Part II: Cleantech-Focused Innovation Hubs, Incubators and Accelerators Funneling Early-Stage Start-Up Pipeline
Since the 2008 financial crisis, there has been a noticeable increase in the presence of cleantech-focused commercialization centers. These organizations are helping develop start-ups at all stages, and increasing deal flow for investors. The result of this recent emergence is a rise in the number of start-ups receiving first-money investments to fund future growth.
Funneling the cleantech pipeline and attracting the first round of investments
The recent emergence of these commercialization centers within the United States is clear, and when this trend is compared to the seed investment activity from incubators, accelerators and angel investors, it reveals that there is a direct correlation.
Between 2005 and 2011, there was a gradual upward trend in the number of seed investments, but in 2012, it boomed. This dramatic shift in investment activity can be partially explained by the increased availability of cleantech-focused innovation hubs, accelerators and incubators within the U.S. starting in 2009. Since these organizations work with very early-stage start-ups for anywhere from three months to three years, there is an inherent lag in the measureable impact these organizations have on helping start-ups secure their first round of investments. Therefore, creating a boom in seed investments following the sudden increase in cleantech commercialization centers.
Transportation, agriculture & food, and energy efficiency leading the way
With the increased flow of seed investments, certain sectors are attracting more capital than others. At the time of this writing, the Transportation, Agriculture & Food, and Energy Efficiency sectors have attracted slightly over 80% of the total seed investment value from cleantech-focused organizations and angel investors. It should be noted that more capital-intensive sectors, such as hydro and marine power, nuclear, and wind account for a mere 2% of all investments. This is likely due to the fact that those sectors are better fits for large institutional and infrastructure investors than venture capitalists and angel investors.
Geli, Stem, Rachio, and others experience success from cleantech incubators and accelerators
Of the 42 startups that have gone through Energy Excelerator’s program, Geli, a provider of energy storage optimization and automation software, is a notable example of the impact accelerators can have on start-ups. Geli was founded in 2010 and joined Energy Excelerator in 2013. Since its graduation, Geli has raised $12.4 million in venture equity in eight financing rounds, generated 55 new jobs, and developed numerous partnerships with companies like LG Chem, BMW Group and NRG Energy. Most recently, Geli raised $3 million from Southern Cross Renewable Energy Venture Capital to expand its operations into the Asia-Pacific region and tap into Australia’s emerging solar market.
Another graduate of Energy Excelerator that gained significant traction in the cleantech space is Stem, a developer of smart learning software and energy storage. Founded in 2009, Stem has raised $71.6 million since it joined Energy Excelerator as a member of the 2014 cohort. Just recently, Stem raised a $15 million round led by Peter Thiel’s venture fund, Mithril Capital Management. To date, Stem has 130 employees, generates more than $5 million in yearly revenue, and is one of the few start-ups chosen to work with Southern California Edison to manage their grid.
Founded in 2012, Rachio, a provider of smart wifi-enabled sprinkler controllers, joined the Rocky Mountain Innosphere in 2014. Since its graduation, Rachio has raised over $10 million in venture capital investments – $7.1 million of which came from its Series A round. Currently, Rachio is exploring potential indoor applications for its water conservation technology and is generating more than $2 million in yearly revenue.
The future deployment of sustainable innovation
Cleantech-focused innovation hubs, incubators and accelerators are bridging the gap between research grant and private sector funding, and the impact is just now becoming visible. These organizations are funneling the early-stage cleantech start-up pipeline and increasing deal flow by constructing cohorts of the most innovative and disruptive start-ups for investors.
After peaking in both volume and value in 2014, seed investment activity from cleantech incubators, accelerators and angel investors has slowed. This slight decline is not due to investors seeking opportunities in other industries. Rather, this is a result of investors waiting to see the progression of the first wave of venture-backed companies graduating from cleantech-focused commercialization centers.
While these organizations are assisting start-ups in raising their first investment rounds, it does not guarantee that they will receive additional equity investments or exit opportunities. In the next few years, a close eye should be kept on Geli, Stem, Rachio, and the numerous other start-ups graduating from incubators and accelerators to see whether they raise growth equity investments or successfully exit. A rise in the volume of exits and follow-on funding in the coming years may be just what investors need to fully restore confidence in the cleantech space as an industry capable of providing notable return on investments.