It’s a challenging time for venture capital, but climate-tech investors are closing their funds all the same.
- The top line: Blackhorn Ventures announced today the close of its second flagship fund, and third fund overall, focused on digital infrastructure within the energy transition. The VC raised $150 million, $50 million short of its original $200 million target; that said, the fund is over 50% larger than its predecessor.
- The nuts and bolts: The venture capital firm received commitments for the so-called Blackhorn Ventures Industrial Impact Fund II from recurring investors such as Jonathan Rose, Goldbeck GmbH, Simpson Strong-Tie, and the Grantham Foundation for the Protection of the Environment, as well as new corporate strategic investors Mitsubishi Electric, Westlake Corporation, and Mercuria Energy.
- The current take: Melissa Cheong, one of Blackhorn’s GPs and managing partners, told Latitude Media that the fund is an “excellent outcome” in a market that has seen a “massive contraction” in the past 24 months. Though 2024 has so far been a difficult fundraising environment for venture capital, Blackhorn is at least the third climate tech-focused investor to bring a flagship fund to a close this quarter, with Clean Energy Ventures announcing the closing of its second fund in May, and Engine Ventures wrapping up its third last week
Blackhorn makes seed and Series A investments across four verticals: energy, transportation, supply chain logistics, and real estate and construction. They back start-ups that use artificial intelligence, machine learning, and vertical SaaS to improve industrial resource efficiency and unlock opportunities for decarbonization.
Micah Kotch, a partner at the firm, told Latitude Media that the firm started investing in AI in 2017 — long before it entered the zeitgeist with OpenAI’s 2022 release of ChatGPT — and that experience has enabled it it to zero in on companies that can control critical data assets and are capital efficient.
“We’re focused on solutions that can drive return on investment in a really rapid timescale — meaning today,” he said. “That’s why we focus on what’s capital efficient and asset-light.”
He pointed to ThinkLabs, for example, which is a Blackhorn portfolio company creating an autonomous grid orchestration service for grid operators that just recently emerged from stealth. And, more recently, Blackhorn announced it has led $27.4 million in Series A financing raised by Formic, a provider of robots-as-a-service automation for U.S. manufacturers.
Investing light
The decision to focus on asset-light digital infrastructure emerged from a lesson that Blackhorn learned from past investments — namely, into deep tech, or tech that takes on significant engineering or scientific challenges.
“Within our core target sectors, we did some deep tech investment into opportunities where there was a novel hardware-based component to the business model,” Cheong said. “But we’ve realized it’s hard to do deep tech investing without a much larger pool of capital and a longer fund life.”
In the absence of these hardware-heavy investments, Blackhorn has added others, including via its relatively new supply chain logistics vertical.
“Reshoring and onshoring are key themes that we’re seeing show up, and that have impacts throughout all of our sectors, if not the entire economy,” Cheong said.
In the same vein, Blackhorn’s third fund increases the number of investments it can make in Europe and the United Kingdom to up to 30%, with the goal of helping companies across the pond get a foothold in North America.
The firm’s Industrial Impact Fund II is already committed to 20 start-ups, including Electric Era, which applies AI-driven battery storage to EV fast-charging; Fero Labs, which reduces the steel and chemicals industry emissions by optimizing manufacturing; and RailVision, which uses machine learning to cut rail operators’ fuels costs.
It is planning on five to seven additional investments.
The rise of the corporate strategic LPs
You’d be hard-pressed to find someone who would say raising a fund is an easy task, especially a small one. But right now, the market is particularly challenging.
Last year, venture and early-stage investment in climate tech was down 30% compared to 2022, according to data by the market intelligence firm Sightline Climate, and institutional investors have been decreasing their overall VC commitments after a couple of happy years.
According to Cheong, institutional investors have committed too much to venture capital in the past, finding themselves with an “overweight” venture capital exposure compared to the rest of their portfolio. Paired with relatively constrained public markets that make exits more challenging and liquidity scarce, the state of affairs has “locked up” the more traditional pools of capital, forcing fund managers to look for alternative sources of funding.
“We were well positioned because we had existing relationships on the corporate strategic side of things, and we looked to expand upon that,” Cheong said. She added that having partners such as Mitsubishi Electric and Mercuria Energy, which are already active in the market Blackhorn invests in, helps them identify opportunities.
Cheong has observed that other companies have not been so lucky, though, and have failed to raise capital at all.
“What we see happening is the survivors are ultimately just stronger, more resilient, and focused on a different set of priorities from a profitability and even an economic standpoint,” she said.
