“It feels like we just avoided the apocalypse,” said Jim Kapsis, a former adviser at the Treasury Department and the founder of the Ad Hoc Group, where he has advised dozens of climate tech start-ups. “I think everyone is going to press the pause button for a period of time to see how the macro environment shakes out. A lot of firms just had an existential, out-of-body experience that could have ended in a massive death of their start-up portfolio.”
Clean tech 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 analyst 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 was deposited.
The collapse also added to the political head winds challenging climate investment, with conservative lawmakers and pundits advancing a narrative that the bank’s clients were reckless and financially unstable, despite most of them being solvent companies that simply parked their money there.
The bank had long been a favorite of clean tech companies because of its deep understanding of the marketplace and sophisticated financing tools unique to the industry.
“It was the go-to bank for clean tech start-ups,” said Leah Ellis, CEO and co-founder of Sublime Systems, a start-up spun out of the Massachusetts Institute of Technology that focuses on decarbonizing cement manufacturing. “So many of my colleagues banked there. They were great partners. They understood what type of products we needed. They sponsored events. They were a thread woven into the clean tech community. We have lost something, and that is a gap that needs to be filled.”
Silicon Valley Bank was also instrumental in helping launch community solar projects, providing complicated loans to small developments that more mainstream banks found too cumbersome to fund. Before the collapse, the bank boasted that it financed or helped finance 62 percent of community solar projects in America.
Investors are hoping the infusion of hundreds of billions of dollars in public money from the Inflation Reduction Act will blunt the fallout from the bank collapse, quickly restoring confidence in the clean tech market. Some partners of venture capital firms with clean tech portfolios characterized the bank collapse as a bump in the road that will be easy to move past at this time of robust demand for climate innovations.
Yet many in the sector admit to being jittery and anxious about what lies ahead.
“It’s hard to say what this means going forward,” said Michael Sachse, chief executive of Dandelion Energy, a start-up focused on installing geothermal heat pumps. “We’re going to reconvene in a few days and see how we all feel once we are a little more clear headed.”
Dandelion is emerging from a traumatic week.
“We were facing some version of calamity” had the depositors not been made whole by the federal government, he said. “I am not ready to say we would have been dead. But it would have been really challenging. I think we could have stayed afloat for maybe a month.”
Sachse had just wrapped a presentation last week at CERAWeek, a large energy conference in Houston, and was on his way back to Washington when he learned Silicon Valley Bank was in free fall. He spent the flight back texting with lawyers and others at the company, frantically assessing whether Dandelion could get its money out. By the time the company lawyers signed off on pulling the $40 million in funds, they had been frozen and the bank shut down.
It was just days before payroll had to be met, and Sachse spent the weekend on the phone lining up backup sources of cash to cover employee paychecks. “Our focus went from looking forward toward the next three months to just what it would take to survive the week,” he said.
Panic had spread by then to the boards of venture capital firms. “If our portfolio folds, we are cooked,” said a partner at a venture capital firm with a large clean-tech portfolio, half of it companies that were banking with Silicon Valley Bank.
“This is all going to make venture capital companies anxious going forward,” said the person, who spoke on the condition of anonymity to speak frankly about the effect on the firm.
At the moment, most of the founders of clean-tech start-up companies are just relieved their businesses have lived to see another day.
Whit Fulton said he burst into tears Sunday night when he learned the federal government would be covering the money his small Philadelphia solar-tech company had in Silicon Valley Bank. The start-up, called ConnectDER, had been working for a year to secure $40 million for technology that makes it easier to meter use of solar energy at residences. The money finally came through Wednesday night and was deposited into Silicon Valley Bank.
Two days later, that and all the rest of the company’s money looked like it could be gone. “When word came down we were made whole, I walked through the rain for an hour weeping tears of relief,” Fulton said.
What happens next in the industry is an open question. Some investors argue the shakeout could ultimately make the market for clean tech more stable, as the system is strengthened to avoid another collapse.
“The end of SVB likely means a lot more folks are going to revisit accepted wisdoms and defaults in [venture capital],” said an email from Shaun Abrahamson, managing partner at Third Sphere, a venture capital firm focused on climate tech. “It’s long overdue.”
He is not the only one in the investment world eager to make lemonade out of the mess at the bank.
“We need to guard against being too pessimistic,” said Peter Davidson, who ran the Energy Department’s Loan Programs Office during the Obama administration and is now chief executive of Aligned Climate Capital. “Part of what Silicon Valley Bank did was help the world realize how pervasive tech is in clean energy solutions. However, there are now a wide variety of lenders in the green economy, and most commercial banks now have dedicated ‘green’ lending departments.”
“At worst, this is a short-term blip in lending,” he said.
Michael Coren contributed to this report.