Fifteen years ago, venture investment in Clean Tech totaled $1.75 billion1 and by 2011 that number had grown to $7.52 billion. Investment firms, startups, companies, and federal government agencies insisted that green tech was good business and that it was here to stay. But major losses added up for venture investors, and time and skepticism eroded the thesis. Now reports detail the potential 2022 market opportunity for Clean Tech to be $2.5 trillion3, with significant additional growth anticipated by 2030. Why? And why now?
The fundamental difference today is that several forces are convening to drive growth and innovation, enticing venture capital back to the table. Among these forces, regulatory policy, consumer demand, and the element that we at Emerald believe is critical for commercial success: the ability to build and scale the foundational technologies more affordably.
One might surmise that in addition to lackluster consumer interest fifteen years ago, many of the green tech companies that failed did not pay enough attention to their path to market and do the work to understand who would ultimately pay for the products and adoption. Because, at the end of the day, the key question to ask of any company that is involved in Clean Tech is: Who is going to pay for this?
Sentiment is apparently changing — 34% of the global population is willing to pay more for sustainable products or services, and on average they are willing to pay a 25% premium4; businesses in some sectors are now prepared to spend on green initiatives5 — but first, cost must be addressed at the base level.
The companies that win, the ones that will truly get it right, will be those that are able to make the short, intermediate, and long-term economics work, make the up-front cost palatable, and ultimately make it easier for end users to pay.
At Emerald, we have three things in mind when we think about Clean Tech:
- It can’t just be greener; it needs to be greener and better.
- We look for drop-in, plug-and-play solutions that work with existing infrastructure and processes.
- It needs to be a long-term solution that’s future proof rather than a band-aid.
We began investing in Clean Tech more than 15 years ago, working closely with early-stage founders, scientists, universities, engineers. We’ve seen these points in action.
First, greener and better. Green tech often necessitates tradeoffs in either cost or performance (or both). Evolved By Nature™, a leader in green chemistry, uncovers and creates molecules that are not just sustainable replacements to petrochemicals, but are also economical and in many cases offer performance advantages. With applications across industries including textiles, personal care, and medical therapeutics, EBN is focused on a root problem that protects the environment and can create better-performing products for consumers.
Next, drop-in, plug-and-play solutions that work with existing infrastructure and processes. WATT, a fuel cell company in our portfolio that is working to move natural gas to the forefront of clean energy by eliminating 100% of carbon emissions, works off existing natural gas infrastructure rather than having to wait for new infrastructure to be built. Similarly, Intellihot and other tankless water heaters use existing infrastructure and can be significantly more energy efficient than conventional tank water heaters.6 Creating compatibility with current infrastructure may be a key driver in the success of these technologies.
Third, it needs to be a long-term solution that’s future proof rather than a band-aid. WATT’s fuel cells work with natural gas today but are future-proof because they can also run on hydrogen. EBN’s sustainable chemicals rely on an abundant feedstock (discarded silk cocoons) and will only continue to improve as the company discovers a virtually limitless number of molecules from the silk protein with various properties and applications.
Further, finding solutions that work anywhere and that can utilize abundant energy sources, such as hydrogen, solar, geothermal, propane or natural gas, lays the groundwork for future use without having to reinvent or retrofit.
Clean Tech is in a vastly different position than it was in the mid-2000’s. The technology has matured and improved, helping to bring costs down to compelling levels. Venture capital, patient capital, is in a position to invest while adoption grows. Now founders and teams must focus on understanding who exactly is willing to pay and ensuring that the unit economics work. Only then will we be able to reap the financial returns we seek, and the societal returns that will lead to a greener and better future.
1 NVCA
3 Report from Canada’s Economic Strategy Tables
4 The Global Sustainability Study 2021, Simon Kutcher & Partners
6 https://www.energy.gov/energysaver/tankless-or-demand-type-water-heaters
Emerald Development Managers is an early-stage venture capital firm that invests in exceptional scientific and engineering teams solving real problems. The firm specializes in investing in Health Tech/Biopharma, Enterprise Software/Cybersecurity and Clean/Industrial Tech.
