Venture capital investors in climate tech are closer to government than they might want to admit https://impactalpha.com/venture-capital-investors-in-climate-tech-are-closer-to-government-than-they-might-want-to-admit/We analyzed the network of co-investment among ~1,300 climate investors and found that it is remarkably interconnected across a diverse range of sectors – spanning energy, agriculture, and nature-based solutions. We also investigated the role of grants and loans in the survivorship of companies from seed to late stage funding.
One clear takeaway: This investment ecosystem benefits from significant public subsidies. The most central co-investor of U.S.-based climate-relevant companies is the U.S. government. At least 96% of climate tech VC’s are just two degrees of separation from at least one government grant.
And across almost all energy themes, there is a glaring ‘scale / social equity gap,’ and the most central climate lenders and grantors are not strategically filling that gap. We found that grants and loans are distributed across critical challenges areas of the energy sector as if they were assigned at random. This means that de facto, more grants and loans are going to themes that already have more investments.
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Grants and loans de-risk individual investments but to reduce ecosystem risk, investors must strategically target underfunded “critical challenges”. We define a “critical challenge” as any solution theme that, if it fails, it alone can cause failure of the sector.
Using the co-investor map, We tracked patterns along the co-investment ‘food chain’ from pre-seed to post-venture to quantify the role of grants and loans. In this climate investment ecosystem, grants to early stage companies appear to significantly increase their survival to late venture and their ability to raise follow-on money.
This ‘grant bump’ disappears from late- to post-venture. Loans appear to play a significant role filling this gap in late- to post-venture success, both increasing survival and total money raised. Silicon Valley Bank was the most structurally central lender in this ecosystem; this strategic weak link in the investment life cycle must be filled by other lenders