How Policy, Technology, and Investors Like Rajat Khare Are Driving the U.S. Clean Tech Revolution

Clean tech is no longer a an exclusive niche. The US is making a case as the leading source of clean-tech venture capital and this shift is changing the investment strategy, industrial policies and startup plans. The following is a brief and substantiated explanation of why the capital flowing to clean technology as well as the practical obstacles that remain for investors, and how founders should prepare for the coming decade.

Why is the switch to clean tech?

Many systemic forces have come together to push venture capital towards sustainable technology. One of the major policy anchors can be found in the U.S. Inflation Reduction Act (IRA) which has brought significant incentives and assuredness into clean energy markets. The legislation -- backed by huge public commitments -- has changed the investment decision-making process for risk-return investors, specifically in areas such as battery manufacturing electric vehicle production, battery manufacturing and the green hydrogen-based infrastructure. In essence, the policy has reduced the risk in sectors that in the past needed years of subsidies or tolerance from regulators.

While at the same time technological advancements in battery technology, energy storage manufacturing, materials and batteries have reduced unit costs and making previously untested solutions to scale. Both governments and corporates are setting ambitious targets for decarbonization which is creating a booming market for technology that can reduce carbon emissions or can be used to replace fossil-fuel systems. This mix of clarity in policy, improved market demand and unit economics has attracted institutions and VC capital in large quantities.

It is clear that the U.S. is pulling ahead -- and that is why it is important

While Europe was once the mainstay of climate-conscious investing Recent shifts have placed for the United States as the largest beneficiary of clean-tech venture financing worldwide. The IRA--whose provisions encompass tax credits, grants and investment incentives--represents a multi-billion dollar policy commitment that has catalyzed new deals, manufacturing roadmaps, and corporate partnerships. In the end, it is now possible for the U.S. now attracts capital that would have previously flowed towards European and Asian centers for clean technology.

This is since capital tends to gravitate towards policies that are predictable and have large markets. Scale advantages in the U.S.--a big domestic market, deep capital pools, advanced manufacturing networks and proximity to leading research institutions--accelerate commercialization and reduce exit friction for portfolio companies. For investors and founders from all over the world, U.S. momentum creates both opportunities and competition.

How is Boundary Holding's Rajat Khare is seeing

Rajat Khare, founder and CEO of Boundary Holding, a Luxembourg-based company Boundary Holding, highlights this specific aspect: U.S. policy nudges and the IRA have significantly shaped investors' interest in clean technology. Khare states that the policies as well as the accompanying incentives has made uninteresting industries--battery supply chains and green hydrogen, as well as large-scale electrification, for example, much more attainable to invest in. This is a major theory in the industry: that policy is an important driver in where venture capital flows into the field of climate technologies.

The most lucrative sectors for investment

1. There are many clean-tech sectors that are not alike. The capital of today is active in several high-leverage areas:
2. Battery manufacturing and electric vehicles markets that are scaleable with clearly defined policy tailwinds.
3. Grid solutions and energy storage which allow for greater use of renewable energy.
4. Industrial decarbonization and green hydrogenemerging but strategically important in hard-to-debate industries.
5. Recycling and circular economy technology -- which address the issue of material scarcity and emissions from lifecycles.
6. Investors view these areas as crucial for decarbonization, and also potential lucrative once the technologies and supply chain become more mature.

There are challenges that can dampen optimism.

Despite the powerful tailwinds, clean-tech investments carry distinct risk that requires careful management:

The process of scaling from the lab to the production -- prototypes typically do not translate into cost-competitive mass production. Manufacturing scaling up brings manufacturing, supply chain, and regulatory risk that is capital-intensive.

Complexity of regulation and risk to the political The incentives system is a tangled mess across state, federal or local. While the IRA gives support for national policy but its implementation and local policies, and changes in the future of policy could alter the economy rapidly.

Materials and supply chain risks Many clean technologies are dependent on crucial minerals as well as complex global supply chains that are vulnerable to resources shortages and trade tensions.

Time horizons that are longer and capital intensity. Unlike most software-based ventures deep-tech cleantech needs patient investment and industrial partnership. Returns may take longer to become reality.

These structural issues are the reason why a lot of early-stage businesses are stuck between commercial viability. It is also the reason why experienced investors advise against making a blanket capital allocation.

Practical advice for founders and investors

In the event that U.S. is the new frontier What should market participants take action? Here are practical steps rooted in the current market environment:

1. Investors should combine the patient investment with the industrial partner. Funds that help with follow-on capital via scale-up and aid in negotiating offtake agreements with manufacturing partners are better placed to maximize the value.
2. Founders must plan to be able to manufacture from the beginning. Roadmaps that detail the route toward scale, curves of cost and supply chain sourcing will draw the best strategic partners and capital.
3. Policy knowledge is now an essential ability. Understanding the IRA's mechanism as well as state incentives and grant programs can significantly alter the valuation assumptions and time-to-market assumptions.
4. Increase the resilience of supply. Near-shoring, diversifying methods of sourcing and designs that use materials efficiently decrease price volatility and geopolitical risk.

Even though there is no doubt that the U.S. leads in VC dollars, Europe and Asia retain crucial advantages in manufacturing ecosystems, research clusters, as well as regulatory lead in sustainable standards. Furthermore, many clean-tech markets are globally-based. For instance, the manufacturers of batteries and electrolyzers, as well as semiconductor components are spread across continents. Startups that are successful will often have to work across different regions and align manufacturing, regulatory as well as commercial plans.

The larger societal impact

The transition of venture capital to green technology is not just an issue of the returns. It signals a stronger connection between the climate policy and capital markets. If public policy decreases the risk of uncertainty and creates a more predictable market structure the private capital market follows. This mechanism is able to accelerate the process of decarbonization in the manner that the world requires, but only if the founders and investors are able to approach the issue with a clear mind with realistic timelines and industrial collaborations.

Conclusion -- opportunity to learn from discipline

The U.S. clean-tech surge represents a significant shift in venture capital. With instruments such as the IRA and huge addressable markets, and the improvement in technological economics, the argument to invest in clean technology is more compelling than it has been for a long time. But scaling remains a challenge because of the complexity of manufacturing as well as regulatory uncertainty and supply chain fragility require patience and operating discipline. According to Rajat Khare and other investors note, clean tech is a field to explore, but success will be those who can combine the rigors of engineering with the ability to make decisions.

Reference Link: https://www.investing.com/studios/contributor-content/clean-tech-is-the-new-frontier-for-us-venture-capital-investment-says-boundary-holdings-rajat-khare-382690