Cleantech: A Front Row Ventures Investment Thesis
Climate change is one of the defining and most pressing issues of our generation. From more frequent flooding, costly wildfires and widespread drought, climate change is already wreaking havoc on our lives. Cleantech offers one solution to addressing the climate crisis. Cleantech is a process, product, or service that reduces negative environmental impacts through significant energy efficiency improvements, the sustainable use of resources, or environmental protection activities. Cleantech opportunities include processes for recycling, renewable energy, green transportation, electric motors, green chemistry, efficient lighting and greywater.
Investment in the cleantech sector has increased since the 1990s and most publicly-traded companies are involved in renewable energy production (ex. Solar, wind, hydroelectric power). This is also a large sector worth $10.6 billion in Canada and USD $83.9 billion in the US with a global CAGR of 5% between 2019–2023.
A key area of innovation for cleantech companies is in batteries, as using renewable energy on a mass scale is possible only if there is the capacity for mass scale energy storage. By 2040, renewable energy is expected to supply 7% of the total global energy demand, and there is increasing interest in the energy storage industry from investors. Innovative companies in this sector include Quidnet Energy (underground hydro storage, Bloom Energy (fuel cell technology) and Aquion Energy (saltwater used as a battery).
Investment risks for the cleantech sector include the high capital cost of funding research laboratories and purchasing the expensive equipment needed for building product prototypes as well as the length of time needed to reiterate a product until it works sufficiently to attract customers as overcoming the gap between scientific discovery in a lab and a functioning prototype that is safe, usable and desirable to consumers is difficult to cross.
Student founders in this industry should have a strong mix of technical skills, such as from a Chemistry or Engineering degree, along with business experience. Teams not only need the technical expertise to build their product, but they also need to approach product development with a sustainable business model from the beginning.
Front Row Ventures look for founders who are dedicated to their business for the long term, as cleantech investments are capital intensive and projects take years to come to fruition. For student founders who want to learn more about the cleantech industry, the University of Michigan also has a great report on energy storage technologies.
Front Row Ventures is looking to invest in the next generation of Canadian cleantech companies, so if this sounds like you please reach out!
If you are working on an idea that will disrupt an industry and think it will be part of the next wave of innovations. Visit our website and contact us at hello@frontrow.vc. We’d love to chat!
Huge thank you to all the investment associates who worked on this investment thesis: Sajal Choda, Shiyan Boxer, Jonny Hsu, Manan Madhok, Olivier Beaulac, Jenny Ge
