CS Engineered Systems reposted this
Blackrock just took a big write-down on its Global Renewable Power Fund III. Because of two ill-fated investments in Northvolt and SolarZero. Surprisingly, a $4.8 billion fund saw its internal rate of return plummet due to just two portfolio companies faltering. This fund was BlackRock's third flagship GRP fund, part of its bet on the energy transition and a push towards renewable energy and infrastructure. Many of the funds’s assets are early-stage climate infrastructure investments in: EV charging, renewable generation, and power storage and transmission. Are they simply making bad investments or is this a prequel to what to expect? What this tells me about climate tech investing: 1. The significant impact of two companies on a $4.8 billion fund suggests that traditional risk models needs reevaluation. The conventional playbook for diversification doesn't quite work in climate tech. When companies in your portfolio are all betting on similar technological advances or regulatory shifts, they tend to sink or swim together. Traditional risk models might be missing these hidden correlations. 2. The Northvolt situation is a wake-up call - throwing money at climate tech isn't enough. These companies need investors who roll up their sleeves and get involved. We're seeing a shift from passive to active investing, where deep operational expertise is just as crucial as the capital itself. 3. SolarZero, a major player in New Zealand Energy Sector, was far from an early-stage startup when BlackRock acquired it in 2022. Despite its 50-year history , something went wrong. It hints at a broader challenge: global funds rushing into new markets might be overlooking local market dynamics and regional complexities in their eagerness to deploy capital in the renewable space. As this sector matures, we need a new framework for resilient investment strategies that can better weather the failures of individual companies while capitalizing on the overall growth trend in clean energy. #climatetech #VC #investment #newbook #fundclimatetech #blackrock Link for the news in the comments.
Well said. These investments going down show that even large companies are vulnerable to market shifts and uncertainties. The investments going in Solar Module/cell manufacturing without taking cognizance of China's existing position is also a risky call that many are taking with the assumptions that they can block China through tariff barriers. The same is true for EVs. China Battery tech can hardly be matched by others many of whom are starting now. A better risk evaluation model is required to understand and evaluate these and take decisions based on that. Blackrock portfolio impact on IRRs is an eye opener for others.
Much more to come. The investments that VCs made in 2015-2022 are mostly underwater. It’s not specific to climate tech at all, imagine how all those blockchain, web3, metaverse, etc., investments are looking now. And in five years we’ll probably be saying the same about most of the AI investments being made in today’s bubble. When unicorn exits (which have been paying all the bills) dry-up the rest of the portfolio is exposed.
China. That it is. They won.
Many have serious questions to answer about their DD re Northvolt but not sure it's right to use the VC tag for this fund. GRP III is basically PE and supposed to be mature tech with little or no tech risk, no? Which actually makes the failure sooooooooooo much worse. The dogs in the street were telling them 24 months ago that NMC is a bad bet when LFP is knocking down so many hurdles, but rather than cut the thing to the bone and pivot they...couldn't.
Unfortunately, human beings have become extremely proficient in creating exces capacity in all industries! Farming is a great example of inefficiencies and now we have over invested in several indimustries such as oil, natural gas , clean energy and possibly artificial intelligence. There was a very good principal that was taught to me in my University years. That was that a unit of energy consumed had to be replaced by a unit of energy produced. This kept the balance and kept tihe economical and uneconomical activity in check. As most believe we are in a free capitalist sytem, I believe we are far removed from this idea and in fact have ventured deep into a command and socialized society. Ever since GFS the globe has subsidized almost everything under the guise of a free market. Hence, such spectacular failures will continue to rot the system until we decide to get back to a feee market where great ideas thrive and bad ideas go to die!
Nada, Thank you for the insights and updates. Our technology in both batteries and solar is unique. Our battery technology has zero degradation and functions in any temperature. The solar panel we have is made from nanotech and can be applied to any surface, even entire glass structures. This technology is 50% more efficient than standard solar panels. Please get in touch if you'd like to learn more about our existing tech being developed in Abu Dhabi, an area not familiar to most VCs.
One more thing to add to the list .. BlackRock and similar fund investors want HUGE GROWTH and aggressive, short term returns. Climate tech isn't made for that, we need new investment and growth (payback) models.
Overall lesson - noble intentions are not a replacement for deep subject matter expertise and thorough market knowledge. And ultimately, skillful execution.
Very valuable, thanks Nada Ahmed Really curious, what specific shifts in investment strategy or risk management would you recommend for funds heavily focused on climate tech?
Climate Tech | Top 50 Women in Tech Award | Board Member | Author & Keynote Speaker
1wFor those interested in the news article: https://www.bloomberg.com/news/articles/2024-12-19/blackrock-writes-down-flagship-renewable-fund-overhauls-leaders?embedded-checkout=true