Cleantech investment exploded in 2021—that momentum could continue this year

While the final numbers are still being tallied, it’s clear that 2021 was a record-shattering year for climate-tech investments.

The first half of the year alone saw over $60 billion flow to climate-tech startups, per PwC, more than double the $28.4 billion invested in all of 2020. It’s now estimated that 14% of VC dollars go to climate tech.

Ryan Panchadsaram, a technical advisor to longtime climate-tech investor John Doerr at the investment firm Kleiner Perkins, has been focused on venture-stage companies developing climate tech since 2016. Panchadsaram is also the former deputy chief technology officer of the United States.

Last year, Doerr and Panchadsaram co-authored the book Speed & Scale: An Action Plan for Solving Our Climate Crisis Now, which argues that investing in climate tech is key to cutting greenhouse-gas emissions. But the increase in capital they expected to see over the next five to 10 years has now “happened overnight,” he told Emerging Tech Brew.

We spoke with Panchadsaram about what’s driving hyperactive climate-tech VC activity and what he’s watching for in the year ahead.

This conversation has been edited for length and clarity.

Why was 2021 such a significant year for climate tech investment?

2021 was a year of great public market successes. It was a great project-finance success in the sense of the cost of deployment of solar and wind. And because of all of this excitement and examples of what winning looks like, of course, private capital is going to flow.

So from a KR [key results] point of view, this is the pace of investment we want to see. We need this to keep up, and it doesn’t hurt if it gets larger this year and beyond.

The other big shift from 2021 as well is this reality check for energy companies—the oil and fossil-fuel companies—that, hey, your time is actually running out.

Right now, it’s like this transition is happening. It’s going to be brutal, in the sense that solar, and wind, and storage continue to drop [in price]. There’s these incredible innovators that are working on new ways of producing energy using geothermal, and fusion, and fission. The world’s going to change under their feet. And it’s more real and tangible now than ever.

What do you expect to see happen in climate-tech investing in 2022?

I think the pace will continue. I think it, ideally, will accelerate as well. That can be seen by the number of climate-focused funds that have been closed—Breakthrough [Energy Venture’s] second fund, the Lowercarbon Capital folks, and then everybody else as well. I pick on those names because those are some of the bigger funds—Earthshot Ventures as well.

And then you actually are seeing traditional venture capitalists placing more bets in the space. They’re not standing by. But if they have a broad-based tech fund, they are taking one or two bets in it as well.

So much of the money is flowing into EV companies and battery technology right now. Do you expect that trend to continue in 2022?

In some way, it sort of makes sense why mobility, and then batteries and storage, have gotten a lot of the capital. You’re seeing consumer choice driving those purchase decisions, which is a good thing, so it’s less risky in some way. But when you look at the gigatons of where these emissions come from—where in some way the low hanging fruit are—it’s transportation and the power that’s going into our grids. So those two categories are very natural to say, “Let’s put as much money behind them, because the gigatons [of emissions] are truly there.”

The next category which becomes exciting: the carbon-removal space as a whole. I think last year, they barely put a couple of thousand tons [of carbon] underground. Our hope in Speed & Scale is by the end of the decade we’re doing almost a billion tonnes [Ed. note: That’s equivalent to all the CO2 emissions created from international travel in 2020]. And we know that’s an incredibly large stretch goal. Even if we’re doing 250 million tonnes, that’s a success.

I can see also, when I think about the categories, this whole space around fixing food being really important. How do we reduce waste? How do we help people pick lower-emission proteins by making different kinds of things more desirable? But it's not just that, it’s the waste that happens as well as composting. Things just can’t go to the landfill. Recycling is a big piece.

But those all, I think, will never be as big as mobility, will never be as big as energy, but they will still be incredibly significant because it’s still a huge, huge category.

How is this era of investments different from the cleantech 1.0 wave in the early 2000s?

I wasn’t part of that wave, but John Doerr and the team at Kleiner [Perkins] have been at it for 15+ years. For myself, it’s just been the past five. And in dissecting where the mistakes happened as well as where the success is, we kind of pulled out a handful of the hard lessons to be learned.

One of them is really around just being ruthless about removing the key risks. There’s a lot of heartstrings that get pulled in the climate-tech investing space. So that should bring you to a deal, but you should really be thoughtful about identifying what is the key risk here? Is it a technology risk? Is it a cost risk? Is it a supply one? And just being really transparent about it.

The other piece as well has been that you’re always raising money. You rarely will see deals in the climate/cleantech space where one investor is boxing everybody out. Everyone is really conscious of, hey, it’s going to take a few of us and then a long journey ahead. You’re seeing a lot more openness in taking capital from corporate venture capitalists as well.

If you are in the climate tech arena as an investor, you also are pushing and really vocally advocating for policies. Because in the first wave, Kleiner [Perkins] invested in seven solar companies. Six of them went under. And they didn’t go under because they weren’t technologically innovative, and so forth. They went under because there wasn't the kind of support that China had. China said, “Hey, solar is really big, we’re going to do something huge about it.” It was an industrial move. And so, this wave, I think we’re all really aware of that.

One sector in particular that’s very aware of it is carbon removal. All of those companies there—the Stripes and Shopifys and Microsofts—they’re really innovative and saying, “We’re gonna pay ahead for this stuff.” It’s truly optional, but they see it as seeding the market. But everybody in that space also goes, “Well, private companies won’t be enough.” You need the government to be able to step up and say, “Well, we’re willing to seed this market as well.”

So I think that one’s going to probably take a path very much like the solar industry. The countries that choose to help and support will have great and really strong companies that are successful in that space. And the ones that don’t—they’re just not going to have the capital in the market to actually grow and exist.

How does the industry need to be thinking about investments and returns and financing models for these capital-intensive, long-term projects?

I think the timelines in this space—when you look at Beyond Meat, you look at Tesla, and you look at even Sun Run and Enphase—you’re looking at a decade[-long] quest, and even longer. Even not in the climate-tech world—when you look at other enterprise, consumer, and all these other kinds of companies—those companies are taking longer to get to liquidity as well. Sure, not as long as the climate/cleantech world, but still, their timelines are extending.

The thing we have to go for is actually the green discount. Green stuff will not always be expensive, right? Solar and wind used to have a premium and now there’s a green discount. And all of a sudden, when there's a discount, the financial community around that stuff goes, “I can finance that.”

How do you get them to take a little bit more risk? The only way to do that is for countries to say, “Hey, we’re going to do policies to take that green premium and make it that discount.” There’s a lot of magic when the deployment piece comes in, because then an innovator can start to produce the factories that they need to get the scale that they have to.