Sustainable finance platform Crux has closed an $18.2 million Series A round led by Andreessen Horowitz, the company said today. The round brings Crux’s total funding to over $27 million since it was founded a year ago, and will help the platform ramp up transaction volume for clean energy tax credits.
- The top line: Crux’s latest round of funding will help it to scale its marketplace — which serves project developers, tax credit buyers, and intermediaries — to billions of annual transactions, double its 15-person team, and eventually expand beyond tax credits to facilitate other financing mechanisms.
- The market grounding: The transferable tax credit market created by the Inflation Reduction Act is growing at a surprising pace, and is more diverse than anticipated. According to Crux’s recent market survey, a mere six months of tax credit trading activity saw up to $9 billion in sales, primarily in deals of $50 million or less, a much smaller scale than typical tax equity.
- The current take: Crux co-founder and CEO Alfred Johnson said it is “very unusual” for such a significant new asset class to be created so quickly. “When new kinds of financial products are designed it takes some time for them to get to the level of growth that necessitates an online platform like this,” he added. “But this market, because of the policy, is going to get very large very quickly and that means that all aspects of it need to be stood up from scratch.”
(Editor’s note: Latitude Events is currently partnering with Crux on an upcoming forum that will feature Johnson; that partnership, however, does not influence Latitude Media’s editorial coverage.)
Getting that market up and running at scale requires bringing in thousands of buyers, technology built specifically for the purpose of transacting credits, and a marketplace that accommodates the role of intermediaries like banks and tax advisors, Johnson said.
“The success of the policy and the amount of subsidy that’s going to go into renewable energy infrastructure is highly dependent on a vibrant market for these tax credits,” Johnson said. “We don’t typically, as a country, attempt to do the scale of holistic infrastructure redesign as quickly as we are attempting to do it here.”
But the creation of transferable credits is making that redesign possible. David Haber, general partner at a16z, said one of the central reasons for their investment in Crux is the startup’s desire “to work with existing intermediaries” rather than displacing them, as the original tax equity ecosystem evolves to incorporate the new transferable tax credits.
There are currently hundreds of credits, worth around $8.3 billion in total, listed on the Crux platform, Johnson said. And the market needs to reach $80 to $100 billion in monetized credits by the latter half of the decade. It’s a tall order, but Johnson said there are already promising signs, including competitive bidding activity on the Crux platform.
“We are already facilitating much more active price discovery,” he said, pointing to an increase in back-and-forth negotiations between buyers and sellers. It’s a more transparent and efficient structure for transactions, he added.
Johnson, a former Blackrock executive who also served as deputy chief of staff to Treasury Secretary Janet Yellen, has plans to eventually expand the Crux platform beyond tax credit transfers to the broader clean energy capital stack. And he said the latest round of funding will allow the platform to experiment with mechanisms for users to access financing more efficiently.
“We see the new tax credit market as a fundamental puzzle piece in the new capital stack of renewable energy, but it is pretty closely related to other mechanisms of financing that our partners rely on,” he said, citing other tradable and syndicated products, such as debt financing and renewable energy credentials, as examples.
It’s that focus on enabling efficiency across the debt capitalization of projects that Johnson believes will set Crux apart in the growing credit transfer market.
“We are one part powerful software for transactions; we are one part network and liquidity layer for the people that are using our platform,” he said. “In our view, there isn’t anybody that is doing that same thing — both the software and the network piece of it.”
For the rest of this year, Haber at a16z said that Crux’s primary focus is continuing to “build liquidity on both the supply and demand sides of their marketplace.”
“There are compounding competitive advantages towards becoming the primary venue for buying and selling these tax credits, so continuing to attract the largest developers, corporate buyers, and intermediaries is our focus,” he added. “We’re well on our way.”
Editor’s note: This story was updated on January 30 to incorporate comments from David Haber.
Want to know more about how the market for transferable tax credits will work? Sign up for Latitude Media’s Frontier Forum on January 31. Crux CEO Alfred Johnson will break down the budding market for clean energy tax credits. We’ll dissect current transactions and pricing, compare buyer and seller expectations, and look at where the market is headed in 2024.
