The collapse of Silicon Valley Bank—a huge lender to clean energy technology startups—poses short-term risk to the sector, but experts say its outlook over the longer horizon remains positive.
With a portfolio of 1,550 climate and cleantech firms, California-based SVB was seen as the “go-to-bank” for startups in this space until its collapse on March 9 following a run on the bank and subsequent federal takeover of its assets and operations a day later. It’s now operating as a bridge bank until a buyer is found.
The bank’s collapse was largely tied to fundamental missteps and rising interest rates (unrelated to the climate sector specifically). But startups across all sectors in need of venture debt or bridge loans to mitigate risks and fund day-to-day needs may feel the pinch, financial analysts say.
Between now and summer, investors are likely to “pause” any new funding opportunities associated with startups, said Christopher Angelo, structured finance and corporate advisor with New Energy Risk, a firm that provides project finance for breakthrough technologies via technology insurance contracts.
For a year at least, Angelo expects less capital will be available for startups because loans won’t be as forthcoming from SVB and other similar lending platforms.
“If you are an investor, you are probably asking yourself if this could happen then what else could happen: I need to slow down my investing right now to prioritize the health of my existing portfolios,” Angelo said.
Peter Gardett, research and analysis executive director with S&P Global focused on climate and cleantech financing, also expects “the chilling effect on startups overall will likely last for at least a few months, and probably be harder to overcome for those startups directly associated with the bank.”
There’s no question, “in the short term, there will be some pain” with some “good companies” distracted from their work and some “unserious short-term investors” spooked, Rushad Nanavatty, managing director of climate technology accelerator Third Derivative at the nonprofit RMI, wrote in an email.
Despite these shorter term risks, Nanavatty stressed the longer-term outlook for clean technology startup financing remains optimistic.
“The energy transition is a deep global, multi-sectoral, nonpartisan effort that will last a decade or more. This makes it anti-cyclical and resilient to shocks. It’s also the biggest opportunity in history. If any investor chooses to ignore these fundamentals, then it’s their loss,” he said.
Peter Reinhardt, chief executive officer of carbon removal startup Charm Industrial who was able to pull his “millions” out of SVB, agrees.
Investors are more excited by the tax incentives provided in the 2022 Inflation Reduction Act and major corporate spending on energy transition deployment and technology, said Reinhardt, whose company converts used biomass into bio-oil and injects it into the ground to sequester carbon.
Private capital is a major driver of clean technology development. In 2022, venture capital and private equity investments in climate tech totaled $21.5 billion in the United States, leading the world in such investments, according to a report prepared by BloombergNEF and released by the Business Council of Sustainable Energy earlier this month.
Back at SVB, the bank has resumed “normal” banking services, enabling its customers to deposit checks and withdraw money for payroll. It’s loan products that were helpful to cleantech startups are now available from the new bridge bank.
Many cleantech companies, like Charm, said they are working with the bridge bank to continue letters of credit (which demonstrate a company’s financial health) even if they are no longer banking with SVB.
SVB was unique at catering financial services to startups, and it’s unclear if whoever buys SVB’s assets will provide the same offerings.
Even still, other banks are stepping into the void.
When it looked like SVB might go under, Michael Sachse, chief executive officer of New York-based Dandelion Energy, a home geothermal energy provider, contacted the NY Green Bank about possibly securing a six-month loan to cover operating expenses.
“[The NY Green Bank] expressed an interest in working with us,” he said. “It made a big difference knowing there was a lender out there that was willing to support us with non-predatory terms over the weekend.”
Dandelion is now talking with multiple banks about possible relationships, Sachse said. Charm is banking with J.P. Morgan and First Republic, which has also been in turmoil.
“The lesson we learned is we will never keep all of our money with one institution,” Sachse said. “If we can work it out with SVB, we plan to keep some there and some elsewhere.”
Editor’s note: Investors at Dandelion Energy include Breakthrough Energy Ventures (BEV), a program of Breakthrough Energy, which also supports Cipher.