A Crash Course in Climate Finance # 3

Part 3: Angel Investing

Startups that are not well-suited to venture capital but are hesitant to pursue debt financing can always return to a staple of early-stage financing: angel investors. In several ways, venture capital and angel investing appear similar, but their goals often differ. While returns are certainly one aspect of what angel investors seek, they often look for companies with significant carbon impacts, technologies they find interesting, founders who show promise, or opportunities to mentor a new generation of entrepreneurs. Because angel investors are not beholden to fund partners, they can weigh these factors as they see fit, thereby maintaining independence and pursuing their interests.

Andrea Maggiani, an angel investor and founder of Carbonsink, outlined his views on early-stage climate investing in a call with The Energy Pioneer in December. As Maggiani explained, early-stage angel investing plays an important role in developing effective technologies that can reduce the green premium, serving as at-risk capital to sustain technology development. As a founder of a company involved in carbon markets, Maggiani used this industry to explain an additional benefit of angel investing. Angel investors have the freedom to explore deep tech and climate solutions without being constrained by markets crowded with intermediaries. This independence is what many investors and start-ups find attractive.

In addition to the freedom to avoid overcrowded markets and intermediaries, angel investors can identify technologies of interest. Thomas Blum, an angel investor with The Clean Energy Venture Group and New York Angels, outlined that the benefits of being an angel investor do not rest solely in the opportunities for returns. Rather, investors can pursue the specific areas that interest them and use the opportunity to learn about emerging technologies. Blum used the example of the rapid growth of EV charging networks, which enabled angel investors to become involved by investing in EV charging companies rather than remaining on the sidelines.

As climate technologies advance, more angel investors are entering the market, leading to the formation of more niche investment groups that align with the angel’s own investment thesis. One of the major benefits for investors and founders in investment groups such as Green Angel Ventures is access to a larger pool of expertise. Emma Mee, Head of Membership at Green Angel Ventures, explained that the syndicate began by casually sharing renewable energy deals and has since formalized and expanded to over 300 members with interests in all sectors. For angel investors, the opportunity for exits has always been important. However, Mee outlined that even when early-stage investors in the syndicate have the option for liquidy, they often choose to remain both financially and professionally involved. This may mean removing the investment's principal while retaining the profits within the company. Often, angel investors represent a more patient form of capital than venture or debt financing.

Matt Severson, founder and managing partner at Englewood Capital, is developing a new approach to angel investing by providing investors access to a portfolio of leading climate funds with smaller checks. He is building on the diversified portfolio he developed with his family office the past 6 years: investing in a balanced mix of Climate VC Funds (supporting the exciting technologies of tomorrow with a longer-return timeline) and Climate Infrastructure Funds (deploying the proven technologies of today with a near-return timeline) that is also diversified across geography (US, Europe, Africa, India) and sectors (agriculture, buildings, energy, industry, transportation). Englewood Capital is targeting $50 million by 2027 and will invest in 12+ leading climate funds as well as a handful of direct investments.

Working side by side with angel investing syndicates are start-up accelerators, which are proving to be a catalyst for connecting angel investors with both early- and later-stage start-ups, depending on the level of capital raised. Megan Fisher, CEO and Director of EnergyLab, explained that one reason angel investors work with accelerators is the opportunity to identify and invest in climate technology companies in early stages. EnergyLab, an Australian non-for-profit climatetech incubator, uses a network of 250 angels who invest in accelerator programs and often invest in later rounds of companies that have gone through one of 10 programs. These angel investors are even given the opportunity to determine the cohort for one of the programs by voting on a shortlist of startups. 

Whether an individual angel investor, a family fund, or an investment syndicate, angel investing offers a tailored approach to climate financing. The benefits of angel investing are clear: flexibility, independence, returns, and the opportunity to invest in areas of particular interest or expertise. However, the primary objective of this series has been to educate start-ups on which funding source may be right for them at a given stage. Angel investors, by definition, can fit a wide range of use cases. For companies seeking product-market fit or early-stage technology development, an angel investor can provide pre-seed funding and mentorship, which may lead to a subsequent larger funding round. For later-stage companies, angel investing syndicates can facilitate larger capital raises while still providing a support network. For start-up founders, reach out; angel investor conversations tend to be helpful, whether it leads to a partnership or simply an exchange of ideas.