Cleantech Venture Capital

Econ undergrad, A2A banking promote. I don't think you "need" to go to IB first before VC, but that would be a pretty sure fire path (IMO). Seems like you're working as a consultant already - I think it's feasible to break in depending on what your experience is exactly, just need to be able to articulate why you're interested in being an investor and understanding how VC works, including things like pref, dilution, etc. This is a pretty good book: https://www.amazon.com/Venture-Deals-Smarter-Lawyer-Capitalist/dp/11195…

This is just my personal view, but I think cleantech / climate tech will be the most or one of the most desired and high growth sectors in the next few decades. A few anecdotal, macro and industry tailwinds point to this path forward.

1. Fundraising and investing has hit a 3-year streak of all time highs (despite bleak economic and investing outlook)

With the exception of 2023, which has been an abysmal year for all sectors, we've seen the highest amount of activity in funds raised and capital deployed within climate. Megafunds, VCs and first time funds are either pivoting their energy transition strategy or committing to a climate/vertical specific mandate. As an infrastructure / energy fund, there is discussion at the senior level and with almost every US-based LP (SWF are less concerned with this mandate) regarding how future investment factors in emissions or climate into their decision making process. This has proliferated across even the old school energy funds that historically only invested in O&G and are raising capital exclusively allocated to cleantech (Quantum, NGP, etc.). 

When you think about the investment spectrum from early to late stage investments, most of the industry is still in the adolescent stage. Because most climate technologies are still nascent, there is a two-prong risk of both scientific risk and business/execution risk associated with these investments. However, what's different than a traditional VC investment is that a lot of these types of companies have hard assets that can be collateralized and therefore have access to more of the capital stack such as venture debt, LCs and asset financing. Rather than a single investor coming in to equitize a climate business, there needs to be constant dialogue with how banks underwrite, how the government subsidizes (IRA, Infrastructure bill, etc.) and drives policy and how end customers can use a product to mitigate or eliminate its footprint. 

As these companies mature, there will be a larger pocket of capital allocated to climate-specific investments. You're already seeing this at MFs like Blackstone, GA and TPG where the unit-economics for more mature risk-reward profiles are being underwritten at the right cost of capital. As the risk curve dampens with maturity of the industry and developing expertise as investment professionals, it will be as common a strategy in 5-10 years as any industry today. If there is a sector I'd put my money on to generate long-term (and I mean long-term because the investment horizon for these types of companies are currently longer than the typical 5-7 year buyout holding period) value, it would be clean tech. 

2. Net Zero commitments 

Although there isn't a standardized system of accountability yet, we've seen countries and companies align broadly towards a net zero goal of 2050 and the general population has agreed that this is a top button issue especially in the past 3 years. What's different this time around is how much the dialogue has seeped into daily conversation and become a secular trend instead of "trendy" impact investing that it was in the 2010s. This brings me to my next point.

3. Policy Shifts

We're probably a long way away from there being a holistic carbon tax on all products created. Currently, when you're evaluating heavy emitters in industry such as power plants or traditional energy assets, there is a carbon tax associated with the number of tons that you emit but it varies regionally. It acts as a pass through for power plants so if you're an manufacturing facility that utilizes a large load then you're not paying a dime for the emissions that you emit or the energy you are drawing from. 

Eventually as reporting and disclosures change, there will likely be a much more stringent system in place for transparency in Scope 1 - 3 emissions in every boardroom. The SEC has been throwing darts on the wall trying to define the parameters of how reporting should look while there are other larger reporting entities such as PRI or PCAF (which is supported by over 250 financial institutions, such as Bank of America, Citi, and Deutsche Bank). One of those types of sustainability reporting frameworks will come out on top and ultimately decide how to price carbon while that trading market develops as well. 

I'm actually back in the sustainability / climate world, but had a generalist role right out of IB. Honestly wasn't difficult at all, and to be clear my IB role was all focused on working with your standard companies, not infra type work. As a result all the modeling and process work was similar to "standard" finance, and got a good breadth of working w/ some software companies, some commodities companies, and regular operating companies, which I thought was pretty good exposure. Honestly nobody questioned my sector experience at all during the interview process.

The clean tech investment landscape is much mature today than it was 5+ years ago, but if you want to stay in industry then the most common routes right now are 1) infrastructure / project finance, 2) venture / growth. There's still a "missing middle" in climate where late stage growth and buyout firms focused on clean tech aren't as prevalant, but more are being formed (e.g., Ara Partners) or larger firms are starting to set up standalone strategies. DTFinance's earlier post is solid and they're right that a lot of traditional energy firms are pivoting to climate, and maybe I'm biased but I personally think the move is to go to a dedicated shop instead, not one with one foot in climate and one in O&G - pendulum swings too far back and forth in terms of priorities otherwise. And many of the generalist firms (speaking more about the earlier stage ones now) that flooded the sustainability world in 2020 / 2021 have now shifted their attention to generative AI. 

IMO a good place to be overall - regardless of your political views on ESG and what that implies, there's no denying that climate is becoming a greater investment consideration (and in regular life, just look at all the wildfires, droughts, and floods in the past few years) and it's an industry that will have a lot of capital flowing in for the foreseeable future.