Venture Capital and Climate Tech

My research on the cleantech boom and bust cycle among venture capital investors has been published in Energy Policy and at the MIT Energy Initiative.

From our op/ed in the Financial Times:

In 2006, Silicon Valley began to bet big on clean energy technology. Seduced by grand visions of making a fortune while saving the planet, venture capitalists invested a then-record $123m in the first round of fundraising for 16 new companies that year. In 2008, they would sink nearly $1bn in over 100 new companies.

But when these investments began to flop, the cleantech bubble abruptly popped. Since 2009, VCs have barely funded 25 new cleantech companies a year, slowing new investment to a trickle.

What went wrong? And where should cleantech go from here? To answer these questions, we compared the performance of every medical technology, software technology and cleantech company that received its first round of VC funding between 2006 and 2011. We found that betting on cleantech start-ups just did not make sense for VCs, because cleantech could not deliver the outsized returns found in other sectors.

This conclusion is alarming because new technologies are desperately needed to confront climate change. Still, guided by the lessons learnt from the cleantech VC boom and bust, new private and public funding sources may be able to better support revolutionary technologies.

Climate VC News

The climate VC landscape has shifted considerably since the initial study. Here is a small subset of the outlets that have continued to explore how VC funding in the sector is evolving.


Financial Times: Urgency over net zero sparks climate tech investment boom

For many investors, though, an earlier boom in clean technology investment proved disastrous. Between 2006 and 2011, venture capitalist groups ploughed over $25bn into the space, according to a landmark MIT paper. Over half of that was lost, causing funding to dry up in subsequent years. Immature markets, inexperienced investors and inappropriate financing models were blamed. But investors insist that this time is different.

Silicon Valley Bank: The Future of Climate Tech 

Key Quote: “Just over a decade ago, the Cleantech bubble burst… As a result, investors bailed having sunk around $25B into Cleantech between 2006 and 2011. Investors were badly burned with 90% of companies funded after 2007 returning less capital than invested.”


PwC: The State of Climate Tech 2020

In the first wave of Cleantech funding, PwC published the authoritative quarterly report on VC funding in the Cleantech sector. Gradually, the number of new deals decreased until, quietly, the final Cleantech MoneyTree report came out in early 2015. By then, early stage funding had fallen to virtually nothing and later-stage funding was beginning to wane.

It was significant that PwC re-entered the conversation in 2020 with their new report. Recognizing the significant acceleration in the sector, they pointed to our work when they quoted:

We call this epoch a ‘resurgence’ because, famously, there was a widely recognised boom in investment in the ‘clean tech’ sector between 2006 and 2011, which quickly turned into an investment bust. The ‘clean tech’ boom (and bust) saw venture capitalists plough $25 billion of venture capital into the sector and lose roughly half of it in a handful of years, which put many investors off clean energy investing for the rest of the 2010s.”

The Economist: Greenbacks for Greenery

Green VC has a chequered past. In the late-2000s it experienced a boom and bust cycle in America and, to a lesser extent, Europe.  VC funds took a financing model designed for software firms and applied it to companies producing physical products, mostly solar panels and biofuels, that take plenty of time and money to generate revenues. Many companies went bust. Their VC backers lost more than half of the $25bn they had bet. Capital dried up.

Now it is flowing again. This time investors are looking at a broader range of clean tech.

Archive Links

  1. SVB
  2. PwC 2020
  3. PwC 2015
  4. Economist 2020