Outgrowing Cleantech—Leading VCs Proffer a New Vision

Molly Podolefsky, Ph.D., Clarum Advisors

April 15, 2025

The value of the global cleantech market, which had raised a mere $1.75B in 2006, is poised to top $1 trillion this year. [1][2] The market’s path to double-digit growth has not been straightforward—the industry has faced highly publicized boom and bust cycles, leaving investors cautiously optimistic about its future. While some see Cleantech 3.0 taking shape on the horizon, leading VCs are encouraging a paradigm shift away from “cleantech” altogether. These firms argue our industry has outgrown cleantech, and new language is needed to convey the distance between today’s energy transition market and the cleantech market of ten and twenty years ago.

Cleantech 1.0 and 2.0

John Doerr famously stated in 2007, “Going green is bigger than the Internet. It could be the biggest economic opportunity of the 21st century.”[3] This prouncement, on the heels ofGeorge W. Bush channeling billions of dollars to renewable energy companies, Al Gore’s release of An Inconvenient Truth and Goldman Sachs’ prediction that skyrocketing oil prices were here to stay, resonated with investors.[4] During this era, dubbed Cleantech 1.0, market signals and media attention kicked off a cleantech hype cycle, peaking in 2008 with venture investment exceeding $5B, roughly double the level of investment from two years prior.[5]  On the heels of the Great Recession, a 2009 federal stimulus bill targeting $90B for clean energy investments[6] fueled the hype but failed avert a market correction as inflated expectations gave way to the trough of disillusionment.[7] In what followed more than 50% of the $25B invested in cleantech by VCs between 2006 and 2011 was lost by 2015.[8] Despite the success of outliers—Sunrun, Tesla, Enernoc, Bloom Energy[9]—ultimately over 90% of cleantech companies funded during this period failed.[10]

Cleantech 2.0 emerged in the mid-2010’s fueled by a renewed sense of urgency around climate change, strong policy commitments like the Paris Agreement, and consumer demand for sustainable goods and services. This new generation of startups had access to cheaper sources of renewable energy, a more mature tech stack, a surge in public private partnerships, and advances in enabling grid and energy system technologies. They were also equipped with more mature business models and scaling capabilities compared with their predecessors. The investment landscape evolved as well—passage of the Inflation Reduction Act in 2022 added fuel to a two-year boom that saw nearly $100B invested in cleantech, but the hype never reached levels seen in the aughts.[11] Hyperloop One, Volta Trucks, SunPower, Titan Solar, Swell Energy, Moxion Power and Northvolt  were notable failures of Cleantech 2.0, but the bust cycle has been less acute. [12] [13] [14] What we’re seeing instead at the tail end of Cleantech 2.0 is a slow, painful process of attrition. Early-stage companies are failing to secure investment funding to advance from Series A to B, and late-stage companies are in a holding pattern looking for an exit that is harder and harder to find.[15]

What can we say about the current era of investment? To start, we need to admit that we’ve outgrown cleantech—a term that no longer serves our industry well. The Energy Transition market has abandoned John Doerr’s giddy pronouncements in favor of sober, data-driven strategies delivering smarter capital allocation and higher returns for investors.

Defining the Energy Transition Market

As with earlier cycles, the Energy Transition market will largely be defined by external forces—the rise of AI and its demand for clean energy, energy security and resiliency, the effects of quantitative tightening, geopolitical and economic instability, reversals in federal funding and withdrawal from international climate pacts will shape this new era. One of the biggest opportunities heading into this new phase is massive disruption by AI. On one hand, AI’s insatiable demand for clean baseload energy is driving investment in new generation sources like geothermal and small modular reactors—and on the other, AI itself is powering some of the brightest new stars in the cleantech startup landscape, tackling grid modernization, energy system resilience, load flexibility and renewables integration.

Other external factors are less welcoming. As 2.0 draws to a close the backlog of US companies seeking exit across all sectors has ballooned. After a US SPAC frenzy in 2021 when the number executed outnumbered IPOs,[16] both public exit paths collapsed. The following year saw a 90% decrease in public exits, with no rebound in sight by the close of 2024. With a record high of nearly 60,000 US startups still private, the next generation of energy transition companies faces a significant hurdle out of the gate.[17] While the current macroenvironment is sobering, companies and funds have an opportunity to distinguish themselves in this market by demonstrating how different the Energy Transition market is both in name and in kind, from its cleantech predecessors.

Success in the Next Phase of Energy Transition Investment

Cleantech’s winners were companies that had successful strategies for durable value creation—smarter allocation of investment dollars by funds, and a focus on quality, scalability and exit preparedness within portfolio companies. The success of funds and startups in this next phase will be defined by their focus on internal factors for success and preparation to overcome external challenges. For VCs, this means investing in deep technical, domain-specific expertise, and taking a slower, more methodical approach to technical and market due diligence to improve the quality of investment portfolios. For successful startups and their VC investors this means ensuring leadership teams acquire business acumen and operational skills, monitoring regulatory, legal and policy changes that could impact profitability, conducting ongoing analysis of market dynamics and the competitive landscape, and obtaining the skills and experience needed to scale from proof of concept to significant annual recurring revenue through a solid customer base. The most successful companies accomplish these goals through a combination of in-house talent acquisition and leveraging external partners for technical and market due diligence and portfolio company advising.

Energy Transition VCs that de-risked their portfolios through deep market and technical due diligence, preparing portfolio companies for scaling and exit through knowledge and skills transfer, gained strength through successive cycles and are now closing their second and third funds. Clean Energy Ventures, Blackhorn Ventures and The Engine Ventures announced fund closures between 2023 and 2024 totaling over $850MM.[18]  Engine Ventures points to slowing down the fundraising process and deepening technical due diligence as critical to the company’s continued success.[19] Daniel Goldman, Co-Founder and Managing Partner at Clean Energy Ventures says the early-stage venture capital firm has focused on rigorous deep tech due diligence and hands-on engagement with our portfolio companies after investment during its 20 year history. This has contributed to successful fundraising and stronger exit rates for companies in CEV’s portfolio. According to Goldman, “our firm was founded by entrepreneurs and operators who have led successful clean energy businesses of their own. This gives us an advantage when identifying promising technologies and businesses, understanding key risks, and helping shepherd companies to success after investment. We know because we’ve experienced many of the same challenges our portfolio leadership teams need to address.” Venture capital and growth equity firm ClearSky has over $1B in energy transition and cybersecurity assets under management and has sustained market leading exit statistics during previous cycles. With a new energy transition fund closing in 2025, ClearSky believes taking the time to conduct deep, technical due diligence around investments in emerging technologies has been critical. As Founder and CEO, Alex Weiss, explained, “we invested in our affiliate, Clarum Advisors, to drive thought leadership in the energy transition investment space, and to leverage the deep expertise of its Senior Advisor team to benefit our investment process and contribute to the success of our portfolio companies.”

Success in the Energy Transition market will be determined by VCs’ ability to internalize lessons learned through past failures and build value based on deep technological understanding and market awareness. By supporting portfolio companies in acquiring the requisite skills to compete in a highly competitive and rapidly evolving market, venture capital will help new and disruptive technologies scale to meet society’s growing need for clean, safe and reliable energy. Working together, investors, funds and companies can unlock market potential to advance the energy transition and drive lasting impact.

[1] Venture Capital and Cleantech: The Wrong Model for Energy Innovation?—MIT Energy Initiative, Jul. 2016  https://energy.mit.edu/wp-content/uploads/2016/07/MITEI-WP-2016-06.pdf

[2] Clean Technology Market Size and Trends—Grand View Research, accessed Feb. 20, 2025  https://www.grandviewresearch.com/industry-analysis/clean-technology-market-report

[3] How Cleantech Tarnished Kleiner and VC Star John Doerr—Reuters, Jan. 16, 2013  https://www.reuters.com/article/world/how-cleantech-tarnished-kleiner-and-vc-star-john-doerr-idUSBRE90F0AE/

[4] Venture Capital and Cleantech: The Wrong Model for Energy Innovation?—MIT Energy Initiative, Jul. 2016  https://energy.mit.edu/wp-content/uploads/2016/07/MITEI-WP-2016-06.pdf

[5] Challenges in Funding and Scaling Cleantech Innovations: Insights from the 2019 NREL Industry Growth Forum—Kleinman Center for Energy Policy, Jul. 15, 2019 https://kleinmanenergy.upenn.edu/commentary/blog/challenges-in-funding-and-scaling-cleantech-innovations-insights-from-the-2019-nrel-industry-growth-forum/

[6] Department of Energy Pours Funds into Cleantech Industry—Global Energy Network Institute, Dec. 8, 2010  https://www.geni.org/globalenergy/library/technical-articles/finance/energy-central/department-of-energy-pours-funds-into-cleantech-industry/index.shtml

[7] Cleantech 2.0: Why Will it be Better this Time?—Medium, Jul. 3, 2021  https://medium.com/tdk-ventures/cleantech-2-0-why-will-it-be-better-this-time-1657e8c2edad

[8] Eight Lessons from the First Climate Tech Boom and Bust—Bessemer Venture Partners, Nov. 10, 2022  https://www.bvp.com/atlas/eight-lessons-from-the-first-climate-tech-boom-and-bust

[9] Cleantech 2.0: Why Will it be Better this Time?—Medium, Jul. 3, 2021  https://medium.com/tdk-ventures/cleantech-2-0-why-will-it-be-better-this-time-1657e8c2edad

[10] Will this Generation of “Climate Tech” be Different?—Forbes, Oct. 31, 2021  https://www.forbes.com/sites/robtoews/2021/10/31/will-this-generation-of-climate-tech-be-different/

[11] Raising Cleantech Venture Capital Funds is Harder than Ever—Latitude Media, Jul. 17, 2024  https://www.latitudemedia.com/news/raising-cleantech-venture-capital-funds-is-harder-than-ever/

[12] Cleantech Startups that Didn’t Survive to See 2024—Canary Media, Jan. 5, 2024  https://www.canarymedia.com/articles/climatetech-finance/5-cleantech-startups-that-didnt-survive-to-see-2024

[13] The Cleantech Companies that Didn’t Make it through 2024—Canary Media, Dec. 12, 2024  https://www.canarymedia.com/articles/climatetech-finance/the-cleantech-companies-that-didnt-make-it-through-2024

[14] More Cleantech Companies Fail as Fundraising Challenges Emerge—Financial Times, Sep. 2, 2024  https://www.ft.com/content/25a98c20-59d9-4393-94b8-e5abfaa85826

[15] Raising Cleantech Venture Capital Funds is Harder than Ever—Latitude Media, Jul. 17, 2024  https://www.latitudemedia.com/news/raising-cleantech-venture-capital-funds-is-harder-than-ever/

[16] How the SPAC Frenzy is Conquering the Clean Energy World—Morgan Lewis, Sep. 15, 2021  https://www.morganlewis.com/pubs/2021/09/how-the-spac-frenzy-is-conquering-the-clean-energy-world

[17] Venture Capital Slammed by Fed Tightening: Exits Blocked after IPOs & SPACs Collapsed, Distributions at Financial Crisis Lows—Wolf Street, Oct. 14, 2024  https://wolfstreet.com/2024/10/14/venture-capital-slammed-by-fed-tightening-exits-blocked-after-ipos-spacs-collapsed-distributions-at-financial-crisis-lows/

[18] Raising Cleantech Venture Capital Funds is Harder than Ever—Latitude Media, Jul. 17, 2024  https://www.latitudemedia.com/news/raising-cleantech-venture-capital-funds-is-harder-than-ever/

[19] Ibid