Investor Highlight: Breakthrough Energy & Project-Based Investing

September 28, 2021

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I remember a conversation with a former high school classmate when I was home from college one year. He was already a few years into his career as a construction worker and was bemoaning sustainability initiatives that forced his crew to use lower emission vehicles for hauling and digging, rather than the dirty-spewing-diesel he was accustomed to and, as it turns out, were objectively more effective. His telling of the objective (lower carbon emissions) and the reality (weaker vehicles meaning more vehicles required) stuck with me as it demonstrated how carbon initiatives could fail to see the bigger picture. I’m the last person to say we shouldn’t enact these initiatives, but I've come around to the idea that we should involve stakeholders and bring real-world insights to the whiteboard sessions around fixing the world’s issues.

So my ears perk up when, during my research for the Daily Stack, I hear about a different way to address the climate crisis. Today’s topic helped me learn about the world of deployment-focused funds, funds designated to specific projects, rather than companies as a whole. The concept evokes memories of the difficulties in non-profit fundraising (everyone wants their dollar to support the cause directly, not the employees or, worst of all, the office birthday cake for the overworked employees directly involved in the cause). Let's review what these funds are.

Deployment-Focused Funds
The sector’s most active project-based investor of the last 18 months (according to Climate Tech VC) is Breakthrough Energy Ventures’ deployment-focused fund, Breakthrough Energy Catalyst. Unlike the $1BN venture fund, the Catalyst model is a public-private finance model that funds projects, not companies, and does not compete with VCs or dilute their investments. Bill Gates spearheaded Breakthrough Energy back in 2015 to invest in climate tech solutions (and rapidly), where governmental and infrastructure issues generally bottleneck the deployment of innovation. For a more detailed discussion of this method of investing, check out this interview with the CEO of Generate Capital, another project-based investor.

Partnerships
The idea of a project-focused fund is worth very little if the funds work in isolation. So these organizations are partnering with governments, founders, big companies, and big capital to create the infrastructure to deploy innovative technologies. Demonstrating major clout, Breakthrough has partnered with the European Commission to deploy over $1BN into commercial projects over the next five years and has received millions in donations from major corporations including Microsoft, American Airlines, The BlackRock Foundation, and others.

The goals in technology are in 4 key areas:

Direct Air Capture (DAC)
Green Hydrogen
Long-duration energy storage (LDS, also known as the holy grail of clean energy)
Sustainable aviation fuel (SAF)

Recent investments in the venture arm include Lilac Solutions, a lithium extraction tech company that raised $150MM in Round B funding. Other investors included Lowercarbon Capital and T. Rowe Price.

Breakthrough also invested in Iron Ox, a vertical farming startup that raised $53MM in Series C funding. Crosslink Capital and Y Combinator also participated.