Navigating the current barriers in cleantech vc

At the forefront of the global transition towards sustainable energy, cleantech venture capital has emerged as a beacon of hope, promising innovative solutions to our most pressing environmental challenges. This new report from the Center for Sustainable Finance and Private Wealth Singapore (CSP SG) and the Centre for Governance and Sustainability at the National University of Singapore by Nills Möller, Prof. Lawrence Loh Yeow Khoon and Dr. Falko Paetzold reveals that the path to a sustainable future may not be smooth sailing.

Titled “Beyond the boom: A critical examination of current barriers in cleantech venture capital funding,” this report offers a sobering (but hopeful) look at the obstacles facing the cleantech sector. Drawing on insights from 22 industry experts, it identifies 12 key barriers that threaten to hamper the current cleantech investment boom.

Echoes of the Past

The cleantech sector is no stranger to volatility. Between 2006 and 2011, venture capitalists poured over $25 billion into cleantech startups, only to see less than half of that capital return to investors. This boom-and-bust cycle serves as a stark reminder of the risks inherent in the sector.

The report’s authors argue that understanding the reasons for past failures is crucial to avoiding similar pitfalls in the future. Key factors that contributed to the previous downturn included:

• The mismatch between traditional VC models and the long development timelines of cleantech projects.
• External market forces, such as fluctuating commodity prices and economic crises.
• Lack of consistent policy support and market demand.
• Challenges in scaling technologies and achieving cost competitiveness.

Present-Day Obstacles

While the cleantech sector has evolved since its last major setback, significant barriers remain. The report categorizes these obstacles into four main areas: entrepreneur-level, incumbent firm-level, government-level, and investor-level barriers.

Some of the most pressing challenges in the cleantech sector are far reaching and many-sided, such as the complexity of cleantech knowledge, requiring entrepreneurs to possess or acquire multidisciplinary expertise. Following this line, there is a general lack of cleantech literacy among investors, impairing them to accurately assess risks and opportunities.

On the other hand, the political and economic volatility significantly impacts regulatory support and subsidies, creating an unstable environment for cleantech ventures. Furthermore, there’s a notable misalignment between traditional VC fund structures and the long-term nature of cleantech investments, making it difficult to secure appropriate funding.

A Hopeful Path Forward

Despite these challenges, the report’s authors remain cautiously optimistic about the future of cleantech venture capital. They propose several strategies to mitigate risks and foster a more sustainable investment ecosystem, including:

• Creating educational programs to enhance cleantech literacy among investors.
• Developing funding mechanisms with longer maturity periods to match cleantech development timelines.
• Advocating for consistent government policies that support cleantech innovation.
• Supporting the establishment of cleantech hubs and incubators to foster collaboration and innovation.

The road ahead for cleantech venture capital may be challenging but also promising, and this report serves as both a warning and a call to action. With informed, collaborative efforts, cleantech venture capital can drive meaningful progress towards a sustainable future. After all, as the authors argue, the cleantech sector’s success is not just about financial returns; it’s a critical component in our collective response to the global climate crisis.

Learn more about the different approaches to sustainable investing in CSP SG’s Applied Sustainable Investing in Wealth Management courses, available at both a L3 (introductory) and L4 (intermediate) level. Readers interested in clean tech solutions can also attend CSP SG’s Carbonomics: Carbon Markets and Decarbonisation Strategies course.