The cleantech SPAC boom will offer a real-world test of whether expertise really matters.
Clean energy used to be a niche market studied by a relatively small group of people who learned the same jargon, went to the same small conferences and shared the ups and downs of the Wild West early days.
Now, money is pouring in from investors who caught the sustainability bug some years later. It doesn't always go well. The New York Times had a revealing profile of the former Goldman Sachs real estate investor who took EV truck startup Lordstown Motors public with a SPAC after a due diligence process that doesn't sound particularly thorough.
One lesson I'd extrapolate from the reporting is that if you need to hire McKinsey to tell you if a particular technology is any good, maybe you shouldn't be the one to take it public.
Of course, the product is just one piece of the puzzle. A management team that can grow a company and handle the rigors of public market scrutiny is also essential. That didn't receive much scrutiny in Lordstown's case either, according to the Times.
Meanwhile, some of the early clean energy investors are still at it, plying their trade as waves of money and attention slosh around the formerly placid waters. I just wrote about one such group, Ecosystem Integrity Fund, which closed its fourth and largest fund yet at $250 million.
- That's a big step up from its first fund of $20 million raised back in 2011.
- Backers of the latest fund include major institutions like the Doris Duke Charitable Foundation and the Tennessee Valley Authority’s Asset Retirement Trust.
EIF invested in four companies that have been acquired (an exit, in VC parlance), including two solar startups and a smart EV charging company.
- EIF also made money off probiotic beverage brand KeVita, which PepsiCo bought for more than $200 million.
- If you treat your kombucha SCOBY well, it's a renewable resource.
The firm's portfolio spans many other startups tackling different challenges in the "industrial ecosystems" of the grid, transportation, and agriculture.
We don't know how successful this new fund will be. But the parties that pitched in that $250 million are saying they'd rather trust EIF to pick successful clean energy companies than to invest that money in some of the numerous other options out there.
The story gave me a chance to ask EIF partner Geoff Eisenberg what he makes of this SPAC-happy moment we're in. Venture capitalists often harbor colorful opinions about the latest SPAC headlines, but find ways to speak diplomatically about the topic in public. After all, a SPAC could be the way they cash out on an investment.
Geoff called SPACs a "double-edged sword": a useful way to grow a company that was just missing cheap capital before it could flourish, not so great for companies with gnarly technical or regulatory challenges to solve. He also said this:
“There are a lot of [SPAC] investments that look like investments in cleantech 10 years ago."
A positive reading of that observation might be that decade-old investments by pioneering VCs are bearing fruit, and now retail investors like you and me (actually not me, due to journalistic ethics) can finally buy a piece of the action.
On the other hand, early cleantech investors have scars to show for it.
- They saw what happened to thin-film solar and concentrated solar power when they tried to compete with mass-produced solar modules.
- They saw how time-consuming and arduous it is for a startup to actually manufacture electric cars at scale.
- They saw the challenges of moving a next-generation battery technology out of the lab and into the market.
SPAC valuations for some cleantech companies are already diverging from the values that longtime VCs assign them. But part of the appeal of SPACs is the chance to break away from VCs as gatekeepers to the next round of funding.
Give it a few years and we'll see if the old-timers were justified in their caution, or if the newcomers profit from breaking with the received wisdom of cleantech insiders.
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