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Supply Chain Risk

Green-Tech starters are getting a new wave of cash

Flood of investment in former startups promoting clean technology like Tesla Co., Ltd.

In the stratosphere. For most young companies in this sector, the last decade has been a battle to raise the funds needed for takeoff.

It is changing in the boom of green investment. A new wave of cash is helping startups move from the lab to the market.

The gap between the invention of a potentially groundbreaking technology, called Death Valley, and large-scale commercial production has wiped out many start-ups. Large investors have long been wary of businesses such as solar farms and battery makers that require large capital investments long before profitability.

Michael Edelman, CEO of Ionic Materials, a battery technology company in Massachusetts, is known as ARPA at a recent conference of the Department of Energy’s Advanced Research Projects Agency-Energy program. -E. “But how do you ensure consistent, cost-effective manufacturing with the right quality for your customers to buy?”

The clean energy industry’s funding dilemma was the 2011 bankruptcy of government-backed California solar company Solyndra and battery maker A123 Systems Inc, which was once considered a company that helped revolutionize the car. It dates back 10 years to the 2012 bankruptcy of. industry. In the years before that, money flowed into the sector, creating some of today’s leaders like Tesla, but also many losers. After the failure, government funds were depleted and private funds stagnated.

According to a 2017 study by MRS Energy & Sustainability, an academic journal on clean technology, only two of the 36 battery startups that received more than $ 500,000 returned more capital than they invested.

Research shows that battery companies can learn lessons from the pharmaceutical industry, and investors know how long it will take to make a drug and how much money it will cost. Cyril Yee, Chief Investment Officer of Third Derivative, which focuses on clean energy technology, said:

The situation has improved over the last few years as clean energy sources such as wind and solar have become more competitive with fossil fuel-generated energy and the cost of rechargeable batteries has plummeted.

Increasing concerns about the effects of global warming and corporate efforts to reduce carbon emissions have also motivated investors. While cash has been poured into climatic mutual funds as part of its mission (which was close to $ 2 trillion at the end of the first quarter), venture capital and government funding are of paramount importance to clean technology start-ups. .. Both have picked up.

Venture capitalists are expected to close $ 7.7 billion worth of clean tech transactions this year, up from $ 1 billion ten years ago, according to PitchBook. More importantly, the federal government has returned to funding this sector.

Electric vehicle entrepreneurs are working on the industry’s largest bottleneck, the charging infrastructure. Companies are making more chargers, but they may not be enough to make EVs work for people who can’t plug in at home. Photo Illustration: Carlos Waters / WSJ

Last year, ARPA-E launched a three-year, $ 75 million program called scale-up to help businesses bridge the gap between invention and production. Edelman’s ionic material has been funded at $ 8 million, which “helps to fund that journey through Death Valley,” he said.

Another source of funding is the Department of Energy’s Loan Program Office. The office oversees over $ 40 billion in federal funding for clean energy projects. After the failure of Solyndra, which had been financed by the program, the funds from the office were almost exhausted.

Offices were closed for approximately $ 24 billion in loans and loan guarantees between 2009 and 2011 for approximately 20 projects, including $ 465 million to Tesla. Since then, we have provided loan guarantees for only a single nuclear project in Georgia.

It’s changing under the control of a new head, Jigger Shah, a longtime clean energy entrepreneur tasked with allocating billions of dollars in renewable energy from the Biden administration. Shah says the program, like the ARPA-E, can fund businesses until it makes it more comfortable for retail investors to endanger their cash.

According to Prime Impact Fund principal Amy Duffuor, Amy Duffuor, who is investing in early-stage companies in the sector, said climate tech companies that once had to wait years for a small increase in cash. , Now we are in a line of investors. She refers to Quidnet Energy, an energy storage company that her company began working with about six years ago. At the time, it took Quidnet a year to raise $ 500,000, she says. Last year, the company raised $ 10 million.

Still, it is difficult to raise enough money to produce a product. “There is a huge amount of risk that requires far more capital,” she said.

California-based Solyndra received government support, but failed in 2011.

Photo:
Paul Sakuma / Associated Press

Write to Scott Patterson ([email protected])

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