Early-stage climate-tech investor Clean Energy Ventures just closed its second fund on $305 million, a major step-up from its debut $110 million vehicle in 2019 and a sign of confidence for the climate-tech fundraising market.
A substantial portion of CEV’s new LP interest hailed from strategic investors looking for exposure to nascent innovations to reduce their carbon footprints, including firms in the oil and chemicals, power generation, electricity distribution and construction sectors.
“Even though a lot of energy players have their own CVCs, we’ve gotten a lot of interest from strategics,” said Daniel Goldman, a managing partner at CEV. “We want to interact with strategics as we look at new areas of opportunities: share our road mapping, diligence and our pipeline,” he added.
Climate investors targeting strategics isn’t a new phenomenon. Strategic LPs like British Land, MGM Resorts and Host Hotels & Resorts joined the LP base of proptech-focused VC Fifth Wall, for example, when the firm raised its first climate-focused fund, which closed on $500 million in 2022.
Fifth Wall’s and CEV’s strategic-heavy LP bases fit into an increasingly popular strategy: the consortium fundraising model, in which a firm’s LPs also represent some of the largest clients of its portfolio companies, facilitating distribution deals and information sharing. “This concept of having the largest customers of our portfolio companies as LPs was entirely novel,” Brendan Wallace, co-founder, CEO and CIO of Fifth Wall, said in a 2022 blog post.
Climate-tech investors’ ability to target corporate strategic partners across industry verticals has placed them in a favorable fundraising position. The category has proven remarkably resilient to the venture capital reset. Climate-tech startups’ valuations, deal sizes, headcounts and shares of patents filed have all grown faster than their peers in other emerging technology verticals.
Corporations in hard-to-abate industries like mining and construction are particularly eager to invest in buzzy up-and-coming technologies like lithium battery recycling, green steel and sustainable critical minerals extraction, as traditional industries reckon with the challenge of the energy transition.
CEV requires all of its portfolio companies to commit to its requirement of reducing greenhouse gas emissions by 2.5 gigatons over 25 years. That type of baseline expectation is much more popular among climate investors than generalist funds. Bill Gates’ Breakthrough Energy Ventures, for example, targets investments in companies with the potential to reduce emissions by half a gigaton per year.
That requirement is a much more stringent approach than that of the Venture Climate Alliance, a group of 23 firms including Tiger Global that pledged in 2023 to ensure their portfolios were net-zero by 2050. CEV also requires that same commitment by its portfolio companies, as a signatory of The Net Zero Asset Managers Initiative.
Several of CEV’s early seed investments have raised significant up rounds. It led a 2021 seed round for electrochemical recycling device company Nth Cycle, which was valued at $217 million in its 2023 Series B. CEV also backed decarbonized liquid fuel producer ClearFlame at a $8 million seed valuation, three years before its valuation jumped to $110 million in its 2023 Series B.
Correction: An earlier version of this article incorrectly stated that Cemex and United Airlines Ventures were LPs in CEV’s new fund. (May 29, 2024)
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