The bank run which felled Silicon Valley Bank exposed a huge hole in climate tech funding, but in the aftermath a new ecosystem is growing to provide more financing for businesses focused on sustainability and mitigating climate change.
For several years, Silicon Valley Bank was one of the only places businesses could go for small-scale project finance, venture debt, and banking services for startups broadly and for climate and sustainability-focused early-stage tech companies specifically.
Over its history, the bank was involved in 62% of all community solar project financing in the U.S. It also had roughly 1,550 customers working in climate and sustainability broadly. And it had committed around $3.2 billion to various renewable projects.
Now, other regional banks are stepping up as they realize the opportunity in climate funding while startup companies and investment funds are racing to develop innovative projects to support the industry.
Existing financing providers like Generate Capital, co-founded by the current head of the Department of Energy's Loan Programs Office, Jigar Shah, have billions to invest in project finance and have been longtime developers of renewable projects.
But waiting in the wings are a host of regional financing providers like the Iowa-based Decorah Bank & Trust, which recently launched a digital subsidiary called Greenpenny to serve residential and commercial customers in Iowa, Illinois, Missouri, Minnesota and Wisconsin.
Meanwhile, in the epicenter of Silicon Valley's innovation economy Atmos Financial is building a digital bank that provides residential solar lending and consumer checking and savings accounts -- with a commitment to only invest in sustainable projects.
"In all things it's a tragedy and opportunity for the industry," said Atmos Financial chief executive and co-founder, Ravi Mikkelsen. "There are more community banks that are getting more and more interested in funding these types of projects. Instead of one partner, you're going to see an order of magnitude more capital providers coming into the space. By necessity and by market opportunity, it will become more decentralized."
Mikkelsen's Atmos is one example of technology providers coming in to be a digital on-ramp for community banks to do more lending for renewable projects.
Mikkelsen and venture capital investors like Katie Rae at The Engine, a deep technology investment fund focused on technology spinouts from the Massachusetts Institute of Technology, stress that Silicon Valley Bank's climate portfolio remained a good investment.
"These are very good underlying assets," Rae told Bloomberg Green.
Mikkelsen agrees, which is why Atmos is going to begin looking at commercial lending opportunities in addition to its work in the consumer space.
"Community and commercial solar ... we'll be growing into those aspects as well," Mikkelsen said. "As I say, there's going to be this expansion and decentralization."
Other startups are also looking at climate finance as a massive opportunity rather than a cautionary tale and tackling different portions of the financing stack.
"I think that what would should be talking about is the $4 trillion hole in the climate finance ecosystem to hit sub-2 degree C targets," said Dimitry Gershenson, the chief executive officer of Enduring Planet, a startup providing revenue-based financing to climate companies (which is advised by FootPrint Coalition's Editor-In-Chief).
"There is an incredible opportunity for innovative financial companies to step up and fill that multiple trillion-dollar hole," Gershenson said.
Gershenson expects larger banks and startup players like Mercury to fill part of the void left in the market, but also sees roles for startups across financial services.
"There's a reason why, in residential solar, the financing came from innovative companies like Mosaic," Gershenson said. Startups can be more nimble and create similar markets in home and vehicle electrification -- like Tenet, EVLife, and others -- or come up with creative ways to leverage carbon financing, like WattCarbon.
Founded by McGee Young, a longtime climate entrepreneur and executive, WattCarbon tackles the twin problems of carbon offset reliability and funding for distributed clean energy projects.
By creating a new kind of bundled finance option for a number of residential solar energy, heat pump, battery and geothermal installations, WattCarbon believes it can create offset credits that companies can purchase -- funding the installation and development of energy efficiency and clean energy generation projects.
It's a clever solution to bridge the gap between capital financing and distributed generation and storage -- and it's got $4.5 million in early support from a slew of investors.
While WattCarbon is creating a new offset market for corporations using distributed energy, other companies, like RaiseGreen, are creating marketplaces for individuals to invest in renewable finance projects as a way to diversify their holdings.
Adding additional green banking and investment options for consumers that are wholly divested from the fossil fuel industry is the goal for both companies like Atmos Financial and Sphere. Atmos is tackling the banking and deposit side, while Sphere created money management options for retirement funds that won't support climate-destroying businesses.
"Some climate tech companies are now looking to move their accounts to green banks. Until now, many hadn't realized that when banks lend out their deposits, those deposits fund all kinds of activities, including fossil fuel development projects. Though SVB did do a lot of solar financing, they did not have a policy against fossil fuel project lending," said Alex Wright-Gladstein, the chief executive officer of Sphere.
Gladstein founded the company after realizing there was no good way to ensure her previous company's employees were investing in climate friendly financing through their previous retirement plans.
"On the one hand, it would be tragic if this crisis led to startups all moving their cash to the four biggest banks in the country, who together have financed over a trillion dollars in fossil fuel projects since 2016. On the other hand, if this crisis leads to more companies moving their cash to banks that fund solar, wind, and other climate transition activities, that wouldn't be such a bad silver lining," Wright Gladstein said.
For the businesses that turned to SVB for project financing and alternative sources of funding, the consumer platform from RaiseGreen, or financing from companies like Enduring Planet, or SALT Global, which develops software tools for financing carbon reduction projects, and Perl Street, which provides non-dilutive financing for hardware businesses are both options.
Gershenson, at Enduring Planet, wants to reframe the discussion around the SVB issue to put the emphasis on the massive need for climate finance across the board -- given its multi-trillion dollar price tag.
"SVB's collapse allows us to resurface the broader lack of capital to address this existential risk to society," he said.
It's not just businesses that have a part to play in funding the energy transition either, according to Wright-Gladstein.
"Finance is one of the biggest hidden levers for change when it comes to the climate crisis. Where we do our banking and how we invest our retirement savings can have an enormous impact on the economy, in directing money away from the fossil fuel industry and towards the climate solutions industry, and in using our voices as shareholders to vote our shares to encourage climate action at every company in the economy," Wright-Gladstein said.
Ultimately, the banking system and the ways in which finance is directed into sustainable investment has to change if the world is to achieve its goals to create lower cost, clean energy, a more abundant food supply, and less toxic goods and services to market.
"The demise of SVB and its ripple effect in Climate financing only highlights the need for more quality funding sources to step up. But also, to step up at different stages and with more creative financing structures," wrote Brian Wayne, the co-founder and director of Aegon Asset Management's Impact Venture Credit business, in an email. "Non-bank investors have grown in recent years to provide lots of customized solutions. Additionally, at the later stages. SVB in many cases would fund a company very early on, and then would follow on with much larger term loans as companies scaled. They were already embedded, so they were able to understand the risk to a certain extent, and furthermore understood areas of climate tech."
Wayne stressed that doing proper due diligence to understand the underlying technology and market opportunity is critical to providing capital alternatives.
"Especially on the debt side, that's how we approach our investments within climate tech. We are and continue to be actively deploying capital in space," Wayne said.