Climate tech may have started the year with a down quarter, but don’t count it out just yet.
Amid a backdrop of depressing figures from much of the venture capital sector, climate tech deals were lower both in value and in deal count. But it remains to be seen whether it’s the start of a longer trend or just a brief blip.
As if to argue in favor of the latter, Congruent Ventures on Wednesday announced the close of a new $300 million fund that, like its other funds, will focus on climate tech. The sheer size suggests that not only is the specialist VC firm confident in the sector’s future, but that its limited partners are, too.
Unlike its previous funds, which are aimed at the seed and Series A stages, the new Continuity Fund will focus on providing follow-on financing for its portfolio companies, which include AMP Robotics, Servo Energy, Span.IO, Avalanche Energy and others.
Still, the firm says it won’t be straying far. “We don’t actually see this as a move away from the early stage; that is still always where we’re going to be forming our relationships,” managing partner Abe Yokell told TechCrunch+. But after executing a couple special-purpose vehicles to provide additional financing for earlier investments, there was appetite for more.
“We did do a couple of one-off SPVs with our LPs, and then realized that our LPs both had a tremendous amount of interest in supporting these companies and that the complexity of putting together a one-off investment for the 60 companies that will eventually be in fund one and fund two was going to be an exercise in craziness,” he said. The new fund, while not called an opportunity fund, “is a similar structure,” he added.
The other driver behind the new fund was the types of investors that participated in Congruent’s previous funds. Institutional investors were interested in further investments in companies from the first two funds, Yokell said, but that the decision-making speed demanded by the SPV structure meant they wouldn’t be able to participate in as many as they’d like.
To support the new fund, managing partners Yokell and Joshua Posamentier brought on another partner, Tanuj Dutta, who will focus on portfolio companies as they enter later stages. “We wanted to make sure we were maintaining financial discipline, and so we have a separate underwriting process as companies float into the Continuity Fund,” Yokell said.
Congruent wouldn’t disclose which investors are participating in the new fund, but its current list includes CalSTRS, investors advised by Cambridge Associates, multiple U.S. and Canadian pension funds, the Grantham Foundation, Three Cairns Group, Sobrato Capital and other endowments, pensions and foundations.
The new fund was “largely done” before the Inflation Reduction Act was passed, though it did serve as “a bit of an accelerant in a couple final conversations that we were in midst of,” Yokell said.
“Some of the largest institutions in the world are now actively seeking climate exposure, meaning climate alpha,” he said, referring to a metric investors use to gauge performance relative to the rest of the market. “They realize that the writing’s on the wall over the next 10 to 30 years, and that there’s a huge amount of risk in the portfolio. And from the highest levels, they’re looking, frankly, for hedging that risk. They’re looking to try to find ways that they can invest in helping mitigate climate change but also earn a return.”
“I will never claim that venture is going to solve climate change, because there’s a lot, but we can at least do our small part.”