The Mediums
It has been a wild past few years. I like to joke that in the energy & sustainability markets, we never go “full mainstream” and the resulting hype cycles are always a bit muted. 2021 pushed that phrase to the limit, as cheap capital flowed freely into anything deeptech with the promise of decarbonization.
I aim to keep historical investor perspective, especially when the market is in a peak or trough state. As I joke about with my team, if we stay balanced: the highs are medium, the lows are medium, the mediums… are medium. By valuation and fundraising standard, the tide has pulled out of the traditional technology markets. Increased interest rates are pulling technology multiples down to earth.
The capital intensive long-payout business models are equally getting crushed. In 2020 and 2021 many technology science projects were funded with the hope of a 2030+ payoff. To my knowledge every one of those business plans require more capital, and I don’t believe many will be able to raise that subsequent round as the cost of capital for technical risk has ballooned. The 2008-2012 “winter” for the cleantech space was brutal. I know because I was there. While a few companies survived to thrive (Tesla, Sunrun, Enphase) the overwhelming majority did not continue to operate. By my recollection about 70% of all cleantech companies during that period shut down. I think a similar number of companies that were hardware & sustainability funded over the past 24 months will meet a similar fate.
The reason my “mediums are medium” right now is because of learning those lessons earlier in my career. And most importantly because my Energize team has had this capital intensive risk profile front of mind over the past few years. Sure, more capital light companies will also be hurt. But this new era of sustainability X technology investing is all about survival. Digitally-enabled companies inherently can control their spend more efficiently vs. a projects-based startup. This optionality allows our climate-focused software companies to their duration / cash horizon. And rule #1 these days is to extend runway… so the highs, lows, and mediums… can be medium.