For start-ups in the renewable energy and ‘cleantech’ sectors, funding can not only be harder to come by, but more expensive, when compared to that required by more ‘traditional’ start-ups. For many green companies, therefore, Venture Capital (VC) funding is the best way to ensure growth in the early stages. If we are to achieve a 24/7, 100% clean energy grid, then the VC funding of innovative cleantech start-ups is crucial.
Venture Capital investment is absolutely crucial to the growth of renewable energy. Despite VC firms once being reluctant to engage with the sector, this trend is thankfully changing. Now, in 2021, Semprius reviews the top 6 VC firms dedicated to investing in the green energy revolution.
Unfortunately, many VCs are hesitant to enter the clean energy space. Following the 2011 Solyndra scandal, in which the collapse of government-backed solar panel tech company Solyndra left VCs and taxpayers liable for some $535 million in federal guarantees, many VCs are hesitant to re-engage with the green economy.
Thankfully, as of 2022 there has been a resurgence in cleantech investments, with many boutique VC firms establishing themselves with a specific focus on green energy. VCs are now looking for companies in this space which either revolutionize an aspect of the industry (e.g. smart grid business models and/or technology), bring forth new efficiencies (from building efficiency to solar efficiency), or seek to improve existing operations (e.g. improving forecasting).
An incremental growth in the larger power industry can, for a small cleantech start-up, translate into a significant sum of revenue. As the economy of the renewable energy sector continues to grow (and grow rapidly), VC firms across the United States are taking ever greater interest.
In this article, we have compiled the top Venture Capital firms in the USA which have a focus on clean energy. We discuss who they are, how much deal flow they have invested in so far, their theses, and more. Let’s take a look:
Top Clean Energy-Focused Venture Capital Firms in the USA: 2021 Review
Here is our list of the top VC firms, in no particular order.
- Location: New York City, New York
- Invested: $1.1 billion across 3 funds
- Founded: 2015
- Number of Exits: 8
- Notable Investments: Arcadia Power, AutoGrid, Ecobee, Mosaic, Sense, Trifecta, Powin,
EIP’s invests in ground-breaking energy start-ups, and then assist their growth by partnering them with utilities and other larger, already-established companies. They state on their website: “Our utility partners benefit from insights on emerging technologies and business models to help them prepare for the utility of the future.”
In a cleantech start-up’s early stages, it is crucial to find a VC firm with solid connections. Money can be raised from anywhere, but connections can be worth much more. If your start-up technology is adopted by an established company early on, this can result in a much faster exit (for example, if said established company buys you out).
- Location: Chicago, Illinois
- Invested: $22.5 million
- Founded: 2012
- Number of Exits: 4
- Notable Investments: Azumo, Digital H2O, Invektek, Sistine Solar
Energy Foundry (EF) invests in early-stage start-ups with excellent technologies and excellent teams. EF works closely with their start-ups to provide the resources and introductions they need to grow further.
- Location: Seattle, Washington
- Invested: $37 million
- Founded: 2006
- Number of Exits: N/A
- Notable Investments: Arcadia, Level10, Adara Power, Greenwood
Element 8 (E8) is one of the oldest clean energy-focused angel investment groups in the United States. E8 boasts a group of cleantech investors who all have excellent pedigree. E8 partners each investment with a group of investors who participated in that round. These investors assist the start-up with technology, hiring, growth, and much more. As established as E8 is, you’d do well to think of it as an incubator for the machinery of the green energy revolution.
Element 8 is an excellent option for start-ups looking to pitch their tech and model to a large group of industry-expert investors. Pitching to E8 can open limitless networking opportunities, whilst funding in each pool features $50-$100,00 from each investor in each group. Since the investors have skin in the game, so to speak, you can rest assured that they care about the growth and success of your business.
- Location: Boston, Massachusetts, and New York City, New York
- Invested: $500 million
- Founded: 2005
- Number of Exits: N/A
- Notable Investments: 60Hertz, Nth Cycle, ClearTrace
CEVG provides early-stage seed capital for energy start-ups. They not only provide funding but bring forth decades of energy expertise to assist companies in their growth. CEVG’s thesis is to invest in companies which specifically target climate change, whilst providing financial returns. CEVG’s investment portfolio adheres strictly to the following criteria: clean energy-focused investment, start-ups must have expert knowledge in the field, investment return must meet specific levels, pre-money valuation should be less than $10M, and all companies must be located in the Eastern U.S.
- Location: Oakland, California
- Invested: $7 million
- Founded: 2013
- Number of Exits: 9
- Notable Investments: WattBuy, Leap, SparkMeter
Not only does Powerhouse Ventures invest capital into promising cleantech and renewable energy start-ups, but its main thesis is to connect these fledgling companies with industry giants, in an incubator-like fashion. They are a network-driven investment fund.
- Location: Chicago, Illinois
- Invested: $150 million
- Founded: 2016
- Number of Exits: N/A
- Notable Investments: Volta, Aquilon, Aurora
Energize Ventures partners with start-ups which offer digital solutions to energy grid problems. Their core focus is on Data Analytics, Cyber Security, Distributed Energy Resources, Mobility, Energy Storage, and Operational Efficiency. They prefer to lead rounds with investments in the $5M-$10M range.
If your company is a Software as a Service (SaaS) in the cleantech space (also known as Energy as a Service: EaaS), then there are other options available to you. In fact, most VC firms are happy investing in SaaS-type start-ups. Whilst other VC firms may be new to the cleantech sector, you may still secure funding provided you are able to prove to them your potential for growth and financial return. We recommend you familiarise yourself with terminology which successful SaaS businesses utilize. Go check out this article for more information on SaaS company terminology.
If you run a SaaS (or EaaS) start-up, we recommend considering VC firms Andreessen Horowitz, and DJF Capital, among others.
Top 5 Things to Keep in Mind When Fundraising for Cleantech Start-ups
1. Company Thesis
It’s crucial for start-ups in the cleantech space to have a properly-researched and data-backed thesis. What are you trying to do? Why do you think it’s important? Where will it have the most impact? Naturally, you don’t need to have fully-fledged answers to all the questions a VC might ask, but you should be prepared to prove your worth. At the end of the day, a VC firm is looking for a problem which they can solve, and which in doing so will provide them an adequate financial return.
2. Expert Team
Your start-up must have experts on board. Just like a sports team recruiting the best players, your start-up should have world-class expert advisors, founders, and/or employees who have shown they have the expertise to deliver what is being promised in the company thesis.
3. Business Case
If your company thesis is strong, well-researched, and you have the right team in place, how will you generate money? How will you generate revenue in the early days? Did you identify critical partnerships you need in order to move forward? Putting together a proper business proposal is absolutely crucial to securing funding from a VC firm.
All too often, start-ups with a solid team and thesis are under-prepared when VCs ask about the business model. Ensure that you put together detailed spreadsheets with “growth levers” and research-backed financial projections. VCs will ask to see these. This is especially crucial for start-ups listed in a Series A funding round or above.
4. “The Ask”
VCs will, every single time, ask you this question: How much are you asking for, and at what valuation?
It is absolutely crucial that you do your market research, so that you know exactly what funding you can reasonably ask for. Questions to ask yourself when conducting this market research include: What were other companies in your situation valued at? Why should you be valued at the amount you are asking for?
You need to have well-researched answers to these questions.
5. A Harmonised Vision
Whilst all of the factors discussed above are certainly important, without doubt the one thing you truly have to nail is ensuring that your founding-members present a harmonised, unified vision to the VCs. If your founders are not on the same page, why should VCs come on board? Presenting a strong, clear, concise front is a major confidence booster to VCs who remain sceptical and cautious in the green tech industry.
To conclude, whilst many VCs remain sceptical about investing in the cleantech industry, there are some really interesting firms out there specialising specifically in renewable energy and cleantech. In this article we examined 6 of the very best renewable-energy focused VC firms in the USA in 2021. Just remember that when presenting to a firm, you must be prepared to answer questions pertaining to your expertise in the field, your value, your unified vision, and your ability to make a business return on the firm’s investment. Good luck!
A solar panel company called Solyndra folded in 2011, despite acquiring over $500 million in federal guarantees, leaving investors, VC firms, and taxpayers in the lurch. A s a result of the scandal, many VCs were put off investing in solar power and the cleantech sector in general. Thankfully, this trend is changing and in 2021 many VCs specialize in cleantech investments.
No, there are plenty more VC firms in the USA and abroad who specialize in cleantech and the renewable energy sector. However, the firms reviewed in this article present the strongest choices for small start-ups looking for funding.
New York City’s Energy Impact Partners (EIP) are the largest VC investment firm in the USA as of 2021, having funded start-ups to the tune of $1.1 billion, or over double the amount the next largest firm has invested.
Whilst start-ups are unlikely to get anywhere without proper funding, typically it’s the partnership and incubation opportunities offered by VC firms which actually enable to growth of any start-up, and provide the best opportunity for early exits.
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