Silicon Valley Bank Collapse Threatens Climate Start-Ups
As the fallout of the collapse of Silicon Valley Bank continued to spread over the weekend, it became clear that some of the worst casualties were companies developing solutions for the climate crisis.
The bank, the largest to fail since 2008, worked with more than 1,550 technology firms that are creating solar, hydrogen and battery storage projects. According to its website, the bank issued them billions in loans.
“Silicon Valley Bank was in many ways a climate bank,” said Kiran Bhatraju, chief executive of Arcadia, the largest community solar manager in the country. “When you have the majority of the market banking through one institution, there’s going to be a lot of collateral damage.”
Community solar projects appear to be especially hard hit. Silicon Valley Bank said that it led or participated in 62 percent of financing deals for community solar projects, which are smaller-scale solar projects that often serve lower-income residential areas.
The devastation comes at a critical moment for a nascent industry that is central to the effort to cut the greenhouse gases dangerously heating the planet. The federal government depends on climate tech companies to develop the innovations needed, and has promised billions in tax breaks to help them grow and mature.
“If the flywheel of financing for early-stage climate innovation stops during these critical years, that’s going to be a big problem,” said Daniel Firger, founder of Great Circle Capital Advisors, which consults on sustainable finance issues.
The collapse of Silicon Valley Bank threatens to derail what was a fast and growing part of the venture capital sector. More than $28 billion was invested in climate technology start-ups last year, up sharply from the year before, according to HolonIQ, a data provider.
“Climate tech is one of the few bright spots in an overall tech downturn,” said Sarah Sclarsic, managing partner at Voyager, a venture capital firm with investments in climate tech companies. “This isn’t folks in Silicon Valley building photo sharing apps. These are folks across the whole country, in Detroit and Texas and everywhere in between, building things that matter.”
Gabriel Kra, managing director at Prelude Ventures, a venture capital firm focused on climate technology with $1.5 billion under management, spent the weekend helping his portfolio companies that had deposits at the bank figure out their immediate cash needs.
“In the short term there are companies that are at risk of not making payroll,” he said. “We are scrambling to provide that liquidity to those companies in the next few days.”
Peter Reinhardt, the chief executive of Charm Industrial, a five-year-old carbon removal company, said he pulled a few million dollars in deposits from the bank last week.
“We got most of our cash out on Thursday,” said Mr. Reinhardt, whose company uses plants to absorb carbon dioxide, then liquefies it and stores it underground. “When it became clear that everyone was withdrawing their money, the psychology requires you to run, too.”
Others were less fortunate. Ethan Cohen-Cole, chief executive of Capture6, said his company had about $4 million of deposits in money market accounts managed by Silicon Valley Bank. The company, based in Berkeley, Calif., makes devices that remove carbon from the atmosphere.
Mr. Cohen-Cole said he expected to make monthly payroll for his 20 or so employees, thanks to the $250,000 insurance provided by the Federal Deposit Insurance Corporation.
But even as he expressed confidence that Capture6 would eventually recover most of its money, Mr. Cohen-Cole worried that the prospect of delays in accessing the rest of his company’s funds — or even the threat of some unrecoverable losses — could complicate relationships with some suppliers and partners.
“It’s fine to make payroll, but you also have to build something as well,” he said. “If your money is tied up, that possibility could spook partners. Being exposed to this leads to commercial risks.”
For many companies, it is this uncertainty about the ability to make substantial investments in the next few months that is the greatest concern.
“You don’t know if you should keep building your lab or investing in research and development, or need to ration out the money you still have for the next few months,” Mr. Kra said. “Are suppliers or partners going to look at you askance, or are things going to get delayed or more expensive?”
Many of the companies that are currently working on scaling their operations were poised to take advantage of the tax credits included in the Inflation Reduction Act, the federal climate legislation signed by President Biden last year.
Should those companies fail or fall behind, the overall impact of the climate law could be diminished, said Varun Sivaram, an executive at Orsted, a renewable power company. Until recently Mr. Sivaram worked with John Kerry, Mr. Biden’s special envoy for climate.
“Climate tech companies may have problems making major investments in demonstration projects, pilot lines and research and development,” Mr. Sivaram said. “All of those investments are necessary to scale as quickly as possible and take advantage of the I.R.A.”
Mr. Bhatraju said his company was able to retrieve most of its deposits from the bank last week. His bigger concern was that solar developers, which relied on Silicon Valley Bank for loans and lines of credit to build their projects, would now have to search for new funding.
“Projects will likely be delayed significantly as developers go to find new sources of capital,” he said.
With the future of Silicon Valley Bank uncertain, investors and executives were racing to find options for companies in need of quick cash.
Dimitry Gershenson, chief executive of Enduring Planet, a small lender to climate companies, said he was working with other investors to create a fund that would provide short-term capital to affected companies. In just 24 hours, he said, the group had received nearly 100 applications for help, representing more than $500 million in assets at risk.
“You don’t typically stand up in a fund in two days, but we’re going to do it,” he said.
There are signs that, when the dust settles, the climate tech industry will have a new lender of choice.
“I’ve already gotten calls from a number of banks who have said, ‘Can we fill the space?’” Mr. Cohen-Cole said. “But the problem is that it’s not going to happen in an hour.”
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