What types of cleantech startup get funding?
Published in Environment, Startups. Tags: Environment, Startups.
In a previous post I looked at the startup cleantech sector as a whole and the data behind $49bn of cleantech investment since 2004.
How few cleantech startups were getting funded stood out to me. On average, 52 cleantech companies are founded each year, tiny compared to e-commerce which has seen an average of 988 companies founded per year since 2004.
However, things are looking a bit more positive with new activity from a number of cleantech investors and a renewed focus on impact investing. Aside from what corporates can do, there seems to be a big opportunity for startups in a cleantech space with plenty of available money and very little competition from other startups.
In this post I will look a bit closer at cleantech startups founded in the last 3 years. What is being started and where is the money going?
Does cleantech require venture capital?
I have somewhat arbitrarily chosen to look back over the last 3 years. There are many companies founded well before that but this timeframe should show what new ideas are being launched. It should also be sufficient time for the most interesting companies to have raised initial funding.
Unfortunately this does mean some companies that recently announced funding have been cut off, due to when they were founded. For example, Breakthrough Energy Ventures (BEV) announced their initial portfolio of 5 companies last year which have a wide range of founding dates.
BEV says the companies went through rigorous rounds of checks before receiving funding ranging from $200,000 to $20 million, depending on their stage of development and needs. The initial list has companies that are both young (Form Energy was formed last year) and fairly mature (CarbonCure has been around for 10 years).Bill Gates-led $1 billion energy fund is expanding its portfolio of startups fighting climate change
Funding is not necessarily an indicator of whether a cleantech company is important. However, my assumption is that given the capital intensive nature of the industry, most cleantech companies will require funding.
The cleantech sector seems similar to biotech where large sums are required to develop and commercialise the product. This is in contrast to SaaS, for example, where an initial product can be built entirely in-house with minimal funding, and bootstrapping is a perfectly valid way to build a lasting business. Scaling a global SaaS business is another matter but a successful software company can quite legitimately be built without outside capital.
Cleantech startups over the last 3 years
Using Crunchbase to search for companies with the CleanTech and Clean Energy categories that were founded in the last 3 years reveals 205 results.
From those 205 companies, 65 have raised funding totalling $379 million. 63% of those are classified as “Seed“, which is to be expected given the short life of the companies to date.
However, most that $379m is invested in just a small number of companies:
- Commonwealth Fusion ($115m raised), USA – fusion energy.
- VOI Technology ($89m raised), Sweden – transport (scooters).
- Dandelion Energy ($22.5m raised), USA – consumer geothermal.
- Zer0 Box ($14.9m raised), China – packaging.
- Deep Isolation ($14.1m raised), USA) – nuclear waste management.
Cleantech sub-sector investment
Energy and transportation probably have the most media hype of the cleantech sub-sectors, but there are a broad range of other sub-sectors with startup activity.
By total number of companies founded in the last 3 years, the largest sub-sectors are:
- Transport – 23 companies
- Energy Generation – 11 companies
- Energy Efficiency – 11 companies
- Water – 8 companies
- Battery – 7 companies
- Waste Management – 7 companies
And by total amount of funding raised:
- Energy Generation – $157m
- Transport – $90m
- Packaging – $17m
- Chemicals – $14m
- Nuclear Waste – $14m
- Battery – $11m
Where are cleantech companies being founded and funded?
As expected, the US dominates both in terms of the number of cleantech companies founded over the last 3 years (48, 36% of all companies), and by how much they have raised in total funding ($180m, 53% of total funding).
Other countries represented in the list include Brazil, Sweden, France, Estonia, Singapore, Turkey and India.
What has been happening with cleantech startups over the last 3 years?
Looking through all the startups founded in cleantech over the last 3 years shows a few interesting things:
- There are 140 companies without any form of funding, or that have not disclosed their funding yet. This is to be expected for the very early companies because they will not have reached a stage where they can raise funding yet. There is a spike of companies who have raised funding around 12-18 months ago but the absolute numbers are still low.
- I would expect cleantech companies to be using pre-seed or seed money to commercialise their technology, then raise larger rounds to scale. For example, Commonwealth Fusion was founded in 2017 and raised a $115m Series A in Jun 2019 but it was announced they had raised a smaller, undisclosed amount in Sept 2018. The product is a spin-out from MIT based on decades of research. Venture funding is ideal for one purpose – commercialisation.
- It is not surprising to find companies working in energy generation, solar and batteries, but there are some more unusual companies including several flying taxi startups e.g. Ascendance Flight Technologies.
- Startups that have raised the most tend to be in the US, unless they are localising products that have already been successful in the US e.g. VOI Technology ($89m raised) for electric scooters in Sweden.
- The US dominates both in the total number of companies and the total funding raised, although cleantech investors are broadening their geographic reach such as Breakthrough Energy Ventures who announced their €100m European fund in May 2019.
- Certain countries have a higher density of specific, specialist startups e.g. 2 of the 3 packaging startups – Zer0 Box and Huidu – are based in China.
This supports my hypothesis that there is very little competition within cleantech compared to other startup sectors, but where there is competition cleantech follows the same rule as in SaaS: the top companies raise huge rounds because the winner takes most.
Investors also need to be careful that they are funding companies that are building a commercial product and not just continuing the funding of a technology that should still be in the R&D phase. From looking at the startup websites of many of the companies in the list, I got the impression that quite a lot were still very early and might be better as research projects rather than for-profit companies. This contrasts with SaaS where companies can launch with a very early MVP but still have a commercial product that can be sold immediately.