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.
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.
That wave inspired other countries to sign the Glasgow Declaration on Zero-Emission Cars and Vans in November 2021, which calls for ending sales of polluting passenger vehicles worldwide by 2040.
In the five years since the bans were first mooted, automakers have detected change in the wind. If the internal combustion engine was truly on the way out, they needed a plan and a way to differentiate themselves from the competition. One after another, OEMs began partnering with and investing serious money in battery companies.
GM, for example, has invested in SES, which is developing lithium-metal batteries. Ford has done the same with Solid Power, a solid-state startup that’s closing in on production. Volkswagen has taken a significant stake in solid-state company QuantumScape, and just this week, Porsche announced that it invested $100 million in Group14, which is developing silicon-augmented anodes that can help make batteries lighter and more powerful.
Startups grew up
One major shift that occurred in the last five or 10 years is that many startups emerged from their awkward adolescent phases. Take Sila, a battery materials company. Founded in 2011 by Gene Berdichevsky, a former Tesla battery engineer, Sila has been plugging away at research and development of a silicon-based anode for lithium-ion batteries.
The company says batteries that use its technology can boost energy density by 20%. That’s a big leap for lithium-ion batteries, which have only been increasing energy density at a rate of about 5% a year.
Several years ago, many companies were making claims like these. But what’s new is that Sila and others aren’t saying that from the lab but from the factory floor. Sila’s materials are now powering a fitness tracker from Whoop, and earlier last year, the company closed a $590 million Series F round to begin developing a 100 GWh materials plant, which is slated to come online in 2024.
Sila isn’t the only company raising funds for massive factories, either. Some of the biggest checks have gone to companies that are focused on making batteries, not inventing new types. Sweden-based Northvolt brought in $993 million in June 2019 and $2.75 billion in June 2021 to ramp up its production to 150 GWh by 2030. And China-based SVOLT raised over $2.5 billion last year alone to boost its manufacturing capacity to a whopping 600 GWh in 2025.
Such enormous sums are justified in part because gigafactories are expensive, but also because manufacturing is far less risky than R&D. That’s not to say that making batteries is easy, but the returns on investments in manufacturing companies are far more certain than those involved in research.
The giants took an interest
None of this would be possible, of course, if automakers hadn’t settled on battery-electric vehicles instead of, say, hydrogen. As a result, batteries have become a key differentiator — a way to set their vehicles apart from the competition. With the right chemistries, they can make cars that travel farther, accelerate faster or cost less to manufacture.
To that end, automakers have partnered with a range of startups, hoping not only to obtain access to the next breakthrough technology, but also secure supplies in a world that’s short on both materials and manufacturing capacity.
The interest from automakers has no doubt crossed the minds of investors. While some battery startups will go public — and some already have — others will probably become targets of acquisition by OEMs who have already shown interest, either through partnerships or investments. For an investor, gauging the interest of a few big players is no doubt easier than taking the temperature of the stock market.
So what’s changed? In short, pretty much everything. Battery companies went through a long winter following the green tech collapse that accompanied the Great Recession. But the companies that stuck with it recalibrated their approach, reset their expectations and kept their heads down. They bided their time as governments began to take action, investors took notice and consumers reconsidered their options.
Their patience has paid off, literally. Now, finally, is a good time to be a battery startup.
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