The Next Big Wave in Venture Capital is Energy Transformation

What’s the next big wave in venture capital? That’s always the million dollar question on the lips of savvy VC investors who want to get in early on the next paradigm shift in technology and society. In broad strokes, the history of VC can be understood in terms of such waves: semiconductors, personal computing, the internet, social networks, cloud computing, software as a service, web3, and most recently artificial intelligence. Early investors in these technologies, on both the GP and LP sides, have done extraordinarily well financially while setting extraordinary social and economic changes in motion.

While today’s most forward-thinking VC investors remain focused on AI, a new theme is emerging - energy transformation. Much of it is related to AI, as model developers scramble to find scalable and cost-effective energy sources for future compute needs. But this investment theme is much broader owing to worsening climate change and greater urgency around sustainability, as well as the increasing viability of novel clean energy technologies.

Current notable energy investment trends include some of the usual areas - solar, wind, smart grid, batteries, carbon capture and more - but perhaps the most interesting is the resurgence of nuclear power. Microsoft made a big splash when it announced it would enter a joint venture with Constellation Energy to resurrect Three Mile Island, a nuclear power plant in Pennsylvania (and the site of America’s most serious nuclear accident in 1979). AWS recently announced investments totaling more than $500m across three different projects to develop Small Modular Reactors (SMRs). And Google announced a partnership with Kairos Power to supply Google with 500 megawatts of clean energy by 2035.

SMRs are a new technology of particular promise as they require smaller capital investment, less space and less cooling water, while offering greater flexibility for site selection. Some of the leading startups working on SMRs in addition to Kairos Power include TerraPower (founded by Bill Gates and backed by Kairos Power (backed by Khosla Ventures and CRV, among others), Last Energy (backed by Gigafund, Quiet Capital, and First Round Capital), and X-energy (funded by Ares Management and Segra Capital).

Another exciting area with deep investment is nuclear fusion, which provides around four times more energy per kilogram of fuel than fission. While fusion has historically been viewed as impractical, new developments point to potential breakthroughs that would render fusion commercially attractive. Some of the leading startups in nuclear fusion include Helion Energy (who are Y Combinator graduates and are backed by Sam Altman, Peter Thiel’s Mithril Capital, Capricorn Investment Group), General Fusion (whose investors include Jeff Bezos, Temasek, Disruptive, and Segra Capital) and TAE Technologies (whose investors include Venrock and New Enterprise Associates among others).

Who are the most influential investors in the energy transformation wave? Our ranking of the most important next-gen energy investors includes Eclipse Ventures (#4), Blackhorn Ventures (#5), and R7 Partners (#6). Head over to Fundopedia to view the top 3 as well as the full list of managers and their energy startup investments.