VCs love clean tech. But it might not love them back

It’s a question some VCs like Tess Hatch, a partner focused on deep tech investments at generalist Bessemer Venture Partners, are wrestling with right now. VCs “are feeling good, because we’re investing in impact and good for the world. But as venture investors, we’ve got to make a lot of money really quickly. So is that getting lost in this feeling-good narrative of climate tech?” 

I recently hopped on a Zoom with Hatch to process that question a bit more. As a VC who says she wants to explicitly focus on climate tech a lot more in 2023, “like, why should I? What’s different now?” she told me.  

Hatch has a right to be worried. As her own firm noted in a blog post last year, which explored whether VC was the right fit for climate, over half of the $25 billion invested into clean tech between 2006 and 2011 evaporated.

Clean tech has nonetheless seen a renaissance in the last couple of years, as my colleagues have recently reported; and plenty of VCs are now arguing this time is different. But the time, and money, it takes to develop these technologies could make some limited partners sweat—especially at a time when they’re already anxious about returns. Hatch told me that her deep tech team’s focus on climate tech was part of Bessemer’s pitch to LPs when the firm raised its $4.6 billion across a pair of funds late last year. But those investments will have to “return money to our limited partners. A lot of money,” she said. 

It’s indisputable that these technologies are essential to fund considering how rapidly climate change is wreaking havoc on the planet. But strategic investors—companies that fund smaller or complimentary startups in their industry—seem like the more natural fit. 

“Venture capital wasn’t interested in what we were doing,” Rebecca Boudreaux, the president and CEO of renewable hydrogen maker Oberon Fuels, said at a Fortune Brainstorm Tech panel earlier this month. “When talking with venture capitalists, they said, ‘You have strategics, keep going. Those are the right investors for you,’ and they have been.”

Amogy, which is working on using ammonia to make clean energy to fuel transportation, is also backed by strategics (in addition to VC investors)—including, controversially, players in the oil and gas industry like petrochemical firm SK Innovation. CEO and cofounder Seonghoon Woo believes strategics are especially important investors in the current market, as they “can be a little bit less sensitive to the valuation itself.” Since strategics often partner with startups, Woo points out that it can help accelerate the energy transition: It has to be done in “collaboration with the incumbent technology companies and large companies out there,” he said.  

That’s not to say VCs en masse shouldn’t touch climate: There are numerous climate-specific funds that understand these challenges, including Breakthrough Energy Ventures and Lowercarbon Capital. Meanwhile some clean tech companies do fit the VC model: Kim-Mai Cutler, a partner at Initialized Capital, said on the panel that most of the deals she’s done in the sector have attractive, SaaS (software-as-a-service) metrics that appeal to generalist VCs.

But, as Cutler acknowledges, software alone won’t fix the climate crisis. Bessemer’s Hatch is also interested in hardware, like the firm’s investment in Halter, a combination of hardware and software in a collar that helps dairy farmers manage their cow herds. 

Ultimately, “I think entrepreneurs really need to interrogate and figure out which funding makes the most sense for their company,” she says. “For some of them, it’s venture; a lot of them, it’s not.” 

From failed SPAC to direct listing: It’s not often that you see a company try out two alternative, and less common, methods of going public. But Surf Air, an electric regional air carrier, went public on Thursday via a direct listing—the first notable direct listing since 2021—after its plan to trade via SPAC failed last year. But its debut wasn’t off to a flying start: Shares were given a reference price of $20 (in direct listings, the exchange sets an estimated value price since there are no shares sold prior), but they traded far below that, opening just before 3 p.m. New York time around $5, and closing an hour later down about 40% at roughly $3 per share. But Surf Air’s CEO Stan Little isn’t disheartened: “If there are other investors that don’t believe that we’ve proven our case to them yet, our job is to go out and execute and prove [that],” he told me shortly before the market closed. 

Deal scoop from Fortune’s Luisa Beltran: Nexio, the fintech formerly known as Complete Merchant Solutions (CMS), is up for sale, according to four banking and private equity sources. Raymond James is advising on the process, which is in the second round, the people said. Nexio has forecast that it will produce $16 million of EBITDA this year, and the company could sell for $176 million, two of the people said. Nexio was founded in 2008 as Complete Merchant Solutions, a provider of merchant acquisition services, credit and debit card transaction processing and payment solutions. In 2016, GCP Capital Partners, Western Heritage Capital, and Performance Equity Management acquired a significant stake in CMS. Nexio, which employs about 100 people, said in December that it was consolidating brands with its parent company, CMS, and it would now be known as Nexio. Officials for Nexio declined to comment. Raymond James, GCP, Western Heritage and Performance Equity did not return messages for comment.

See you tomorrow,

Anne Sraders
Twitter: @AnneSraders
Email: anne.sraders@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.

VENTURE DEALS

- Proprio, a Seattle-based surgical technology company, raised $43 million in Series B funding. Sigmas led the round and was joined by Bird B, AG, Wheelhouse Capital, DCVC, BOLD Capital Partners, and others. 

- Bright, a Mexico City-based distributed solar company, raised $31.5 million in Series C funding led by the Danish SDG Investment Fund.

- VEIR, a Woburn, Mass.-based clean technology company, raised an additional $24.9 million in series A-2 funding. Breakthrough Energy Ventures, The Engine Fund, Congruent Ventures, Fine Structure Ventures, Galvanize Climate Solutions, and VXI Capital invested in the round.

- ​​Croissant, a Nashville- and New York-based commerce enablement platform, raised $24 million in seed funding. Portage Ventures, Third Prime, BoxGroup, 25madison, Twelve Below, and KKR cofounders George Roberts and Henry Kravis invested in the round.

- Airvet, a Los Angeles-based pet telehealth company, raised $18.2 million in Series B funding. Mountain Group Partners led the round and was joined by Canvas Ventures, Headline, Burst Capital, and others.

- Finicast, a San Mateo, Calif.-based SaaS enterprise collaborative planning platform, raised $12.8 million in seed funding led by Celesta Capital. 

- Super7, a San Francisco-based action figures and collectible toys company, raised $12 million in funding from The Newcastle Network.

- CompScience Insurance Services, a San Francisco-based safety analytics platform, raised $10 million in Series A funding. Valor Equity Partners led the round and was joined by Four More Capital. 

- Exponential Exchange, a Washington, D.C.-based risk mitigation tools developer for the automotive industry, raised $7.4 million in a seed funding round led by MaC Venture Capital.

- MSPbots, a Chicago-based MSP solutions provider, raised $5 million in seed funding from Mercury.

- Switchboard, a San Francisco-based data engineering automation platform, raised $7 million in Series A funding co-led by GFT Ventures and Quest Venture Partners. 

- Licify, a Bogota, Colombia-based procurement and financial software for the construction industry, raised $3.4 million in funding co-led by Brick & Mortar Ventures and Accion Venture Lab.

- ReflexAI, a New York-based training and quality assurance tools provider for call centers, raised $3.3 million in seed funding. Footwork led the round and was joined by Emerson Collective, Alt Capital, Gaingels, and other angels. 

PRIVATE EQUITY

- Bain Capital Tech Opportunities and Valeas Capital Partners acquired a majority stake in Ren, an Indianapolis-based philanthropic and charitable giving solutions provider. Financial terms were not disclosed.

- Evantic, an Edgewater Capital Partners portfolio company, acquired Plastic Distributors and Fabricators, a Haverhill, Mass.-based machine plastic components manufacturer and fabricator. Financial terms were not disclosed.

- Premier International, a Renovus Capital Partners portfolio company, acquired Information Asset, an Old Tappan, N.J.-based data governance and risk management firm. Financial terms were not disclosed.

- SK Capital acquired a majority stake in Ecopol, a Chiesina Uzzanese, Italy-based biodegradable films developer and producer. Tikehau Capital will retain a minority stake. Financial terms were not disclosed.

OTHER

- Kering agreed to acquire a 30% stake in Valentino, an Italy-based fashion company, for €1.7 billion ($1.87 billion).

FUNDS + FUNDS OF FUNDS

- Squadra Ventures, a Baltimore-based venture capital firm, raised $105 million for a fund focused on investing in early-stage cyber and national security companies.

- WEX Venture Capital, the investment arm of WEX, allocated $100 million for a fund focused on early-stage fleet electrification, EV charging, energy management and optimization, and adjacent technology companies.