Silicon Valley Bank crisis threatens green startups – 03/13/2023 – Market

As the fallout from the Silicon Valley Bank (SVB) collapse continued to spread over the weekend, it was clear that some of the worst victims were companies developing solutions to the climate crisis.

The bank, the biggest to fail since 2008, worked with more than 1,550 tech companies that are creating projects in solar power, hydrogen and battery storage. According to its website, the bank issued billions in loans.

“Silicon Valley Bank was, in many ways, a climate bank,” said Kiran Bhatraju, CEO of Arcadia, the country’s largest community solar energy manager. “When you have most of the market working through one institution, there’s going to be a lot of collateral damage.”

Community solar projects seem to be especially hard hit. Silicon Valley Bank said it has led or participated in 62% of financing deals for community solar projects — smaller-scale projects that typically serve low-income residential areas.

The devastation comes at a critical time for a nascent industry that is key to the effort to reduce greenhouse gases that dangerously warm the planet. The federal government relies on climate tech companies to develop the necessary innovations, and has promised billions in tax breaks to help them grow and mature.

“If the flywheel of funding for early-stage climate innovation stalls during these critical years, there will be a big problem,” said Daniel Firger, founder of Great Circle Capital Advisors, which advises on sustainable finance issues.

The collapse of Silicon Valley Bank threatens to derail what was a fast growing part of the venture capital industry. More than $28 billion was invested in climate tech startups last year, a sharp increase from the previous year, according to data provider HolonIQ.

“Climate technology is one of the few bright spots in a general technology downturn,” said Sarah Sclarsic, managing partner of Voyager, a venture capital firm with investments in climate technology companies. “It’s not people from Silicon Valley building photo-sharing apps. It’s people across the country, in Detroit and Texas and everywhere else, building things that matter.”

Gabriel Kra, managing director of Prelude Ventures, a venture capital firm focused on climate technology with $1.5 billion under management, spent the weekend helping his portfolio companies that had bank deposits figure out their immediate needs. Of box.

“In the short term there are companies that run the risk of not closing the payroll,” he said. “We are striving to provide this liquidity to these companies in the coming days.”

Peter Reinhardt, CEO of Charm Industrial, a five-year-old carbon removal company, said he withdrew a few million dollars in deposits from the bank last week.

“We got most of our money on Thursday,” said Reinhardt, whose company uses plants to absorb carbon dioxide, then liquefies it and stores it underground. “When it becomes clear that everyone else is pulling out your money, psychology demands that you run too.”

Others were less fortunate. Ethan Cohen-Cole, CEO of Capture6, said his company had about $4 million in deposits in money market accounts managed by Silicon Valley Bank. The company, based in Berkeley, Calif., makes devices that remove carbon from the atmosphere.

Cohen-Cole said he hoped to make monthly payroll for his roughly 20 employees, thanks to the $250,000 insurance provided by the Federal Deposit Insurance Corp.

But even as he expressed confidence that Capture6 would eventually recoup most of its money, Cohen-Cole worried that the prospect of delays in accessing the rest of the company’s funds — or even the threat of some irrecoverable losses — could complicate relations with some. suppliers and partners.

“It’s good to do payroll, but you also have to build something,” he said. “If your money is tied up, that possibility can scare off partners. Being exposed to that leads to commercial risks.”

For many companies, this uncertainty about their ability to make substantial investments in the coming months is a major concern.

“You don’t know if you should continue building your laboratory or investing in research and development, or you need to ration the money you still have for the next few months,” said Kra. “Will suppliers or partners look at you suspiciously, or will things be delayed or more expensive?”

Many companies currently working to expand their operations were ready to take advantage of the tax credits included in the Inflation Reduction Act (IRA), the federal climate legislation signed into law by President Joe Biden last year.

If those companies fail or fall behind, the overall impact of the climate law could lessen, said Varun Sivaram, an executive at renewable energy company Orsted. Until recently, Sivaram worked with John Kerry, Biden’s special climate envoy.

“Climate tech companies can struggle to make large investments in demonstration projects, pilot lines and research and development,” Sivaram said. “All these investments are necessary to scale as quickly as possible and take advantage of the IRA.”

Dimitry Gershenson, CEO of Enduring Planet, a small lender for climate companies, said he was working with other investors to create a fund that would provide short-term capital for affected companies. In just 24 hours, he said, the group received nearly 100 requests for help, representing more than $500 million in assets at risk.

“You don’t normally raise a fund in two days, but let’s do it,” he said.

There are signs that when the dust settles, the climate tech industry will have a new preferred lender.

“I’ve had calls from several banks that say, ‘Can we fill in the gap?'” Cohen-Cole said. “But the problem is, it’s not going to happen in an hour.”

Translated by Luiz Roberto M. Gonçalves