experts are required for your startup. A world-class expert advisor, founder, or employee who has demonstrated that they have the expertise to carry out the promises made in the company thesis is critical to the success of your startup, just as it is for a professional sports team.
3. Business Case
In the event that your company’s thesis is correct and you have the right team in place, how will you generate revenue? How will you generate revenue in the beginning stages of your business? Have you identified the critical partnerships that you will require to move forward?
Make a thorough business case for your product or service. It is absolutely necessary!
I’ve seen far too many instances of startups putting together a subpar business case in conjunction with a subpar model. VCs will ask you for spreadsheets, so be prepared. Create a detailed spreadsheet that includes “growth levers” that are built in. If your company is in the Series A funding round or higher, this is critical to your success.
4. The Ask
VCs will almost always inquire as to how much money you are seeking and at what valuation you are seeking it. Make use of market research! What was the market value of companies in your situation? What makes you so valuable that you are worth the amount you are asking for?
You must be able to provide well-researched responses to these questions.
5. In Sync
While the factors listed above are important, the ability of the founding team to work together is probably the most important. The worst thing I’ve witnessed is when the founders’ visions are explained in a different way than each other. If the founders aren’t on the same page, what makes you think the venture capitalists will be?
To summarize, this article outlined the top venture capital firms that are primarily focused on clean energy. As founders, advisors, and employees in the cleantech industry, it is our responsibility to ensure that a similar situation to that of Solyndra or Enron does not occur, causing VCs to steer clear of the cleantech sector. Clean, renewable energy is one of the “growth levers” that can be used to combat climate change, and it is critical that new money enters this market to help it grow.
Wishing you the best of luck with your fundraising efforts! Please get in touch with us if you have any questions or require assistance.