As the potential fallout from the collapse of Silicon Valley Bank rippled through financial markets Friday, over an agonizing weekend and to start a new week, one fledgling sector — the technology that will power climate-change solutions — faced perhaps its fiercest growing pains to date.
California-based Silicon Valley Bank is the second-largest bank failure in U.S. history, behind only the 2008 financial-crisis collapse of Washington Mutual. And among SVB clients who found themselves saved by controversial government help was one of the nation’s largest solar-panel providers: SunRun Inc.
By one measure, more than 60% of community solar financing nationwide involved SVB given its integral part in early-stage climate tech, according to the bank’s website.
All told, as the bank claimed, it worked with some 1,550 technology concerns that are creating solar, wind
hydrogen, carbon capture and battery-storage projects, all potential answers to fossil fuel-induced
global warming. SVB has issued them billions in loans combined.
U.S. and U.K. regulators took extraordinary steps on Sunday to limit the risk of more bank runs following the closing of SVB, opening an emergency-lending program and shuttering another vulnerable entity, New York’s Signature Bank. Officials said customers of SVB, which had more than $200 billion in assets, would have access to all their money.
Even with the government assist, realization that climate-focused venture capital and other financial streams are narrowly concentrated, along with this latest reminder of the mostly early-stage, highly-leveraged status of the space, climate tech was thrust into the spotlight.
Many climate startups — and even those with a few weathered years in business — are forced to be creative with financing, often outside traditional mega banks or lifelines from stable, deep-pocketed investors.
What’s more, the rescue for a relatively small bank, although one in the heart of the nation’s tech economy and one that risked contagion potential for other regional banks, left some market observers wondering why higher-growth/higher-risk sectors like climate tech deserved a government rescue at all. And, they’re asking now, what about the next time?
“For the climate-tech firms who now have access to their money and are no longer in danger, from the solar companies such as SunRun to California’s wine industry and any number of Chinese startups, to Roku
and stablecoin, Sunday night was time to breathe a sigh of relief. No sigh was louder than from the climate-tech startups and their VCs who had their money tied in,” said David Callaway, founder and editor-in-chief of Callaway Climate Insights, in a commentary.
“What that means as the asset class grows — from carbon removal and storage companies to batteries, solar and wind — is the question of the moment,” he said.
Growth has been apparent. Broadly speaking, more than $28 billion was invested in climate-technology startups in 2022, up 89% from the year earlier, according to HolonIQ, a data provider.
Put another way, climate-tech funding in 2022 represented more than a quarter of every venture dollar invested that year, according to PwC’s State of Climate Tech 2022 report.
Certainly, SVB had built a reputation as a major climate bank and in some capacities, as an adviser, as the sector swelled. Incentives for climate-minded businesses and individuals were packed into President Joe Biden’s climate-heavy spending bill, last year’s Inflation Reduction Act, fueling sector growth.
“The bank published influential annual reports on the climate-tech sector, and it sponsored events for climate VCs and startups,” said Sophia Kianni, an adviser to the U.N.’s climate arm and founder of a student-led international climate-change activist group known as Climate Cardinals, posting on Twitter.
Combine the climate-solutions growth incentive with the relatively niche dealings of SVB and the risk to climate tech became quickly apparent.
“The problem at Silicon Valley Bank is compounded by its relatively concentrated customer base. In its niche, its customers all know each other. And Silicon Valley Bank doesn’t have that many of them,” said Marc Rubenstein, writing in the Net Interest newsletter tracking the financial sector. “As of the end of 2022, it had 37,466 deposit customers, each holding in excess of $250,000 per account. Great for referrals when business is booming, such concentration can magnify a feedback loop when conditions reverse.”
As for solar panel concern SunRun, SVB provided more than half a billion dollars in revolving credit to the company known for financing and providing rooftop solar to homes, an area expected to see increased growth with the boost of tax sweeteners in the IRA spending bill.
In a statement Friday, SunRun said it “has long-standing banking relationships with multiple institutions, one of which is SVB. As of today, SunRun has less than $80 million of cash deposits with SVB and will have more information on expected
recovery next week.”
Ethan Cohen-Cole, chief executive of carbon-removal concern Capture6 and a SVB customer, told the New York Times that the FDIC guaranteed that he can make payroll. But he told the paper the health of the climate-tech space from here leaves him less confident for now that he can keep up relationships with suppliers.
One chief lesson from this still-evolving scenario is “that while climate tech is a diverse and multifaceted community of entrepreneurs and technologies, the finance behind it is tightly concentrated. It is a relatively new asset class that at least for now, under this Biden government, has been deemed important enough to insure,” said Callaway.
“Instead of real-estate investors this time, it’s investors and entrepreneurs in the most important new technologies who are vulnerable. We can argue about whether they deserved a bailout, and what this means for future investors and asset classes,” Callaway said. “But for the sake of the climate tech behind the money in this case, and its potential broader impact on our world, it was the right decision.”