Investors have been zeroing in on helping capital-intensive climate tech startups navigate the tricky shift from promising technology to commercial success. The latest tool in the arsenal: insurance.
“A lot of folks are talking about insurance and its criticality to this particular scaling gap,” says Lara Pierpoint of Trellis Climate, a catalytic funder launched by Prime Coalition that is focused on helping startups build their first- and -second-of-a kind plants. The capital gap for such scaling is estimated at some $150 billion.
Insurance has already found its way into the climate tech capital stack. Guarantees of a technology’s performance, for example, can derisking deals. At Climate Week NYC last week, Trellis teamed with impact-focused reinsurer GreenieRe to tackle a more obscure corner of the market: surety bonds.
With VenSurety, a new initiative housed at GreenieRe, the organizations are developing a new category, venture surety bonds, to free up liquidity for climate startups looking to scale.
The bonds are a twist on a commonly used insurance product that essentially acts as a letter of credit, or guarantee, for businesses so they don’t have to tie up their own capital. Largely under the radar, such insurance provides an esoteric safety net for all kinds of businesses — as long as they have a track record and established credit history.
Climate tech startups building unproven solutions generally aren’t able to access such protection. That creates unexpected roadblocks for all sorts of tasks involving counterparties, from securing freight transportation to providing warranties on products. As a result, startups often must lock up their own scarce capital to satisfy risk-averse business partners.
“We want to establish a category that did not exist,” GreenieRe founder and CEO Jeff McAulay told ImpactAlpha. “We’re trying to shine a light on this opportunity where we think there is good risk that is being underserved.”
The VenSurety initiative is backed by philanthropic capital from the Schmidt Family Foundation and Builders Vision, the family office of Lukas Walton. GreenieRe itself was capitalized by $200 million it secured in January from the Coalition for Green Capital, a recipient of the now-frozen Greenhouse Gas Reduction Fund program. As ImpactAlpha has reported, CGC was also able to push at least $2.7 billion out the door to a set of private equity partners).
McAulay likens venture surety to venture debt, which arose to provide non-dilutive funding to startups that could not yet access bank financing. Venture debt providers filled the gap by providing higher-interest loans to still-risky startups. Such loans reached a record $84 billion globally last year.
“What if we charged more premium, more like a risk-based pricing, to issue surety? What if we were able to lower the collateral requirement but ask for some sort of upside if the company was successful?” McAulay mused. “That’s what we’re going to explore.”
The goal is to create a new class of impact insurance, of which venture surety is one type, that impact investors can back. “We haven’t really seen insurance as an investable asset class for impact investors,” he said. “We want to create an impact investment vehicle.”
“There is a lot of capital available for the energy transition, but many technologies we know we need aren’t getting deployed because of risks that typical market actors can’t price or bear,” Kyle McEneaney of the Schmidt Family Foundation said in a statement. “We think insurance is a promising tool that allows philanthropy to efficiently mitigate the minimum marginal risk layer preventing these technologies from otherwise getting to scale.”
Green insurance
McAulay is an engineer-turned-insurance geek. Working in renewable energy a decade-and-a-half ago, he found himself wondering why more solar wasn’t being installed. His investigation led him to determine that counterparty credit risk was one of the biggest obstacles. In 2017, he founded Energetic Capital, an insuretech company that creates insurance solutions to derisk solar projects, to address the gap. A specialized underwriter known as a managing general agent, or MGA, Energetic’s insurance products have enabled some $1.5 billion in renewable energy projects.
Today, says McAulay, “There are a lot of really exciting, forward leaning insurers, but it feels like there’s never enough.” With GreenieRe, which he launched in 2023, “We saw an opportunity to create an impact-first, decarbonization focused reinsurer to provide capacity to all these wonderful existing and emerging MGAs who are tackling these sort of niche or underserved areas that ultimately help build more clean energy infrastructure in this country.”
As a reinsurer, GreenieRe acts as sort of a “revolving green insurance fund” that works with expert underwriters to boost their capacity and, over time, crowd in more insurers to underserved sectors.
The Boston-based reinsurer is also partnering with United Casualty and Surety Insurance Company on surety bonds for renewable energy projects. The first bonds were issued for a community solar project in the Midwest. The package includes interconnection bonds to cover the risk that the developer cannot complete required interconnection upgrades, and decommissioning bonds to ensure that funds are available to remove and dispose of solar equipment at the end of its useful life.
The partnership with Trellis Climate to help scale climate tech was a natural. McAulay has been a Trellis steering committee member, and goes back with Prime Coalition’s Sarah Kearney. Prime has for more than a decade been at the forefront of identifying and developing catalytic climate solutions.
Trellis has supported a $10 million project financing round for Nitricity, which is building a manufacturing facility to produce organic nitrogen fertilizer using recycled almond shells and renewable energy, and a demonstration plant built by Tandem PV, a maker of next-generation perovskite solar panels.
The philanthropic dollars for VenSurety are directed to Trellis, a charitable nonprofit that has received funding from some two-dozen private foundations, donor-advised funds, family offices and other donors. Those dollars then create the insurance backstop at GreenieRe through an equity investment. The funds for VenSurtey will be held segregated at GreenieRe from its Coalition for Green Capital funds, which are aimed at green banks and community lenders working on green projects mostly in underserved communities.
Among the initial projects in the pipeline is an industrial heat pump supplier that is ready to sell to its first customers. Those big customers want a warranty, which would require the heat pump startup to reserve capital to back the warranties.
“They can come to us and pay a premium,” says Trellis’ Pierpoint, “and get to the point that they’re actually able to write these warranties.”
