Ballooning US EV registrations raise opportunities for startups

Electric vehicle volumes are soaring in the U.S. — with registrations up 60% in the first quarter of the year — even as the country’s auto market contracted 18% as continued parts shortages constrained inventories.

Between January and March, U.S. consumers registered 158,689 EVs, according to Experian. With EV volumes rising and automakers selling fewer fossil-fuel vehicles, EVs captured 4.6% of the market in the first quarter.

Tesla took four of the top 10 spots, and the marque’s Model Y, Model 3, and Model S swept the top three, according to a report from Automotive News. The Ford Mustang Mach-E took fourth place, and Hyundai’s Ioniq 5 and Kia’s EV6 took fifth and sixth, respectively. (Experian reports registration data because Tesla does not disclose sales figures for the U.S. only, and other automakers don’t break out sales of EV versions of certain models.)

None of the recent upstarts, including Rivian or Lucid, broke their way into the top 10, though that’s not surprising. Both companies have only recently entered production on their first vehicles, which are pricey enough to limit the size of their potential market.

Still, as those companies and other large firms like Volkswagen and GM begin to ramp production, consumers will soon be able to choose from a range of models at a variety of price points.

That’s all but certain to drive further gains for EVs — and even more opportunities for startups to capitalize on the growth.

The most obvious winners in all this will be battery technology startups. Venture capitalists and private equity firms have been closely following automakers’ growing commitments to electrification and have been lavishing money on promising companies. In the last five years, they’ve made nearly 1,700 investments in battery startups totaling $42 billion, according to a TechCrunch/PitchBook analysis. Three-quarters of those deals closed in the last two years.

Can carbon capture startup Carbon Clean deliver on its cost claims?

Startup Carbon Clean announced earlier this week that it raised $150 million in a Series C that provides it with a sizable war chest to continue the development of its modular carbon capture system.

Carbon Clean has won its share of admirers, most recently Chevron, which led the round, and BloombergNEF, which named it a BNEF Pioneer last month in part because of the startup’s small-scale approach to carbon capture and sequestration (CCS). 

Typically, the technology is a large-scale affair. After all, the world needs to eliminate emissions on a vast scale, and the technology benefits from a certain amount of scale. That’s why CCS is usually envisioned attached to massive coal- or gas-fired power plants. 

But there are still many smaller sites, from cement kilns to chemical plants, that are currently wedded to fossil fuels but still need to be decarbonized. These are the sorts of companies that Carbon Clean pitches itself to, and the startup says that its modular approach can help polluters deal with their carbon emissions incrementally as regulations ratchet up.

Fundamentally, Carbon Clean relies on a tried-and-true process to strip carbon dioxide from exhaust streams. Exhaust containing carbon dioxide is sent through a filter that is wetted with an amine-based solvent. At lower temperatures (around 50 degrees Celsius, or 122 degrees Fahrenheit), carbon dioxide will bind to the amines. The CO2-laden solvent is then pumped to another container, where it’s heated to 110 to 120 degrees C (230 to 248 degrees F) to release the gas, which is then compressed and sent elsewhere to be used or stored. Each company has its own amine solvent with different properties, and the details of the process may vary, but that’s the gist of it.

Carbon Clean CEO Aniruddha Sharma said his company’s amine solvents can reduce costs compared with a commonly used amine by requiring less energy to heat and by reducing corrosion in the system. Until the company releases more data, such claims will be hard to judge. But based on the general type of amine it’s using, Carbon Clean is likely to see at least a small improvement in energy use.

Investors reward battery startup SES for losing money (but not too much)

It appears battery startup SES’ investors are quite happy with its first earnings report. The company went public in February via a SPAC merger, and to no one’s surprise, reported a loss.

And its investors don’t seem to mind. Its shares, while still trading below its SPAC merger price, were up 16.7% at $6.15 at the time of writing, outpacing broader markets gains earlier in the day. 

The company posted an operating loss of $19.2 million in the first quarter quarter. General and administrative costs accounted for much of that, at $15.1 million, while R&D ate up another $4.1 million. It reported a net loss of $27 million, or $0.12 per share.

At the end of the quarter, SES had $426 million in cash and expects to have enough runway to enter commercial production in 2025.

Battery startups like SES all lose money, and it looks like the company is losing just enough to stay in the race, but not so much that it would burn through its reserves before it has a commercial product. Developing and commercializing a new battery is a long, expensive game and investors seem to be happy with SES’ balancing act. If it spent too much, it would risk bankruptcy, of course. And if it didn’t spend enough, it would risk falling behind its competitors.

Investors also appear to be rewarding other battery startups that have gone public via SPAC in the last year, including Solid Power, which is up 10%, and QuantumScape, which is up 13%.

The balance of general expenses versus R&D suggests that while work continues on its lithium-metal technology, an increasing amount of the company’s cash hoard is being spent on building larger scale facilities in the ramp up to commercial production.

Indeed, in an interview earlier this week, CEO Qichao Hu told TechCrunch the company is continuing to develop its Shanghai Giga site and another facility in Korea, which was announced earlier this year. Currently, the Shanghai site has an annual production capacity of 0.2 GWh, which Hu said is “more than enough” for what they are making right now.

“In March, we started building cells for Hyundai and Honda out of our Shanghai facility, and for GM out of Korea facility,” he said.

The company is testing these cells in-house and then sharing the data with partners. By first quarter next year, Hu expects to  begin shipping cells directly to automotive companies so they can do their own testing.

Battery startups are working to disrupt more than just cars and trucks

There’s an open secret in the battery startup world — everyone is pitching their cells as the ones to spur consumers to ditch their gas-guzzling SUVs for sleek, fast-charging electric vehicles with cross-country range, even if they’re really eyeing something else. Sure, some companies will leapfrog the steady 5% annual improvements that lithium-ion batteries have been making over the last several years. (Most won’t, but that shouldn’t stop companies from trying!)

Sometimes, though, the EV pitch is just that — a pitch. Battery startups are almost obligated to note it in their press releases and pitch decks. Investors love the potential for growth that EVs represent, and startups would be remiss if they didn’t at least mention the enormous potential market.

As investors have realized the boundless potential of the EV market, money has been pouring into battery startups. In the last five years alone, $42 billion in venture capital and growth equity have been invested in the sector, according to a TechCrunch and PitchBook analysis.

Still, EVs are just one part of the story. The reality is that because batteries have improved radically in the last decade, startups like Form Energy and EcoFlow no longer have to pretend that they’re going to be the Next Big Thing in electrified mobility. Rather, they can acknowledge that they have far more potential to disrupt other parts of the economy.

One of the latest examples is Natron Energy. Natron was founded a decade ago after its CEO, Colin Wessells, came up with a battery that instead of nickel or cobalt used Prussian blue — the pigment that revolutionized the art world in the 18th and 19th centuries.

Other researchers had explored Prussian blue’s use in batteries for decades, but Wessells found a way to make a commercially viable cell using a version of the pigment coupled with a sodium-based electrolyte. Perhaps more important than what materials it uses are those it doesn’t — lithium, cobalt, nickel, or other rare materials whose prices have skyrocketed in the last year.

But apart from a brief, almost vestigial mention of EVs in a recent press release, Natron recognizes that the strength of its cells lies in other markets and has focused the company accordingly.

Batteries have become VC and PE’s most electric investment opportunity

For the better part of a decade, VC firms and growth equity funds have plowed nearly $42 billion into battery technology startups across almost 1,700 deals, according to an analysis by PitchBook and TechCrunch. What’s more, about 75% of the investments in that period happened in the last two years alone.

Venture capital firms aren’t unusual in the battery world. Five years ago, they reliably made 50 to 60 deals a quarter, which would be worth a few hundred million dollars in total. That started to change toward the end of 2020 — several quarters in the last two years have seen more than $2 billion invested, and a couple have had more than $3 billion. The number of deals has ticked up, too, nearly doubling in 2021.

But the more remarkable story has been in growth equity. In the past, private equity (PE) deals in the battery sector were sporadic. In the last year, though, they’ve blossomed, with growth equity firms sinking $13.4 billion into such areas as battery materials, manufacturers and recyclers.

PE’s presence reflects a shift in both the industry and the way investors view it. Batteries are normally considered a high-risk, high-reward investment; the sort of thing that venture capital is made for. But it’s not perfectly suited to VC, either — the R&D process for batteries can be exceptionally long, often extending beyond venture capital’s usual five- to 10-year timeline for collecting returns. And if the risks from battery startups are tough for VCs to stomach, then it’s an even harder pill for growth equity to swallow.

“Too much money” might explain the size of some of these bets, but it doesn’t explain their existence.

So what changed? There are myriad reasons why both venture capital and growth equity are diving into batteries. Let’s dig in.

The macro changes

For one thing, there’s a lot of money in the economy that’s waiting to be invested, and that might be pushing some funds into territory they hadn’t previously explored. Such a move might make sense for VCs, who are used to scouting and assessing risky technology-based bets, but it doesn’t for growth equity.

“Too much money” might explain the size of some of these bets, but it doesn’t explain their existence. Rather, it’s more likely that VC and PE have sensed that the world is changing, and they’re adjusting their strategies accordingly.

Governments around the world have started to set end dates on fossil fuel vehicles. Countries across Europe began announcing bans in the late 2010s. Norway will end sales of fossil fuel cars and light commercial vehicles by 2025. The Netherlands, Ireland, Sweden and Slovenia will follow suit with passenger cars in 2030, as will Denmark and the U.K. in 2035 and France in 2040.

Exclusive look at patent filings reveals Our Next Energy’s plans for a no-compromise EV battery pack

As automakers bet their futures on electric vehicles, they’re beginning to confront the hard realities of economics and physics. Prices for nickel and cobalt, two key elements used in EV batteries today, have skyrocketed, far outpacing inflation. At the same time, existing lithium-ion battery technology is improving, just not fast enough.

That’s sent companies searching for alternatives, from solid-state batteries to exotic materials and components. Many of those are years away from commercial use, though.

Mujeeb Ijaz, founder and CEO of Our Next Energy, thinks we already have many of the pieces we need. Ijaz wants to take two battery types — one optimized for daily commutes and the other for long road trips — and stuff them into the same pack. The idea is to let each type play to its strengths while the other covers for its weaknesses.

ONE grabbed headlines earlier this year after driving a Tesla 752 miles on a single charge, but not much was known about its technology. But now, TechCrunch has reviewed ONE’s patent applications and has an exclusive look at how, exactly, the company plans to merge different battery types into an uber-pack that’s twice as energy-dense as what’s in today’s EVs while still being able to handle everything from daily commutes to bladder-busting multi-state journeys.

If ONE can deliver, its technology could help free consumers from range anxiety while also making EVs cheaper and safer, potentially unlocking a wave of purchases.

The right chemistries

Typically, EV batteries use one type of battery chemistry, and that chemistry has to be optimized to balance competing demands, including how much energy they can store, how safe they’ll be in crashes, and how long they’ll last before they break down. Oh, and they shouldn’t be too expensive. It’s no easy task, and in the end, the battery ends up compromising on at least one of those goals.

Ijaz realized that while it’s unreasonable to try to fulfill all of those objectives with cells of a single type, it’s possible across a group of cells. All Ijaz had to do was figure out a way to make them work together.

Mayfield’s Arvind Gupta discusses startup fundraising during a downturn

Between his roles as co-leader of Mayfield Fund’s engineering biology practice and founder at IndieBio, Arvind Gupta reviewed approximately 470 startup pitches last year.

He characterizes his process as “simple,” but that is a bit reductive: after reviewing a deck and scheduling a meeting with the founders, he’ll spend many hours acquainting himself with both the underlying technology and the individuals on the team.

“For seed deals, I spend a maximum of 10 days so I can give an answer to a founder and I make it a pledge,” he said last week during a TechCrunch+ Twitter Space. “In 10 days, I can do the primary research and work with the founders to come to a conclusion there. For a larger Series A check. It could take a little bit longer than that, but not that much.”

I interviewed Gupta last month to find out more about the opportunities he’s looking for and get his advice for first-time founders, but last week’s Space was a chance to dive deeper. When I suggested that the downturn in the public markets might give startups a chance to focus on finding product-market fit instead of chasing growth, he gave me a personal market correction:

Recessions or downturns are always the hardest times to build businesses, always, for the entrepreneurs, for VCs, for everyone involved. Because no one cares if the market is terrible. It’s not like you get a buy: “forget it, we’ll just never mind that returns are terrible.”

Our conversation unearthed a lot of useful advice about fundraising in a down market, why he believes now is still a good time to start up, and how founders can avoid waving one big, red flag that discourages many investors:

“Just like [some] VCs are arrogant, I think it’s important to have a learning mindset for entrepreneurs.” Gupta said. “Entrepreneurs that believe they know everything had better be right, because it’s gonna be hard to learn on the fly if you already know everything.”

This transcript has been edited for space and clarity.

TechCrunch: The downturn in the public markets is impacting early-stage valuations, but seed-stage funding still seems pretty stable. Is this still a good time to start up?

Arvind Gupta: I think it is, especially in what I do, which is reversing climate change and curing disease. It’s always a good time to start up, because those things can’t wait.

What’s happened with the stock market is, as valuations have come down, multiples have compressed… So let’s say revenues are $100 million and if the IPO value of a company is $2 billion, that’s 10x sales. That has gone down considerably, about 30% from where it used to be. The private markets don’t get repriced every single day, so it takes some time for that to catch up.

Late-stage investing has definitely dried up quite a bit… It’s just a matter of time before it sort of trickles down, but there’s a lot of cash in the system right now. Most large VCs raise huge seed funds, there’s microfunds everywhere, and angels are extremely active. There’s a lot of optimism that technology can still create real solutions that can drive real value creation. So I haven’t seen a slowdown at all really, in the seed, pre-seed or Series A areas.

Seed-stage actually persists even during economic downturns because people still seem willing to make small bets. What’s your sense as far as why that is?

When you’re investing huge buckets of money, generally you’re not investing in a story and a hope and a dream, you’re investing in a business that’s showing traction. Now, there’s some extremely capital-intensive businesses where you need buckets of money before that traction is generated, and that becomes harder to finance in downturns.

You can still finance hopes and dreams, but just with smaller dollars, and you’re generally going to give up a little bit more of your company in terms of dilution. Arvind Gupta

You can still finance hopes and dreams, but just with smaller dollars, and you’re generally going to give up a little bit more of your company in terms of dilution during an economic downturn, so I expect that to start happening as well in the next year.

Who’s going to have a harder time in this new environment?

I’ve always said that the low-interest rate environment that we’ve had really since 2008 has generated an interest-free loan on risky startups.

So when you start looking at, “oh, it’s gonna be $150 million before we generate our first dollar of revenue,” that’s going to generate a deep breath in the meeting. After that $150 million is in, tell me about that next stage — that’s going to require more creative business models, different go-to-market strategies that generate revenues along the way. For good entrepreneurs, there’s always a path, right? It’s just different in different economic environments, it’s never shut, so to speak.

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You asked me for some categories? I think climate investing, what I do, is still extremely brisk. And there seems to be very little hesitation by investors to wonder about business models or downstream capex, I think for for other sectors, you know, with SaaS and things like that, those are traditional businesses, where you have the revenues, you have the metrics, there are multiples, it’s almost like an equation that people plug in: “Okay, this is what this company is worth.”

I think it depends on where the world goes in the next year: If the world stays kind of like this and goes laterally, everything will be fine. And there’ll be plenty of money to go around.

What sort of market conditions should we look for that would precede a rebound in late-stage startup funding?

What will happen is, as the IPO market opens back up, a lot of these IPOs that are underwater right now start to go back to the original IPO price and LPs that are writing down their portfolio start to see their portfolio come back up, that allocation for venture capital continues to grow, and then venture capital continues to deploy and redeploy the money that comes in.

The exit value is what drives it all. So seeing the technology sector and the NASDAQ start to rebound near its old highs, or even within 20% of its old highs, that’ll be the precipitating factor of the market staying open and money flowing.

The answers to real estate’s climate tech questions may be all around us

If you haven’t seen Adam McKay’s “Don’t Look Up” starring Meryl Streep, Leonardo DiCaprio and Jennifer Lawrence, you should. The film speaks to an existential, albeit preventative, threat to our world, and well, no one seems to care.

While an allegory, this political piece reflects the climate reality for many. For those who do care, there is no shortage of confusion on how to best tackle this looming threat.

But what if an answer was lying right in front of us? Take that an astounding 40% of global greenhouse gases come from the “Built World.” Forty percent is quite the figure in the context of what’s at stake. In this case, do look up — and to the right, and to the left, because the answer might be all around.

Front and center come the estimated 97 billion square feet of commercial real estate. Despite this sizable footprint and impact on climate, lack of awareness and the real estate industry’s sluggish pace of tech adoption have hampered action until recently.

Adding to this have been misperceptions of returns on investments in climate investments, and frankly, information overload as the industry gets smart about carbon neutrality. Fortunately, evidence is emerging on the ROI of climate tech for both buyers and investors — evidence that could be crucial to usher the “Built World” into an era of carbon neutrality.

Green translates to green

As the saying goes, you have to spend money to make money. And when it comes to reducing real estate’s climate footprint, according to Jones Lang LaSalle (JLL), the path starts with adopting technologies that enable green certifications such as LEED and BREEAM.

Among a host of conclusions, JLL’s report cites that green certifications result in a rent premium of 6% for commercial real estate and a sales premium of 8%. But acknowledgment of climate change and awareness of climate technologies’ efficacy is just the beginning. Knowing where to start brings its own challenges.

To unlock this ROI, property owners have implemented a range of cost saving technologies such as efficient lighting, reimagined cooling and heating systems, and systems to reduce their electricity footprint. After all, to get a LEED certification, buildings must hit a performance score combining metrics across several categories including energy, water, waste, transportation and quality.

To accommodate, technology has popped up transversely across the value chain of designing, constructing and retrofitting parts of the building life cycle to improve metrics across LEED’s target categories. To unpack the opportunity come specific considerations with investments at each point.

Climate technology solutions across the real estate value chain.

Climate technology solutions across the real estate value chain. 1Estimated per Cove.Tool; 2New York Times “New York’s Real Climate Challenge: Fixing its Aging Buildings”; 3Department of Energy’s “Proving the Busines case for Building Analytics”. Image Credits: SVB Capital.

Design and construction

An ideal, carbon-neutral world might be built from the ground up. Proven technologies such as Cove.Tool and Juno Residential are popping up to enable this brave new world of energy efficiency, starting with just how buildings are designed and what materials they are built from.

Our favorite startups from YC’s Winter 2022 Demo Day, part 2

And that’s day two in the books!

TechCrunch once again spent much of the day watching a parade of startups present as part of Y Combinator’s Winter 2022 cohort, Demo Day part two. Yeah, that’s a mouthful. But we did learn quite a lot.

You can find all our coverage here, but what matters is that themes are emerging from the YC milieu. Southeast Asia is a huge startup target, with a host of business models building for its population. Fintech was, again, a huge category of work around the world.

There were also a few surprises. Frankly we expected more crypto (web3? blockchain?) companies to be in the mix. And while there were a number of API-first startups, there were fewer than we might have guessed. That said, we don’t know the precise monetization method of every software startup that pitched, so we could be undercounting.

As always, to cap off the day we’ve picked a few favorites from the day’s presentations. Every TechCrunch reporter has their own set of interests and topic areas, so the following are not us endorsing any particular company or declaring winners. Instead, they are faves, the company’s that caught our eye as the most interesting. A big thanks to Devin Coldeway, Mary Ann Azevedo and Christine Hall for contributing.

If you need more on demo days, Equity has you covered. And with that, we can get started!

Our favorite startups from YC Winter 2022, day two

The following list is in no particular order. Companies’ websites and authors’ Twitter profiles are linked.

Christine Hall: DimOrder

  • Details: DimOrder, a Hong Kong-based company founded in 2019, is developing a restaurant point-of-sale system for Southeast Asia. Its technology enables those in the food and beverage industry to accept online payments, market to customers, order food from suppliers and receive short-term loans.
  • Why it’s a fave: Restaurant tech is big right now, and there is a lllloooootttt of funding going into this space. DimOrder is bringing in $183,000 monthly recurring revenue and growing 13% month over month. As the daughter of a former hotel chef, I watched my father make his food ordering lists on a legal pad and call them in. I believe systems like this would have given him that time back to focus on other things.

IT can play a major role in driving sustainability

With data centers alone consuming around 1% of global electricity demand, IT departments have substantial influence on their organization’s sustainability goals.

Significantly reducing the amount of energy used to run workloads and business processes, however, requires intelligent automation, deep visibility, reducing shadow IT and optimizing CI/CD pipelines.

Intelligent automation

The State of FinOps 2021 report revealed that 39% of financial operations professionals’ number one problem is getting engineers to take action when cloud inefficiencies are identified. This inaction means a lot of money and energy is being wasted unnecessarily.

IT departments can make dramatic reductions in their use of electricity by leveraging intelligent automation and resource management. With an advanced, automated alert and visualization system, developers and other stakeholders across the organization can always be informed of the environmental impact of the decisions they make throughout their day.

Multicloud architectures are going to keep growing in size and complexity, but the amount of carbon required to power them doesn’t have to.

For example, if a developer is provisioning a public cloud resource and a less energy-intensive option is available, they could receive a notification alerting them to the issue and suggesting the greener option.

Such a system could also leverage built-in guardrails to automatically turn off idle resources that are no longer in use, such as zombie VMs, neglected development environments and resources left running overnight and on weekends. When you don’t have to manually chase people down to remind them to turn things off or check recommitments with spreadsheets, less energy is wasted and less carbon is burned.

Deep visibility

The lack of visibility is one of the most pressing challenges in optimizing mutlicloud, multitool environments and truly realizing their benefits.

Major cloud providers such as AWS, Azure and GCP provide visibility tools, and they even offer tools that enable enterprises to measure carbon usage. However, these tools are cloud-native, which means they only work on that vendor’s products and services.