An angel investor who's funded 30 companies explains what to watch for in the resurgent clean-energy industry
- Tom Blum, a prominent clean-energy angel investor, has directly invested in around 30 companies since 1998.
- Business Insider asked Blum to explain which slivers of the clean-tech industry he finds most and least promising, and what advice he has for new investors.
- Blum said that energy storage and "smart building" technology are especially promising, but he's not betting big on startups that pull carbon out of the air.
- If you're looking to invest in clean tech, his best advice is to join an established venture fund capable of evaluating the technical components of an energy startup. "It's a lot easier to build a PowerPoint than it is to build a power plant," he said.
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Clean tech isn't new. Fifteen years ago, Silicon Valley investors referred to it as the "third stool," alongside info tech and biotech, and some of the largest VCs - including Khosla Ventures and Kleiner Perkins - loaded the industry with hundreds of millions of dollars, and then billions. That was clean tech 1.0.
Then the financial crisis struck. It erased a quarter of the wealth that VC firms accrued between 2003 and 2007. At the same time, natural gas prices started to fall and China's solar industry ascended, altogether dealing a triple punch to the US clean tech sector. Between 2008 and 2009, venture investments in clean tech fell from $6.65 billion to $4.16 billion, according to the Brookings Institute.
Now clean tech is bouncing back. The numbers show it; 2018 saw the highest venture capital and equity investment since 2010. And investors like Tom Blum are talking about it. He's an angel investor who's been funding companies in the clean-tech industry for more than 20 years.
"We're seeing a resurgence in the last two years," said Blum, a member of Clean Energy Venture Group, which funds early-stage startups in New York. "Ten to 20 funds have been raised. Renewables, which had been plodding along steadily, are taking a huge upturn."
Coalescing forces have given clean tech venture capital a second wind, Blum says. Among them are the urgency of climate change and an increasingly unreliable grid, populated by a growing number of intermittent energy sources.
That's made room for a raft of startups, which have built businesses around everything from energy storage to carbon capture.
With thousands of companies flooding an industry known for highly technical - and often lofty - propositions, it can be difficult to find focus. That's where Blum comes in. Business Insider asked him to share the most and least promising slivers of the clean-energy industry and his best advice for how to win big as a clean-tech investor.
Energy storage is a fast-growing sector, but Blum isn't betting big on batteries
"You have a grid that went from on-demand production to one that's going to have intermittent production," Blum said. "That's going to drive this whole market for energy storage. The storage could be for a day or so, but you also really need weeks and months. I'm seeing a lot of interesting ideas."
These ideas don't describe your typical lithium-ion batteries.
He mentioned one company with offices in Brooklyn that uses extremely cold temperatures to turn air into a liquid, which is then stored in insulated vessels. When the air warms, it expands 700-fold, according to the company website, and that can drive a turbine and create electricity.
"What's nice about the liquid air is you don't need a big footprint to do this," Blum says. "This is a fairly energy-dense medium."
Other ideas for long-term storage, he says, include compressing air in underground caverns (and releasing it when you need the energy) and stacking concrete blocks. Cranes use excess energy on the grid to lift the blocks up and "when you need power, you let them descend," Blum said. That turns a generator, which produces new energy.
Blum thinks the future of energy storage will include a diverse mix of approaches. But that doesn't mean all business models will work.
For one, he says, you need to consider whether a company will have site requirements. Pumped hydro, for example, requires "a little mountain," or an underground cavern - not to mention a permitting process that could take years. "I'll retire before this thing actually happens," he said.
And Blum doesn't typically bet on batteries. He joked: "Send me a list of people who've made money in batteries."
"Batteries are pure equipment," he said. "There's always going to be pressure on price. And just because you invented the best battery doesn't mean anything until you've spent hundreds of millions and actually have a commercial plant. Even then you still might not be making money."
Clean energy doesn't produce many unicorns. 'Smart building' tech could be the exception
There haven't been many billion-dollar exits in the clean-energy industry. That comes down to one factor, Blum says: Clean tech doesn't typically generate new networks of users.
"You're making electricity, but those electrons actually don't make your lights do anything differently," he said. "It's coming from a source that's not releasing greenhouse gases, but you didn't make the light better. So you didn't create this new network of users that opens up a new business model, in most cases."
He highlights one exception: Data gathered by smart-building startups.
While "most people don't care about how much energy a building is using," he says, regulations are changing, requiring buildings to become more efficient. Plus, companies are proving that efficiency can translate into savings.
One company that Blum has backed tracks every piece of major equipment in commercial buildings, on a second-by-second basis.
"They're building up millions of operating hours of data," he said. "Just studying the electric draw and several other variables has the potential of being very valuable. Maybe somebody will come along and say, 'We need to own that business because they really have all this data.'"
Startups that pull carbon out of the air are flashy, but Blum says they're often not economically viable at early stages
The viability of carbon-capture technologies comes down to scale, Blum says.
The technology exists, and startups like Carbon Engineering are already using it. The question that Blum raises is, "Can you do this across the whole state of Kansas? You really need scale to have impact."
There's also a relatively small amount of carbon dioxide in the air, he says, so it's expensive to suck up huge amounts of it.
"It's nice to have investments in ideas," he said (and mentions that Carbon XPRIZE is a good place to find startups working on negative emissions). "But it's going to take some time."
His best advice: To avoid risk, steer clear of direct investments. Join a clean-energy venture fund instead
"It's a lot easier to build a PowerPoint than it is to build a power plant," Blum said.
Startups in the clean-energy industry often peddle complex technologies, making it hard for investors to know if they actually work. Plus, even if the technology is sound, the company's plan for scale may not be.
"There are some businesses where the issue is not: Does the technology exist and can it work?" he said. "It's: Can you actually make it work on a regular basis in a real-world environment? The answer is usually no. It's not really commercially viable."
That's why Blum recommends joining existing clean-energy investment funds. They typically compensate technical experts to evaluate patents and other technical components of a business.
"So my first piece of advice is that if you want to make sustainable investments, then invest in a fund because that's got a team of people who are doing this professionally," he said. "The second is that if you just want to make some sustainable investments to feel good, that's good. Just don't depend on seeing that money. Do it because it makes you feel good."
This story is part of Business Insider's expanding coverage of new energy. Do you have a tip or story idea about the people and companies shaping the future of energy? Contact this reporter at bjones@businessinsider.com.