Newcomers are flooding into the clean-energy investing arena, but Ecosystem Integrity Fund’s new $250 million raise caps off a decade of studying the space and making bets.
The Bay Area venture capital firm said Wednesday it had closed its fourth fund with money from the Doris Duke Charitable Foundation, the Tennessee Valley Authority’s Asset Retirement Trust and other institutions.
Since EIF’s early days, clean energy has gone from Silicon Valley outcast to something Wall Street is clamoring for. Investors from outside the sector are making big bets by taking companies public with special-purpose acquisition companies (SPACs), often at billion-dollar valuations.
The influx of cash can be a bit jarring for a cleantech old-timer. EIF started with a $20 million fund in 2011 and has raised successively larger funds since then.
“We’re kind of an odd duckling here — we started 10 years ago when it was impossible to raise one of these funds,” EIF partner Geoff Eisenberg told Canary Media. “We’re used to it being very hard.”
Having a track record also means investors in the latest fund have plenty of past choices to scrutinize. But that history includes a handful of exits, like equipment company Zep Solar, developer OneEnergy Renewables, and eMotorWerks, the smart vehicle charging startup bought by Italian energy giant Enel. Other companies in EIF's portfolio, including Sunverge and Complete Solar, have demonstrated staying power in the turbulent distributed energy space.
The “ecosystem” in the firm’s name refers to more than a commitment to sustainability. It also reflects the team's approach to investing.
“What we’re trying to do is create ecosystems that have integrity within industrial systems,” Eisenberg explained.
That means taking time to understand the system and making investments that solve problems in different parts of it. Take transportation, for instance.
“Electricity is now the cheapest way to transport people and goods,” Eisenberg said. “That’s going to put a heck of a lot of strain on the grid in weird places where we weren’t expecting it.”
Charger provider eMotorWerks dealt with that challenge by making its products smarter, so they can respond to market price signals. Portfolio company EV Connect manages public charging fleets, making it possible to aggregate and control the load across those sites.
Fund IV investment Ampersand tackles electric mobility in a new way, supplying a network of electric motorcycle taxis in East Africa with battery-swap charging stations. Another new investment, Unagi, rides the cost declines in electric scooters to offer foldable commuter options that can be mailed to customers and shipped back for repairs.
But EIF avoided buying into autonomous driving, Eisenberg noted, due to concerns about knock-on effects. Radically lowering the cost of a car trip, absent forward-thinking policy, could drive up solo vehicle miles traveled, undermine public transit and encourage sprawl, which could lead to habitat destruction and more greenhouse gas emissions.
Unlike when EIF started, cleantech startups now are breaking into public markets seemingly every week via SPACs.
That's a “double-edged sword,” Eisenberg said. SPACs offer startups a faster path to public market valuations and low-cost capital. That's great for companies whose only impediment is access to cheap capital, he noted.
But cleantech (or, in the newer parlance, climatetech) is rife with technical or regulatory problems that piles of cash can't resolve.
“There are a lot of [SPAC] investments that look like investments in cleantech 10 years ago,” Eisenberg said.
Venture capitalists paying attention to the sector back then got a taste of the difficulties of commercializing advanced solid-state batteries, new electric vehicles and alternatives to mass-produced solar panels. Retail investors and dealmakers from other industries now get to learn the nuances of these business models for themselves — with billions of dollars on the line.
This stands as a form of validation for the vision EIF pitched its backers 10 years ago, when an economywide turn toward sustainability was far from certain.
(Image credit: “Close-up of an electric vehicle charging station with a connected cable” by Ivan Radic is licensed under CC BY 2.0)
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