For the best In a decade, venture capital firms and growth capital funds have invested nearly $42 billion in battery technology startups across nearly 1,700 deals, according to analysis by PitchBook and TechCrunch. Moreover, about 75% of the investments in this period took place in the last two years alone.
Venture capitalists are not uncommon in the battery world. Five years ago, they were reliably closing 50-60 deals per quarter, which would total a few hundred million dollars. That started to change towards the end of 2020 – several quarters over the past two years have seen over $2 billion invested, and a couple have had over $3 billion. The number of transactions has also increased, almost doubling in 2021.
But the most remarkable story concerns growth stocks. In the past, private equity (PE) deals in the battery industry were sporadic. Over the past year, however, they have flourished, with growth capital firms investing $13.4 billion in areas such as battery materials, manufacturers and recyclers.
PE’s presence reflects a shift both in the industry and in how investors perceive it. Batteries are normally considered a high-risk, high-reward investment; the kind of thing venture capital is made for. But it’s also not perfectly suited for venture capital – the R&D process for batteries can be exceptionally long, often stretching beyond venture capital’s usual five- to 10-year time frame to collect returns. . And while battery startup risks are hard for VCs to bear, it’s an even harder pill for growth equity to swallow.
“Too much money” might explain the size of some of these bets, but it doesn’t explain their existence.
So what has changed? There are myriad reasons why venture capital and growth capital are diving into batteries. Let’s dig.
The macro changes
For one thing, there’s a lot of money in the economy waiting to be invested, and that could push funds into territories they haven’t explored before. Such a move might make sense for VCs, who are used to spotting and pricing risky tech-based bets, but not for growth equity.
“Too much money” might explain the size of some of these bets, but it doesn’t explain their existence. On the contrary, it is more likely that venture capital and private equity have sensed that the world is changing and are adjusting their strategies accordingly.
Governments around the world have started setting end dates for fossil fuel vehicles. Countries in Europe started announcing bans in the late 2010s. Norway will end sales of fossil fuel cars and light commercial vehicles by 2025. The Netherlands, Ireland, Sweden and Slovenia will follow with passenger cars in 2030, as will Denmark and the UK in 2035 and France in 2040.