Commentary – So Who’s Still Funding Early-Stage Cleantech?

Gold Coins and plant isolated on white backgroundBy Rob Day, originally published by Green Tech Media

Rob Day is a Partner with Black Coral Capital, based in Boston.  He has been a cleantech private equity investor since 2004, and acts or has served as a Director, Observer and advisory board member to multiple companies in the energy tech and related sectors. The views expressed on this blog are those of Rob, not necessarily the views of any of his colleagues and affiliated organizations. Contact Rob at

I’m generally an optimist, and there’s lots to be optimistic about right now in the cleantech sector. I’ve never seen a stronger group of startups in the sector as I see right now, with many fast-growing companies poised to do great things. It’s what we’re going to be highlighting at the NextWave Greentech 2014 conference on August 5th in Menlo Park — last year’s conference sold out, so get your ticket today so you don’t end up on the waitlist like a bunch of disappointed folks did last year.

That said, I have to say I was surprised when I did a little research project recently to figure out who’s funding Series A and B rounds for cleantech startups. You see, my distinct impression from talking with entrepreneurs and VCs in the sector was that very little at the early stage was getting funded. But when I looked at the details in a popular deals database, for rounds above $2 million in size, I was pleasantly surprised to see over 60 such rounds recorded so far this year in North America alone! If there are so many early-stage deals getting funded, all’s good, right?

And then I started looking through the details.

What I did was to look up all of those deals’ press releases and/or Form Ds to see the revealed details. And some caveats here — it’s always very incomplete information (unreported deals, selective information in press releases, etc). But I was interested in a few patterns I found, and I thought readers might be interested in them as well.

So who’s funding cleantech startups right now?

1. (Crickets)

As I went through the details, a lot of what was being recorded as a “cleantech Series A” or “cleantech Series B” turned out not to be such. There were a bunch of recorded financings that actually had been initially closed in 2013, or even earlier in some cases, and which had been re-recorded in 2014 because a press release was belatedly put out, or the round had been re-opened for insiders to put more in, etc. Or they simply weren’t “green” companies at all.

To be clear, I tried to be inclusive. Even if a round seemed to be an extension of an earlier financing, but it mentioned a new funder, I considered that a new funding — after all, I’ve been a “lead” on re-opening a few prior rounds; it’s just one way of structuring a new investment but can still reflect an active decision to write a check. And there were a bunch of “Is that really cleantech?” judgment calls, but unless it was pretty clearly not greentech I left it in. A few oil-patch techs got left out, that’s it.

And yet by the time I screened out the clear mismatches, I’d knocked out nearly half of the Series A and Series B rounds. I was left with only 36 such financings so far this year.

Importantly, there were no funds that were clearly very active investors at this stage. The only firms that showed up as a major new investor more than once were DBL Investors, and Andreessen Horowitz (more on that below). And there was a long list of notably missing “big cleantech firms”: No RockPort. No Nth Power. No Chrysalix. No EnerTech. No Claremont Creek. No Angeleno Group. No SAIL. And yes, no Black Coral Capital (my firm).

That last one brings up an important point — the fact that an individual firm didn’t appear as a lead investor on a reported early-stage venture round in the first four months of 2014 shouldn’t be considered indicative of their individual activity level; deals come and go. I can attest that in our own firm, it’s not for lack of effort or interest that we haven’t been a deal lead thus far this year, so perhaps that’s the same for others as well.

But in aggregate, it points out that the “traditional cleantech funds” have been awfully quiet lately, especially in the early stages. For many of them, including some listed above, they no longer have the funds to be active lead investors. They’re near the end of their fund life, they’re husbanding their remaining capital reserves, they need to raise a new fund, and in the meantime, they’re taking meetings to stay in the mix, but are mostly just biding their time. And for other firms, including my own, the lure of being able to invest in later-stage companies in an increasingly capital-scarce environment pulls us away from early-stage investment. So when we’re overwhelmed with deal opportunities like we are right now, we’re definitely skewing toward later-stage companies. I would assume that other firms are as well.

The upshot, however, is that right now there are no “go-to” firms for funding early-stage cleantech startups. For entrepreneurs at that stage, it’s a harsh reality.

2. Food is yummy

I actually wasn’t expecting to find so many food-related startups on the list, but it was striking how many of them there were once I dug into the details. Out of those 36 reported financings, eight were in some kind of food play that may or may not even be “cleantech” at all. Take FreshRealm, Sprig, Plated, NatureBox, and Munchery, for example. Do these really belong on a list of cleantech venture financings? I’m willing to include them, because the definitions of the category are clearly being exploded. But does this pass the sniff test?

Interestingly, in this subcategory we find many of the rounds led by decidedly non-cleantech venture capital groups like Andreessen Horowitz. So they’re not considering these to be cleantech startups either.

Regardless, it’s clear that food is in. VCs are stuffing their faces with food delivery startups in particular. I would go so far as to suggest there’s a mini-bubble in food delivery startups and food logistics startups right now.

3. Don’t call yourself a “cleantech” startup

Out of the 36 “cleantech” Series A/B financings I counted so far this year, only eight were led by VCs I would consider “cleantech investors” in any way. And I was being inclusive in making that determination. I’m not talking about just pure-play cleantech venture firms; I’m also including investors whose websites in any way mention the sector, even in vague terms.

Cleanweb startups were invested in by “online marketplace” investors.

Food startups were invested in by “consumer and brand” investors.

And the list of leads included a fair number of what were clearly just “right connection at the right time” investors.

“Cleantech” is out of favor. “Clean energy” is out of favor. And yet these are massive markets. So there will be lots of ways to attack these markets. Some of these approaches will appeal to mainstream investors like Andreessen Horowitz and others, who see business models that are familiar to them and mega-sized markets being targeted via those models, and would never have selected a company because it was a cleantech startup. So therefore I found on the list startups like Granular and Twice. Do you think their investment pitch ever mentions “cleantech” or anything like that?

Heck no.

We are all broadly attacking natural resource scarcity, and that can be done directly or indirectly. It can be done any number of ways that take advantage of the 3 Rs (reduce, re-use, recycle) which also yield economic benefits. Furthermore, markets like solar on rooftops are exploding like few markets have ever grown before. Natural resource scarcity is a massive mega-trend revealing massive mega-markets.

So if your business is at all addressing this mega-trend and these mega-markets, be encouraged that you are right in the thick of a really big economic transformation. But don’t describe yourself as a cleantech company. Describe yourself in a way that speaks to the fact that you’re offering a new marketplace, or a new financing platform, etc., that happens to be aimed at a multi-billion dollar market in desperate need of reinvention. Oh, that’s the energy market? How interesting…

I honestly don’t consider this to be a retreat, on the whole. “Cleantech” was always a thesis much more than it was a sector. And I really could care less how an investor finds a winning investment, whether it’s via looking for new marketplaces/tools/brands/etc. across markets, or via an interest in the particular market the marketplace/tool/brand is in. A few years back it was fashionable to declare publicly that “cleantech is a temporary description” and that ” cleantech won’t exist a few years from now” because it would be an underlying concept subsumed into other categories.

We’re now at that point, it’s pretty clear. And that’s a good thing.

4. To VC or not to VC: That is the question

Out of the 36 rounds I looked at, eleven were led by corporates, family offices, high net worths or other non-institutional venture capital investors.

Between them and the rounds led by smaller regional (and thus ostensibly more omnivorous) VCs, they covered most of the funded early-stage startups that one would consider to be more obviously “cleantech” startups. Remember, many of the rest of the startups on the list were on the margins of “cleantech” anyway.

If you’re a cleantech entrepreneur, your first instinct when looking to raise venture capital will be to go to venture capital firms, because they’re the most visible funders. And yet, my distinct impression looking over this data and reflecting upon what I’m seeing in the market is that there are lots of VCs still taking meetings, but few checks are being written. So instead of taking a narrow approach to raising a Series A with VCs, keep focusing on angels and bigger check-writers who look a lot like angels. Or get strategic partners you already have a relationship with to write a check, call it a “venture round,” release a PR, and move forward. Clearly, that’s what some of your peers are doing.

I would guess the number of North American “cleantech” venture firms willing to actually lead a Series A or Series B is probably only around ten or so right now. Which is pretty sad. But sad or not, plan accordingly.

I’ll try to do another look at later-stage funding sometime soon. I expect a slightly happier storyline there. In the meantime, if you care about greentech,come join us at NextWave14 as we celebrate and highlight the increasing number of success stories in the sector. Successes should breed successes, so let’s talk about them.