Tuesday, December 5, 2023

Climate-tech project funding takes a hard punch from SVB collapse


The collapse of Silicon Valley Bank (SVB) comes as a major blow to more than 1,550 climate-tech projects. Details here.

In January 2022, the bank announced a commitment to provide “at least $5 billion by 2027” in financing for sustainability efforts. With Silicon Valley Bank’s (SVB) failure, that commitment and a potential funding stream for climate tech projects are now void. According to its website, Silicon Valley Bank provided financing for over 1,550 clients working on climate technology and sustainability. The bank had long been a favourite of cleantech companies because of its deep understanding of the marketplace and sophisticated financing tools unique to the industry.

$3.2 billion in climate-tech projects

As of December 2021, SVB had committed $3.2 billion to such projects. The bank also claimed to have led or participated in 62% of community solar financings as of last March. More than $28 billion was invested in climate technology start-ups last year, up sharply from the year before, according to HolonIQ, a data provider.

SVB’s website proudly claims, “From alternative energy solutions to agricultural breakthroughs, we support individuals and businesses driving toward a healthier planet.” SVB not just provided bespoke financial solutions for climate-tech companies but also supported its clients in this sector with deep domain knowledge, helping them network with others in the industry.

Innovations impacted

The devastation comes at a critical moment for a nascent industry that is central to the effort to cut the greenhouse gases dangerously heating the planet. The federal government depends on climate tech companies to develop the innovations needed and has promised billions in tax breaks to help them grow and mature. Many of the U.S. companies that are currently working on scaling their operations were poised to take advantage of the tax credits included in the Inflation Reduction Act, the federal climate legislation signed by US President Joe Biden last year.

Cleantech firms and venture capital funds are assessing how to move forward following what, for some of them, was the most challenging week in their existence. About half the start-ups working to develop and scale up the newest clean energy technologies were banking with the failed institution, investors and analysts say. Some had just closed new funding rounds days before the collapse and were locked out of the accounts where the millions of dollars in investment were deposited.

A friendly bank for climate projects

SVB was one of the strongest supporters of innovators in decarbonization and clean energy infrastructure – financing nearly 60%+ of the community solar market – alongside companies like Sunrun, Vivint, AES, and Bloom. While Silicon Valley Bank billed itself as bank-friendly to start-ups in the climate technology space, climate-related start-ups did not make up the bank’s whole portfolio. SVB had notable clients across a variety of business sectors, including financial technology, life science and health care, enterprise software and others.

Sunrun, one of the solar companies banking with SVB, released a statement detailing its exposure on Friday after the bank’s collapse. “SVB represents a small percentage of our overall hedging facilities as measured by a notional value of less than 15%,” Sunrun said in a statement. Following the news that the U.S. Federal Deposit Insurance Corporation (FDIC) would protect SVB depositors, Sunrun CEO Mary Powell provided said, “We are pleased that the federal government acted Sunday to stabilize the banking system, ensuring our access to the less than $80 million we had in deposits at SVB.”

Filling up the SVB void

The fallout has led to a network of climate startups, venture-capital firms, and other lenders to mobilize their resources and help blunt the impact, Impact Alpha reported. A handful of fundraising initiatives emerged in recent days to help founders who need short-term cash. These include efforts by the Open Road Alliance, which provides bridge loans to social-impact companies, and Enduring Planet, which provides growth capital to climate entrepreneurs. Climate tech has been a bright spot in the broader tech downturn, with venture-capital and private-equity funds raising $64 billion in the fiscal year that ended in November — more than double the previous year’s total, according to an analysis by Climate Tech VC.

Also Read: Clean energy transition quickens, as low-carbon investments cross $1 trillion


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