Silicon Valley VC Approach Not The Best For Cleantech Investment, JPMorgan Says

The US, and Silicon Valley in particular, is obsessed with relatively short term, highly scalable, venture capital (VC) investing. That’s not what cleantech needs, as a JP Morgan Chase banker just pointed out this week.

“In traditional VC, the model is to make 100 bets, 90 of which will completely fail, and of the 10 remaining maybe a couple will have real exponential growth,” JPMorgan Chase & Co.’s Rama Variankaval said before adding that “the amount of capital you’d need to replicate that in climate is enormous, so you might need to accept a revised model where you are picking fewer, more concentrated bets.”

According to BloombergNEF, we need to spend approximately $200 trillion in cleantech investments in the coming three decades in order to avoid some degree of horrible climate catastrophe.

“Of the $270 billion of energy transition-focused private capital raised between 2017 and 2022, venture capital accounted for $120 billion, or 43%, while private equity and infrastructure-focused funds raised $100 billion, or 37%, according to a September 2023 report by S2G, a firm that focuses on venture and growth-stage businesses,” Bloomberg summarizes. As interest rates have risen and investment trends have shifted, though, aversion to capital-intensive investments have hurt the cleantech arena. “Over the past three years, the S&P Global Clean Energy Transition Index has lost almost 40% of its value, compared with a gain of more than 40% in the S&P 500 Index.” Yikes! I imagine many CleanTechnica readers have felt the pain.

This is where it gets a bit interesting, though. “The problem is investors are very segmented,” Variankaval said. “Different investor groups have different risk-reward preferences, and for the most part a lot of the transition theme falls in the gap between various pockets of capital,” in “the missing middle.” That’s a challenge. China seems to be doing a good job of stimulating investments in that missing middle, but for much of the world, including the US, it’s been a challenge.

Bloomberg reports that Barclays Plc has put out a similar warning. The UK financial firm has pointed out that climate tech solutions are challenged with “a longer and riskier path to profitability.” Again, that’s because they are “capital expenditure-intensive, with high upfront investments required in plant and equipment.”

It seems clear that achieving adequate cleantech investment requires strong and visionary policy support. In some places, the industry is getting that. In others … well, there’s more work to be done.