Yesterday saw the inaugural meeting of Cleantech for Iberia, an initiative focused on increasing the speed and scale of the deployment of cleantech across Spain and Portugal, founded by CleanTech Group and Gates-backed Breakthrough Energy.
We were honoured to be invited to the event, alongside the Deputy Prime Minister of Spain, Nadia Calviño Santamaría, investors from local and international funds, top Iberian universities, and the founders of start-ups and scale-ups including Plexigrid, H2 Green Steel, Zeleros, Fusion Fuel, Velca, Hesstec, Build to Zero, Plastic Energy, and Submer.
The session featured a combination of keynotes and open discussion, covering everything from funding trends in the region, the problems with commercialising deeptech university spin outs, the challenges with building a generation of internationally minded entrepreneurs, and the considerable potential seen in both smart grid technology and hydrogen.
A summary of these ideas can be found below, alongside our thoughts. (Note that herein climate tech and cleantech are used interchangeably).
The top line takeaway was that Iberia has the potential to lead Europe in the development and generation of clean energy, and start-ups have a key role to play in this.
The region has gone from having no natural advantage in fossil fuels to the ultimate advantage in renewables - regular sun, powerful wind, great swathes of flat, unused land, and thousands of kilometres of coastline for tidal energy.
On top of this, Spain’s presidency of the EU Council presents an opportunity to promote Iberia’s role in the coming months - the Minister began by noting that the current administration in Spain has directed a considerable percentage of the €160bn allocated by the EU for post-covid recovery on accelerating the energy transition, across solar, wind and hydrogen production, decarbonising industries, electrifying the grid and cleaning up the water cycle.
Alongside these, speakers noted that the region has seen impressive recent momentum in high-profile cleantech investment, such as Volkswagen’s investment in EV manufacturing in Spain (estimating €10bn in the coming years), Tesla’s consideration of a “large automotive investment” in Spain, the €1.7bn Fertighy project driven by Heineken, Siemens, InVivo and others to develop affordable and low-carbon fertilisers, and the €260m raised in 2022 by H2 Green Steel.
Within the start-up sector, while investment levels remain far below those in France, Germany or the UK, cleantech has seen 6x growth in investment in the last five years across Spain and Portugal, picking up €676m in 2022, funding more than 160 start-ups across all stages.
This, combined with the fact that the space is clearly currently attracting many of the best founders from across industry and academia (something we are observing at K Fund), presents a serious market opportunity - especially once regulatory tailwinds, corporate targets and the consumer drive are included in the equation.
Positively, early stage funding continues to defy the broader bear market in venture (growing year on year), and private equity activity at later stages remained stable, however there remains a notable gap in Series B funding in the space - with minimal activity from local funds (one of the reasons we launched our €250m Leadwind Growth fund in 2022), and a paucity of dedicated climate funds across Europe to invest in businesses at these stages.
A main discussion point here was the need not only for more VCs, but also for greater institutional activity in the infrastructure investment space, outside of the work done by corporate funds and grantmaking bodies, an area we are beginning to explore here at K Fund.
It is true that many institutional VCs (ourselves included) struggle with hardware-first or infrastructure-heavy investments - due to a lack of understanding of often highly-specific science, but also because funding requirements and payback times for these businesses don’t match the investment/divestment cycles of traditional venture funds.
The space therefore needs new types of debt, infra funding and grants (as pioneered by Breakthrough Energy’s composite strategy), that can take longer term bets, provide larger up-front investments for riskier, pre-revenue materials-science based projects, and continue to fund as capex requirements scale.
The session chimed with our feelings on the space - that the highest potential breakthrough ideas are generally around materials science, often within academia, however these are both hard to commercialise and struggle to spin out, especially coming from a European educational environment that has limited pedigree turning academic ideas into businesses.
Iberia has no shortage of leading STEM universities, evidenced by the preponderance of senior Iberian talent in leading deeptech/cleantech businesses at home and abroad, and the density of leading research conducted across Spain and Portugal (e.g. it was noted that Spain produces ~3.3% of innovation-focused academic publications worldwide, while only contributing around 1% of global GDP), yet the “unseen funding gap” exists - of those ideas that never even get the chance to move from paper to commercial potential.
One commentator mentioned that the region needs to focus on technologies that can improve the world but also solve P&L problems, as there’s no shortage of the former, but a paucity of the right teams capable of combining this with the latter.
Closely linked to this was discussion of the fact that while the region produces great operators, these have yet to convert (at the same rate as elsewhere) into the industry leading founders seen in Northern Europe or the US.
Highlighted was the lack of entrepreneurial mindset seen at universities in Iberia, and the poor understanding building venture-backed businesses and raising funding both in the climate space and beyond - something we are working to alleviate in our ongoing educational tour of Spanish universities.
The region needs its top expat operators to return to launch businesses, in turn promoting the entrepreneurial mindset so prevalent in the US.
In terms of specific sectors discussed, it was exciting to see such excitement around the smart grid, an area we’ve been deep diving on recently.
Bill Gates’ quote that “there’s no transition without transmission” shone through, and one founder commented that the grid remains the largest single blocker to the energy transition - as without a smart, flexible grid, innovation will be limited by distribution challenges.
As a regulated monopoly/oligopoly in most nations, there was a call for a “Regulatory Accelerator” to push local and European regulators towards smart grids - however the two key points that emerged were criticism of the utilities for moving slowly and being difficult customers, (something we have seen first hand in speaking to start-ups in the space), alongside the prime importance of distributed storage in a renewable-first grid.
This second point, that 24/7 renewables production will need long-duration energy storage, was highlighted numerous times. With the inconsistency of energy production dependent on sunshine, wind or waves, the grid will need distributed storage capabilities - batteries, hydrogen storage facilities etc. - something that requires considerable and rapid investment to scale as the grid electrifies. Central to this is also grid-management software and edge-computing technology to handle flexible loads in an ever-changing system - an area we remain fascinated by at K Fund.
And last but not least was the topic of hydrogen - an element with incredible potential in Iberia due to the quantity of clean, green energy that can be generated to produce it.
Experts commented that Spain has the potential to produce hydrogen 3x cheaper than in Germany, a major factor in the reality that 20% of all global green hydrogen projects are in Spain, and founders of business including H2Site and H2 Green Steel noted that Iberia can become both the European hydrogen exporter of choice, but also the bridge between even-cheaper production in North Africa and the considerable demand for clean hydrogen coming from Central and Northern Europe.
Founders once again commented on the slow changes to the EU regulatory environment, but also the lack of large funding rounds like those seen in the US - something that will need to change, fast, for these technologies to achieve scale.
Iberia is clearly punching above its weight in the cleantech space. In terms of GDP and combined population, the region is excelling in deploying renewables and investing in new technologies, and this only looks set to grow in coming years.
This initiative will no doubt support this growth, and at K Fund we’re proud to be a part of the group driving innovation in this space. We always want to speak to founders building software-first solutions to anything across clean energy production, distribution, decarbonisation of the economy and tools to support consumers, businesses and government in their clean activities.
We’re written extensively on this topic - covering climate, solar and the future of energy. Have something new for us? Get in touch - max@kfund.vc.
Yesterday saw the inaugural meeting of Cleantech for Iberia, an initiative focused on increasing the speed and scale of the deployment of cleantech across Spain and Portugal, founded by CleanTech Group and Gates-backed Breakthrough Energy.
We were honoured to be invited to the event, alongside the Deputy Prime Minister of Spain, Nadia Calviño Santamaría, investors from local and international funds, top Iberian universities, and the founders of start-ups and scale-ups including Plexigrid, H2 Green Steel, Zeleros, Fusion Fuel, Velca, Hesstec, Build to Zero, Plastic Energy, and Submer.
The session featured a combination of keynotes and open discussion, covering everything from funding trends in the region, the problems with commercialising deeptech university spin outs, the challenges with building a generation of internationally minded entrepreneurs, and the considerable potential seen in both smart grid technology and hydrogen.
A summary of these ideas can be found below, alongside our thoughts. (Note that herein climate tech and cleantech are used interchangeably).
The top line takeaway was that Iberia has the potential to lead Europe in the development and generation of clean energy, and start-ups have a key role to play in this.
The region has gone from having no natural advantage in fossil fuels to the ultimate advantage in renewables - regular sun, powerful wind, great swathes of flat, unused land, and thousands of kilometres of coastline for tidal energy.
On top of this, Spain’s presidency of the EU Council presents an opportunity to promote Iberia’s role in the coming months - the Minister began by noting that the current administration in Spain has directed a considerable percentage of the €160bn allocated by the EU for post-covid recovery on accelerating the energy transition, across solar, wind and hydrogen production, decarbonising industries, electrifying the grid and cleaning up the water cycle.
Alongside these, speakers noted that the region has seen impressive recent momentum in high-profile cleantech investment, such as Volkswagen’s investment in EV manufacturing in Spain (estimating €10bn in the coming years), Tesla’s consideration of a “large automotive investment” in Spain, the €1.7bn Fertighy project driven by Heineken, Siemens, InVivo and others to develop affordable and low-carbon fertilisers, and the €260m raised in 2022 by H2 Green Steel.
Within the start-up sector, while investment levels remain far below those in France, Germany or the UK, cleantech has seen 6x growth in investment in the last five years across Spain and Portugal, picking up €676m in 2022, funding more than 160 start-ups across all stages.
This, combined with the fact that the space is clearly currently attracting many of the best founders from across industry and academia (something we are observing at K Fund), presents a serious market opportunity - especially once regulatory tailwinds, corporate targets and the consumer drive are included in the equation.
Positively, early stage funding continues to defy the broader bear market in venture (growing year on year), and private equity activity at later stages remained stable, however there remains a notable gap in Series B funding in the space - with minimal activity from local funds (one of the reasons we launched our €250m Leadwind Growth fund in 2022), and a paucity of dedicated climate funds across Europe to invest in businesses at these stages.
A main discussion point here was the need not only for more VCs, but also for greater institutional activity in the infrastructure investment space, outside of the work done by corporate funds and grantmaking bodies, an area we are beginning to explore here at K Fund.
It is true that many institutional VCs (ourselves included) struggle with hardware-first or infrastructure-heavy investments - due to a lack of understanding of often highly-specific science, but also because funding requirements and payback times for these businesses don’t match the investment/divestment cycles of traditional venture funds.
The space therefore needs new types of debt, infra funding and grants (as pioneered by Breakthrough Energy’s composite strategy), that can take longer term bets, provide larger up-front investments for riskier, pre-revenue materials-science based projects, and continue to fund as capex requirements scale.
The session chimed with our feelings on the space - that the highest potential breakthrough ideas are generally around materials science, often within academia, however these are both hard to commercialise and struggle to spin out, especially coming from a European educational environment that has limited pedigree turning academic ideas into businesses.
Iberia has no shortage of leading STEM universities, evidenced by the preponderance of senior Iberian talent in leading deeptech/cleantech businesses at home and abroad, and the density of leading research conducted across Spain and Portugal (e.g. it was noted that Spain produces ~3.3% of innovation-focused academic publications worldwide, while only contributing around 1% of global GDP), yet the “unseen funding gap” exists - of those ideas that never even get the chance to move from paper to commercial potential.
One commentator mentioned that the region needs to focus on technologies that can improve the world but also solve P&L problems, as there’s no shortage of the former, but a paucity of the right teams capable of combining this with the latter.
Closely linked to this was discussion of the fact that while the region produces great operators, these have yet to convert (at the same rate as elsewhere) into the industry leading founders seen in Northern Europe or the US.
Highlighted was the lack of entrepreneurial mindset seen at universities in Iberia, and the poor understanding building venture-backed businesses and raising funding both in the climate space and beyond - something we are working to alleviate in our ongoing educational tour of Spanish universities.
The region needs its top expat operators to return to launch businesses, in turn promoting the entrepreneurial mindset so prevalent in the US.
In terms of specific sectors discussed, it was exciting to see such excitement around the smart grid, an area we’ve been deep diving on recently.
Bill Gates’ quote that “there’s no transition without transmission” shone through, and one founder commented that the grid remains the largest single blocker to the energy transition - as without a smart, flexible grid, innovation will be limited by distribution challenges.
As a regulated monopoly/oligopoly in most nations, there was a call for a “Regulatory Accelerator” to push local and European regulators towards smart grids - however the two key points that emerged were criticism of the utilities for moving slowly and being difficult customers, (something we have seen first hand in speaking to start-ups in the space), alongside the prime importance of distributed storage in a renewable-first grid.
This second point, that 24/7 renewables production will need long-duration energy storage, was highlighted numerous times. With the inconsistency of energy production dependent on sunshine, wind or waves, the grid will need distributed storage capabilities - batteries, hydrogen storage facilities etc. - something that requires considerable and rapid investment to scale as the grid electrifies. Central to this is also grid-management software and edge-computing technology to handle flexible loads in an ever-changing system - an area we remain fascinated by at K Fund.
And last but not least was the topic of hydrogen - an element with incredible potential in Iberia due to the quantity of clean, green energy that can be generated to produce it.
Experts commented that Spain has the potential to produce hydrogen 3x cheaper than in Germany, a major factor in the reality that 20% of all global green hydrogen projects are in Spain, and founders of business including H2Site and H2 Green Steel noted that Iberia can become both the European hydrogen exporter of choice, but also the bridge between even-cheaper production in North Africa and the considerable demand for clean hydrogen coming from Central and Northern Europe.
Founders once again commented on the slow changes to the EU regulatory environment, but also the lack of large funding rounds like those seen in the US - something that will need to change, fast, for these technologies to achieve scale.
Iberia is clearly punching above its weight in the cleantech space. In terms of GDP and combined population, the region is excelling in deploying renewables and investing in new technologies, and this only looks set to grow in coming years.
This initiative will no doubt support this growth, and at K Fund we’re proud to be a part of the group driving innovation in this space. We always want to speak to founders building software-first solutions to anything across clean energy production, distribution, decarbonisation of the economy and tools to support consumers, businesses and government in their clean activities.
We’re written extensively on this topic - covering climate, solar and the future of energy. Have something new for us? Get in touch - max@kfund.vc.
