In the wake of climate change and rising global energy demand, there is more emphasis on emerging clean technologies – from renewable energy and energy storage to nuclear power. Although these technologies have tremendous potential, they require a lot of innovation, and abundant capital is required for innovation.
Issue: Early stage financing for clean technology is not plentiful, and it is boosting the growth of new energy companies. Why is it like this? In general, clean tech companies lack the startup advantages of agility and flexibility.
“Moving fast” works for products like consumer mobile apps and SaaS solutions. The clean tech sector, on the other hand, involves incorporating highly regulated, capital-intensive, mission-critical infrastructure.
It has hurt both the withdrawal and the deliberate impact. According to Cambridge Associates, venture-backed companies have returned an average of -15% internal rate (IRR) since 2000. Unlike enterprise-backed companies in healthcare, which returned 24% to the IRR over the same time period.
Why clean tech lacks funding
While aimed at making the world a better, cleaner, safer, healthier place through technology, clean tech venture capital has suffered only because clean technology does not fit the traditional venture capital model. Central to the enterprise capital model is its ability to put new ideas at risk and capitalize the most promising allowing liquidity through M&A or Initial Public Offering (IPO).
Early stage financing for clean technology is not plentiful, and it is boosting the growth of new energy companies.
This construction allows for a return of venture capital dollars, as well as an appreciation of how VC enables firms to raise new funds. These capitalization programs allow the venture-backed company to accelerate growth and maximize market impact.
How this construction works is obvious when comparing healthcare and clean technology. In healthcare, new innovations are put at risk by VCs. More mature innovations are acquired every year or reach an IPO. As a result, since 2012, the average annual ratio of the dollar through VC-investment dollar exit is 1.8. For clean technology, this ratio is only 0.2, more than 800 percent difference in the wrong direction. This has resulted in poor returns and limited capitalization of clean tech companies.
Enter SPAC (or Re-enter)
Given the state of the world’s environment and the lack of abundant energy in emerging economies, we need to collectively fix the issue. Special Purpose Acquisition Companies (SPACs) are greatly improving clean-venture venture capital formation. according to this Investopedia:
SPAC is not a commercial company formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.
Also known as “blank-check companies”, SPACs have been around for decades. In recent years, they have become more popular, attracting big-name underwriters and investors and raising record amounts of IPO money in 2019.
In 2020, more than 110 SPACs completed transactions in the US, capitalizing these companies over $ 29 billion.
In 2020, SPACs capitalized clean tech companies with a capital of approximately $ 4 billion, including Fixer, Lordstown Motors, Quantumscape, Hillion, XL Fleet and others. This helped improve the proportion of funds raised in 2020 to a healthy 0.6, 200% improvement over the funds raised to exit the invested capital.
In 2021, we will likely see further improvements. Why? Because there are 43 active SPACs looking toward or growing the goal of a merger with a clean tech focus, possibly providing $ 12 billion in development capital. Even though there are not many new SPACs in 2021 and M & As and IPOs have historically had lower averages, the 2021 promises continued to improve for clean tech investment.
Do not tarnish the Nicola Pack
One of the most high-profile clean tech SPACs was Nikola Corporation. The battery-electric and hydrogen-powered truck manufacturer has attracted much fanfare after going public through last June Reverse Merger with Special Purpose Acquisition Company VectoIQ. The company’s market capitalization grew and things started to get better, but things became controversial in later years Accused of making a false statement About its technology and other things.
Although examples such as Nikola have the potential to tarnish the emergence of SPAC to invest clean technology, they should not do so. There are plenty of examples of emerging companies screaming for quality and integrity. For example, STEM *, a leader in the energy storage optimization space, is now publicly pending SEC approval, through Star Peak SPAC.
Public markets are receiving SPAC with enthusiasm. Given the merger, STEM will be capitalized with more than $ 450 million in cash to accelerate the growth and drive effect. This is a portrayal of SPACs as a positive venture capital formation that is necessary for clean technology to work and become a thriving sector.
As a long-time clean tech venture capitalist himself, it is interesting that public investment through SPAC may be the right element for manufacturing clean tech VC. Over the years, I had assumed that corporates would move their M&A activity into premium valuations to resolve the issue, but I have waited a long time.
Given the activity, corporates are still content to play the role of very important investor / nurturer, such as the role of “owner”. Regardless, the capitalization of promising clean-tech companies can only mean one thing: clean-tech-related impacts are coming as never before because these companies need capital and use it extensively.
New and more diverse approaches are needed to find and finance new and great clean tech companies. SPACs are going to be essential tools to bring clean technology on par with areas like healthcare. This is a development from which we will all benefit.
* STEM is a Wind Ventures portfolio company.