Cleantech accelerators bridge gap left by traditional venture capital

Chicago cleantech
The Chicago skyline. Energy Foundry CEO and Managing Director Jason Blumberg and Clean Energy Trust CEO Erik Birkerts hope to transform Chicago to the leading cleantech space in the U.S. (Hannah Levitt/MEDILL)

By Hannah Levitt

Chicago-based clean energy technology accelerators are playing an increasingly large role in bringing cleantech startups to market by providing them with funding as well as structural and scale-up support.

According to Clean Energy Trust Director of Technology Development Ben Gaddy, the number of cleantech accelerators is growing in response to the specific startup challenges, including significant capital requirements and long development cycles, that young cleantech companies face.

“When we look at companies we have to believe that there are other investors that would invest under the right circumstances, so our jobs as accelerators/incubators is to get the company to the point where those other investors are ready to make that investment,” Gaddy said.

Clean Energy Trust incorporated in 2010 in response to the issues exposed by the Silicon Valley cleantech bubble in 2008, in which over 100 cleantech companies received nearly $1 billion in first round venture capital funding but failed to deliver anticipated returns, Gaddy said. Since 2009 traditional venture capital companies have barely funded 25 new cleantech companies per year.

Energy Foundry CEO and Managing Director Jason Blumberg said that market-driven cleantech solutions require a different kind of venture capital that the traditional kind behind the 2008 bubble.

Blumberg and Gaddy both cited significant capital requirements and long development cycles among the reasons why the traditional venture capital model hasn’t worked in the cleantech industry.

“There’s a limited amount of capital in this space,” Blumberg said. “The core reason is because a lot of people came in with the wrong approach and expectations got burned. Because of that, there’s a lot of risk aversion to the opportunities that exist here.”

Analytica Advisors President Celine Bak said that in addition to being averse to capital-intensive investments, venture capitalists typically do not invest in areas with changing policy. Strategic investors, on the other hand, have a fiduciary obligation to their shareholders to protect their franchises in legacy industries and are therefore more interested in cleantech regardless of policy.

It is for that reason that accelerators in the U.S. should largely be a fairly resilient structure to consolidate markets around individual solutions going forward, Bak said.

“To the extent that environmental regulations are being reduced, that will reinforce their focus on working with their strategic partners on problems that have to do with money as opposed to emissions and pollution that doesn’t have regulation or a price associated with it,” Bak said.

Blumberg echoed Bak’s sentiment. Although there is generally bipartisan support for funding research and development, government is not that important to taking a market-driven approach to cleantech, he said.

Energy Foundry’s original funding was a $25 million donation from Exelon Corp./ComEd and Ameren Illinois. Blumberg said that Energy Foundry is currently working off its original funding and the return from investments using that funding.

Clean Energy Trust got its initial funding from a Department of Energy grant, and the Department of Energy currently supports various Clean Energy Trust initiatives. President Donald J. Trump’s recent proposal to shift resources towards defense and away from the Department of Energy begs the question of if, or how, current funding will continue.

According to Clean Energy Trust CEO Erik Birkerts, potential federal budget changes present a great deal of uncertainty. Clean Energy Trust interfaces most often with the Department of Energy Office of Energy Efficiency and Renewable Energy, and there is talk that this office may go away altogether, Birkerts said.

EERE funding chart
U.S. Department of Energy Office of Energy Efficiency and Renewable Energy funding, 2012-2017. The requested $2.9 billion for 2017 includes $620.6 million for renewable power; $919 million for energy efficiency; and $215 million toward a new program, Crosscutting Innovation Initiatives, to strengthen regional clean energy innovation systems. (Hannah Levitt/MEDILL)

Birkerts predicts that if this funding goes away, more foundations and individuals will ultimately be willing to fill this void, but it may not be right away. He said that Clean Energy Trust has been cultivating relationships with corporations, foundations and individuals who could step in and support Clean Energy Trust or the companies it works with.

Despite his short-term concerns, Birkerts’ long-term vision for Clean Energy Trust is to establish the Midwest as a cleantech innovation and commercialization epicenter.

“We want the Midwest to be a frictionless ecosystem where, if you want to start a clean energy company, you’ve got a great idea or some great research, the Midwest should be a great place for you to do that because you’ll have the resources and support necessary,” Birkerts said.

Photo at top: The Chicago skyline. Energy Foundry CEO and Managing Director Jason Blumberg and Clean Energy Trust CEO Erik Birkerts hope to transform Chicago to the leading cleantech space in the U.S. (Hannah Levitt/MEDILL)