VWV Volumes #26: Analyst-in-Training Abigail Gonzalez on Cleantech 2.0
VWV Volumes #26: Analyst-in-Training Abigail Gonzalez on Cleantech 2.0
Cleantech 2.0 is booming and proving to be recession resilient, but is it different enough from its predecessor?
The childish rhyme “1st is the worst, 2nd is the best” makes no exception for the world of cleantech. In fact, Cleantech 2.0, the protégé of the heavily disfigured Cleantech 1.0, is booming, even being branded by the media as “recession resilient.” As Cleantech 2.0 attempts to forge its own path, it is simultaneously sparking debates regarding its viability and if this time is truly different.
In an era of large tech layoffs and worries of recession, cleantech is once again becoming a buzzword in all aspects of popular culture. As people question the role of big tech and their professional fulfillment, herds of intelligent young workers are funneling to cleantech for refreshing opportunities. Further, despite economic worries in other sectors, enthusiasm in the area of cleantech remains evergreen. As Rick Zullo, an investor at Equal Ventures explains, “[cleantech is] one of the few bright spots in the economy and one of the few industries that tend to be extremely recession-resilient.”
Despite this positive outlook, many still question whether Cleantech 2.0 is any different from its predecessor, still scarred from the fallout in 2012 marked by the explosion of Solyndra. Understanding the differentiating factors of Cleantech 2.0 is necessary to be able to advise investors and ensure that this time, it is not just a phase.
There were many lessons learned from Cleantech 1.0 that now alter the perception of 2.0. Overall, investors learned the need to play smarter and to better understand the industry they are funding. For instance, cleantech is different from traditional tech in the sense that there are longer prototype development times as well as a need for heavy equipment and scientific expertise. This is a different game from the type of innovative startups that VCs are trained to fund. The nature of cleantech startups is inherently at odds with the quick-environment and flexibility which live at the center of traditional startups. The idea of rapidly creating tech and deploying it to a customer base is not a methodology that can be applied in this case. In Cleantech 1.0, this was not thoroughly understood, leading many investors to “jump the gun” and get in over their heads with false expectations. This shift in understanding may be the biggest difference between 1.0 and 2.0. Investors now understand that risks in this space are inherent and the cost of bringing the product to market is high. This comprehension naturally creates a more nurturing environment for startups to thrive in.
Since Cleantech 1.0’s debut, there has been a shift in awareness and support for climate change issues. From a social standpoint, during Cleantech 1.0’s downturn, there still was not immense social pressure to fight the climate crisis. As a result, when Cleantech 1.0 was beginning to fail, there was less urgency to prevent the crash. However, in the era of Cleantech 2.0, there is a larger global focus on the climate crisis, integrated into the market via goals from the Paris Climate Agreement and Inflation Reduction Act followed by an inclination towards ESG investing and the “electrify everything” movement.
Another key difference between Cleantech 1.0 and 2.0 is the involvement of the Global 1000. The first time around, the Global 1000 did not have a strong role, however given the pressure for ESG initiatives, corporations are now avidly looking to deploy capital in the cleantech space. As a result of this, the cleantech startup market is booming. As the CEO of Blackrock, Larry Fink explains, “It is my belief that the next 1,000 unicorns… won’t be a search engine, won’t be a media company, they’ll be businesses developing green hydrogen, green agriculture, green steel, and green cement.” To reinforce this claim, it is predicted that cleantech will see $600 billion in global private investment by the end of 2023.
Overall, lessons have been learned that fundamentally set apart Cleantech 2.0 from 1.0, allowing the sector to thrive against all odds. Through a pandemic, geopolitical conflicts, an energy crisis, and economic turmoil, cleantech has prevailed, painting a clear picture: for the foreseeable future, cleantech is here to stay.
About the author:
Abigail Gonzalez is a sophomore from the SF Bay Area passionate about the intersection of finance and sustainability, with a specific focus on climate tech. Outside of the classroom, Abigail is involved with Brown Women’s Collective, Women in Business, and Scholars of Finance, as well as a member of the women’s club soccer team.
References
‘Recession Resilient’ Climate Start-Ups Shine in Tech Downturn
Blackrock CEO Larry Fink: The next 1,000 billion-dollar start-ups will be in climate tech
Energy outlook 2023: The growth in renewables, batteries, CCS, and hydrogen infrastructure