Amena dives into the climate tech ripple effects of Silicon Valley Bank’s collapse, and we have a Voices article on the topic from investor Dawn Lippert.
The collapse of Silicon Valley Bank—a huge lender to clean energy technology startups—poses short-term risk to the sector, but experts say its outlook over the longer horizon remains positive.
With a portfolio of 1,550 climate and cleantech firms, California-based SVB was seen as the “go-to-bank” for startups in this space until its collapse on March 9 following a run on the bank and subsequent federal takeover of its assets and operations a day later. It’s now operating as a bridge bank until a buyer is found.
The bank's collapse was largely tied to fundamental missteps and rising interest rates (unrelated to the climate sector specifically). But startups across all sectors in need of venture debt or bridge loans to mitigate risks and fund day-to-day needs may feel the pinch, financial analysts say.
Between now and summer, investors are likely to “pause” any new funding opportunities associated with startups, said Christopher Angelo, structured finance and corporate advisor with New Energy Risk, a firm that provides project finance for breakthrough technologies via technology insurance contracts.
For a year at least, Angelo expects less capital will be available for startups because loans won’t be as forthcoming from SVB and other similar lending platforms.
“If you are an investor, you are probably asking yourself if this could happen then what else could happen: I need to slow down my investing right now to prioritize the health of my existing portfolios,” Angelo said.
Peter Gardett, research and analysis executive director with S&P Global focused on climate and cleantech financing, also expects “the chilling effect on startups overall will likely last for at least a few months, and probably be harder to overcome for those startups directly associated with the bank.”
There’s no question, “in the short term, there will be some pain” with some “good companies” distracted from their work and some “unserious short-term investors” spooked, Rushad Nanavatty, managing director of climate technology accelerator Third Derivative at the nonprofit RMI, wrote in an email.
Despite these shorter term risks, Nanavatty stressed the longer-term outlook for clean technology startup financing remains optimistic.
“The energy transition is a deep global, multi-sectoral, nonpartisan effort that will last a decade or more. This makes it anti-cyclical and resilient to shocks. It’s also the biggest opportunity in history. If any investor chooses to ignore these fundamentals, then it’s their loss,” he said.
Peter Reinhardt, chief executive officer of carbon removal startup Charm Industrial who was able to pull his “millions” out of SVB, agrees.
Investors are more excited by the tax incentives provided in the 2022 Inflation Reduction Act and major corporate spending on energy transition deployment and technology, said Reinhardt, whose company converts used biomass into bio-oil and injects it into the ground to sequester carbon.
Private capital is a major driver of clean technology development. In 2022, venture capital and private equity investments in climate tech totaled $21.5 billion in the United States, leading the world in such investments, according to a report prepared by BloombergNEF and released by the Business Council of Sustainable Energy earlier this month.
Source: 2023 Sustainable Energy in America Factbook, BloombergNEF and The Business Council of Sustainable Business. • *Energy refers to companies developing technology to generate and deliver power.
Back at SVB, the bank has resumed "normal" banking services, enabling its customers to deposit checks and withdraw money for payroll. It’s loan products that were helpful to cleantech startups are now available from the new bridge bank.
Many cleantech companies, like Charm, said they are working with the bridge bank to continue letters of credit (which demonstrate a company's financial health) even if they are no longer banking with SVB.
SVB was unique at catering financial services to startups, and it’s unclear if whoever buys SVB’s assets will provide the same offerings.
Even still, other banks are stepping into the void.
When it looked like SVB might go under, Michael Sachse, chief executive officer of New York-based Dandelion Energy, a home geothermal energy provider, contacted the NY Green Bank about possibly securing a six-month loan to cover operating expenses.
“[The NY Green Bank] expressed an interest in working with us,” he said. “It made a big difference knowing there was a lender out there that was willing to support us with non-predatory terms over the weekend.”
Dandelion is now talking with multiple banks about possible relationships, Sachse said. Charm is banking with J.P. Morgan and First Republic, which has also been in turmoil.
“The lesson we learned is we will never keep all of our money with one institution,” Sachse said. “If we can work it out with SVB, we plan to keep some there and some elsewhere.”
Editor’s note: Investors at Dandelion Energy include Breakthrough Energy Ventures (BEV), a program of Breakthrough Energy, which also supports Cipher.
Lunchtime Reads and Hot Takes
Apple’s ‘Extrapolations’ shows how hard it is to make climate must-watch TV — The Washington Post and We Need Better Climate Stories Than ‘Extrapolations’ — Heatmap
Amy’s take: Of course TV overdramatizes and takes unrealistic liberties! Despite critics, I found it thought-provoking, making what we often read in reports and in the news feel real.
EU’s Net-Zero Industry Act aims to bring home cleantech production — EURACTIV Anca’s take: The EU’s much-awaited response to the Inflation Reduction Act finally landed. It’s not a done deal, as the Parliament and national governments will also weigh in and likely modify key bits in the proposal.
World hurtling toward critical global warming benchmark, but IPCC report highlights clean energy potential — Utility Dive Amena’s take: This article represents the best coverage of the report released earlier this week because it focuses on the solutions, not just the problems.
Going green used to be a luxury. Now it can save you thousands. Here’s how — USA Today Amy’s take: Sign of the (good) times when USA Today writes about how using clean energy can save you money.
5 things to know about Europe’s bid to stay in the clean energy race — POLITICO Anca’s take: Here’s a useful takeaway article covering the flurry of legislative proposals out of Brussels last week.
Under fire over ESG, BlackRock says climate risks remain client priority — S&P Global Amena’s take: This otherwise great story doesn’t mention CEO Larry Fink continues to believe cleantech and climate startups remain attractive to investors after SVB’s collapse.
Algae Fuel Company That Exxon Once Bankrolled Finds New Funders — Bloomberg Amy’s take: I'd be curious to know what Exxon thinks of this development. It also raises interesting questions about what kinds of entities are best suited to lead in climate tech startups.
Dawn Lippert is founder and CEO of Elemental Excelerator and founding partner of Earthshot Ventures. You can reach her at hello@elementalexcelerator.com.
For ten years, climate tech investing could feel as chilly as the ocean in my home state of Washington. It was hard to get others to jump in. In the last three years, however, public awareness, extraordinary entrepreneurs, the rapid advance of digital solutions and new investor participation have warmed the waters.
When the Silicon Valley Bank news broke, it felt like someone dumped a bucket of ice on my head. In the days following the collapse, our team had a lot of calls with our portfolio of 150+ companies, as well as with venture capitalists and philanthropists, to deal with the fallout.
Across these conversations, three themes emerged:
Story time: We need to do a better job sharing how climate solutions benefit everyone. We also need to show how entrepreneurs are taking risks to create value across society—and are not all tech millionaires. According to one entrepreneur in our portfolio: “Assuming every startup is full of tech bro millionaires is like assuming every musician will end up as rich as U2. The odds are very against us; there’s a ton of personal sacrifice.”
For example, we’ve invested in companies that provide communities with clean drinking water, reforest after wildfires, recycle old clothing into new fabric and reduce truck pollution near ports. Many of the entrepreneurs impacted by SVB’s failure are creating jobs across the country—our Elemental portfolio companies are active in all 50 states—while making neighborhoods healthier.
Hustle and diversify: For many, SVB filled a gap with working capital loans and venture debt hard to come by elsewhere. In our experience, SVB did debt well and, importantly, did not require personal guarantees, enabling people to start companies and take risks. If this type of debt becomes even harder to find, there could be a funding gap for startups, even as other lenders emerge.
Take action: We have just 84 months (seven years) to halve carbon emissions. We see climate tech as the biggest economic opportunity ever, and we’re not alone. Private capital going to the industry has reached unprecedented levels and historic federal funding opportunities are on the very near horizon.
Investors and philanthropists need to work together to build a pipeline of commercial-ready technologies ripe for federal opportunities and later-stage investments. In fact, Elemental just announced our increased funding commitment.
People in climate tech are optimistic problem solvers and radical collaborators. We can all lean in:
If you are a philanthropist, consider catalytic capital and activate more funding for climate solutions with community impact.
If you are an investor, be brave and move on deals you think have the power to disrupt the status quo and advance decarbonization.
If you are a policy maker, provide clear direction and prioritize speed for new funding opportunities, permitting approvals and tax credits. The Inflation Reduction Act dollars and tax guidance can’t come soon enough.
Now is the time to jump in, not despite the fact that the water is cold, but because of it.
AND FINALLY...
Lighthouse solar
Cipher reader Amelia Walker took this photo of the famous solar-powered lighthouse known to Argentines as “the lighthouse at the end of the world” on the Les Éclaireurs islands in Tierra del Fuego in southern Argentina. If you squint, you can see the small solar panel on top.
Each week, we feature a photo that is somehow related to energy, the thing we all need but don’t notice until it’s expensive or gone. Email your ideas and photos to news@ciphernews.com.
Editor’s note: In addition to supporting Cipher, Breakthrough Energy also supports and partners with a range of entities working to tackle climate change, including nonprofits, corporations, startups and research firms. For more information on Cipher’s editorial policy, click here.
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