It’s the worst of times and the best of times to be a climate tech investor.
The market volatility and policy pullback of the past year has challenged many early stage companies. But it’s go-time for growth-stage companies with solutions to energy, storage, grid and critical materials challenges.
“This massive build out in AI infrastructure is creating huge demand for clean energy technologies and material clean materials in ways that we haven’t seen before,”says Dawn Lippert of Elemental Impact on the latest Agents of Impact podcast. “That’s actually creating really strong market pull for many of the technologies we back.”
Historically, clean energy developers faced long sales cycles, often waiting years to secure utility contracts. Now, demand from tech companies is helping commercialize in record time. Elemental works closely with Microsoft, and has partnered with Amazon and Google, as well.
“Tech companies can come in with different structures and faster purchasing, and that can be a massive accelerant to innovation that we need,” Lippert says.
Cleantech dealflow
Honolulu-based Elemental helps philanthropic investors deploy catalytic capital to derisk climate solutions and set them on the road to commercialization. The organization says the $107 million it has deployed has helped unlock nearly $12 billion in additional funding. An affiliated venture fund, Earthshot Ventures, makes commercial-style investments in later-stage climate solutions (see ImpactAlpha’s Agent of Impact profile of Lippert from 2021).
Elemental this week will host its annual showcase, Elemental Interactive, as part of San Francisco Climate Week. In private dealrooms, Elemental will introduce investors to several of its portfolio companies, including Vaulted Deep, which takes carbon-rich waste from landfills, feedlots, paper mills and other industrial facilities and converts it to biomass to be buried underground (see, “Frontier tech alliance inks offtake agreement with Vaulted Deep”). Mitra Chem has techniques to speed the manufacturing of critical battery components.
Elemental Impact this month backed two new companies and made follow-on investments in two more. BurnBot uses robots, controlled burns and advanced mapping to remove hazardous vegetation to reduce the risk of catastrophic wildfires (see also, “Satellites on Fire lands $2.7 million to bring early wildfire detection tech to the US”). Pono Energy, like Elemental based in Hawaii, is cultivating camelina to be refined into sustainable aviation fuel, a necessity in the islands.
Elemental doubled down on its investment in Molg, which is gaining attention as a response to the growing problem – and opportunity – of e-waste, which contains many of the critical materials needed for new climate technologies. Molg deploys robotic microfactories to extract valuable components from factory e-waste streams. Elemental also reinvested in Bedrock Energy, which is taking the “power purchase agreement” model long used in solar projects to offer “geothermal-as-a-service” to commercial real estate operators.
First of a kind
Surging electricity demand represents opportunities for many of the cleantech solutions Elemental has identified – but only if they can reach commercial scale. Elemental has taken a particular interest in “first of a kind,” or FOAK projects, to help companies with such solutions across what has become known as a “valley of death.” Financing for such FOAK projects has become scarce as investors increasingly focus only on later-stage companies. The Bill Gates-backed Breakthrough Energy, for example, has ended new investments from Catalyst, Breakthrough’s first-of-a-kind project financing arm,
Elemental deploys catalytic capital – typically a few million dollars, says Lippert – alongside technical expertise to get these early infrastructure projects built. Elemental deployed a financial instrument they’re calling a development SAFE, or Simple Agreement for Future Equity. A D-SAFE, she says, functions like a “synthetic development loan” that is callable, meaning the borrower can return the initial capital when it can secure additional financing.
Take Nitricity, a company producing low-carbon fertilizer using renewable energy. Elemental, alongside financing partners, funded the company’s first commercial plant in California’s Central Valley (for background see, “Persian Gulf blockade stokes demand for local, bio-based fertilizers”).
Following the successful launch of their first plant, Nitricity raised an oversubscribed Series B and were able to return that initial investment to Elemental.
“For us as a nonprofit investor, that just increases our ability to recycle capital faster,” she said. “We were able to recycle our capital in seven months and do the next first of a kind project.”
Community buy-in
The frenzied pace of building, in particular for data centers for power-hungry AI, has generated opposition from local and national environmental groups, even for renewable energy projects. Nearly half of clean energy and data center projects were canceled last year, with environmental concerns a leading cause, lamented Lippert.
With its portfolio companies, Elemental emphasizes the need to embed community engagement into project development from the outset. The helps de-risk project and that really de risks their permitting processes, de-risk their development over time, and they’re really changing their relationship with the community.
“We help companies figure out how to partner with communities, how to ideally create invitations with communities,” she said. “For us, it’s a question of how to build that DNA into companies early.”
For example, with Fervo Energy in Utah, Elemental funded a geothermal apprenticeship program in partnership with Southern Utah University, which has helped create a talent pipeline for local employers. “It has really snowballed,” Lippert said. “There’s a ton of enthusiasm, because people actually do want to be part of the future economy that’s coming.”
With federal support becoming less reliable, philanthropy is playing a growing role in bridging financing gaps.
“We are at risk of losing many of those technologies that have been invented,” Lippert warned. “What elemental has gotten really good at over time, is figuring out how to surgically use philanthropic capital to bring in and crowd in other investors and really start that flywheel going.”
