Description
As the tech sector's momentum dried up last year, leading to nearly 100,000 job cuts in the United States, clean tech seemed like a bright spot. Investors pumped some $59 billion into climate tech companies in 2022, more than the year before, through 1,182 deals tracked by BloombergNEF researchers. The collapse of Silicon Valley Bank, on which the dust has just settled after a white-knuckle weekend, throws a monkey wrench into this prospect. It's the first major headwind to blow against a boom in climate-tech investment that was capped by incentives in the US Cut Inflation Act last year. SVB was known as a climate bank: a bank that provided large loans to renewable energy companies, specialized in small solar projects and, by its own accounting, served more than 1,550 clients doing climate and sustainability-related work. Clean energy developers with smaller projects have received a welcome from SVB that they haven't from Manhattan-based giants such as Morgan Stanley and JPMorgan Chase & Co., said Pol Lezcano, principal US solar analyst. from BloombergNEF. "Silicon Valley Bank was more than happy to support portfolios under 100 megawatts," Lezcano said.
Also Read: HSBC Buys Silicon Valley Bank UK Branch For ₹99, Secures $8.1 Billion Deposits
That is, until the bank went into receivership on Friday, setting off a feverish few days in which startups wondered how they were going to make their paychecks, venture capitalists worked to build support, and regulators stepped in to contain. the damage. On Sunday, US regulators said they would guarantee all of SVB's deposits. The bank sent a notice to its depositors on Monday, informing them that domestic transactions could resume. International payment services continue to be suspended.
Washington's guarantee has made "a significant difference" for climate technology startups, said Joshua May, co-founder of New Paradigm Energy, a Boston-based provider of renewable energy solutions. But "it's probably a little early to say that the affected tech startups are still completely out of the woods," May said.
Silicon Valley Bank rose to prominence in the Northern California startup world because it was willing to work with young companies looking for wacky ideas. “Most banks are betting on assets or cash flow,” said Tom Steyer, co-founder of investment firm Galvanize Climate Solutions and a former Democratic presidential candidate. “When you think of a startup, which has a good chance of not having any, you understand why many banks are hesitant. They have chosen to understand and work with startups.
While working with unproven companies carries risks, Steyer noted that SVB fell apart for other reasons. "It's not the business part that got them in trouble," he said. "What went wrong was the way they managed their balance sheet."
Several founders and investors told Bloomberg Green that climate companies are unlikely to emerge unscathed from the fallout from the SVB. Cleantech startups saw the bank as an ally who understood the fight against global warming, as well as the VC and entrepreneurship community. This was in contrast to how big banks on Wall Street often viewed them: intimidating, hard to break, and less interested in their deposits and relatively low income.
"When we talk about climate innovation, we often talk about cutting-edge, highly experimental and sometimes risky developments," said Amali de Alwis, chief executive of UK-based climate accelerator non-profit Subak. Sometimes that means "deep hardware and technology" that "often require large investments over long periods of time."
"The question is, if it's not SVB, who is it?" asked of Alwis.
Eric Archambeau, co-founder of Astanor Ventures, which has financed a number of leading climate technology startups, said the bank's demise leaves "a huge void" in the ecosystem of financing climate technology companies. “There will also be more paperwork for these startups as they will have to look into other non-specialized stocks for banking options,” he said.
Some impacts are already being felt. Sunrun Inc., the largest US residential solar company, saw its shares fall to a four-month low on Friday on concerns about its exposure to SVBs, before leveling off on Monday.
However, Sunrun's experience also suggests that some banks may be willing to fill the gap left by SVB. "Even starting on Friday, a lot of other financial institutions reached out to their business, to our business," Chief Executive Mary Powell said in an interview Monday. "We feel like we're in a good position." In the near term, the bank's collapse "probably means less service and less hosting for portfolio companies, and it means a higher cost of capital for a credit facility," Joe Osha said. , Guggenheim analyst. "And that's the big advantage: it's another lever that will push up the cost of capital."
But SVB's failure differs significantly from the wave of bank failures during the 2008 crisis, said Katie Rae, chief executive of The Engine, a Cambridge, Massachusetts-based venture capital firm that uses SVB as its commercial bank. . While the bank may have run out of funds, few of its loans to the clean energy industry are at risk of default. “These are very good underlying assets,” Rae said. This can help make it a short-lived problem; Rae hopes that the financial system will solve the problems of SVB's bankruptcy in a few months.
In the longer term, the concern is that the crisis will undo innovation, said Jamie Vollbracht, founding partner of London-based climate technology fund Kiko Ventures. This would pose problems for capital-intensive, high-risk but potentially game-changing green technologies. "The nightmare scenario here is that the demise of Silicon Valley Bank impacts the availability of venture capital and the risk appetite of the banking and finance industry as a whole," he said.
Even with the fallout from SVB's collapse, many investors and companies say that green technology is more resilient than it seems. Subsidies in the US and Europe, as well as the sector's importance in reducing emissions, could help it weather the collapse of SVB, as well as any broader economic fallout.
"The massive injection of public money due to both the Cut Inflation Act in the US and the recent big EU deal still gives VCs a good dose of confidence to go ahead, even with all the recession worries," said New Paradigm's May. Energy.
Sean O'Sullivan, managing partner at SOSV, a global venture capital firm that has funded around 150 climate-tech startups, noted "a huge amount of support" for climate-tech companies and "billions in capital Newly Raised Climate Investment Waiting to Implement Everyone knows that climate investment must move forward, for the good of all of us.
And while SVB had become a key clean energy lender, there are now more banks willing to fill that role as renewables become more common, said Matt Petersen, executive director of the Los Angeles Cleantech Incubator. He called the collapse of SVB "a blip for the industry".
Also Read: Silicon Valley Bank Collapse: What Is A Bank Financing And Bailout Program?
Steph Speirs, CEO of Solstice Power Technologies Inc., a Cambridge, Massachusetts-based manager of community solar projects, said the banking industry is increasingly recognizing renewable energy as a good investment. “There are a lot of other financiers looking for an opportunity to invest in clean technology,” he said. “We will see other financiers enter the space.”
Forbright Bank, which finances everything from $40,000 residential solar projects to $100 million large-scale solar farms, is among the lenders that have already seen deposits rise in recent days, according to founder John Delaney. . The former congressman declined to say how much fresh money the Bank of Maryland received.
“There is no single entity that dominates financing in this area,” he said. "I don't see this situation holding back capital towards decarbonizing the economy."
For now, the clean energy industry is waiting to see which entities will step in to take over SVB's role in the market. "We haven't yet seen another financial institution step in and say, 'We'll be the lender of choice for climate technology,'" said Sierra Peterson, a founding partner at Voyager Ventures, a venture capital firm. time. This is a great market opportunity.
