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Expert: How recent inflation legislation could affect Texas energy startups, investors

Only time will tell, but this expert believes the Inflation Reduction Act of 2022 will be a boon to energy tech startups in Texas. Photo via Getty Images

The recently passed Inflation Reduction Act of 2022 includes $369 billion in investment in climate and energy policies, the largest investment in United States history to address climate change. The IRA could be a boon to Texas startups involved in clean energy, clean manufacturing and clean innovation.

Government policy and funding are critical to supporting the research and development for new technologies, which solve complex challenges and require significant upfront and long-term commitments of investment. Early government investment gives private investors more incentive to invest in the later commercialization and scaling of these businesses, and has a multiplier effect in accelerating the development, commercialization, and deployment of new technologies in the time needed in the market to capitalize on energy business opportunities and achieve climate goals.

The IRA’s biggest impact on climate tech businesses is through tax credits and direct investment. The IRA’s expanded tax credits will make it easier to fund and build projects, help reduce cost of construction, and help make renewable energy projects more competitive, encourage more funding and building of new projects, and bring new jobs and economic development. The IRA’s direct investments allow for companies developing new technologies to obtain grants and loans that help them develop their solutions while not diluting their investors, helping them build more value in their businesses and making them more attractive for later investment.

Texas is well positioned to be an energy transition and clean energy leader and beneficiary of the IRA. The state is home to major energy companies, and their technical expertise, know-how and experience in energy, and energy technology is unparalleled. There is huge momentum in innovation in energy transition and energy tech, and there is great research coming out of university and corporate R&D programs. For example, Texas is home to more than 20 energy-focused research and development centers and dozens of energy tech companies. And Texas is already the largest producer of wind power in the U.S.

Texas startups across industries were already attracting massive investment before the IRA became law. According to Pitchbook and the National Venture Capital Association, Texas startups overall raised a record-high $10.55 billion in venture capital in 2021, an increase of 123 percent from 2020’s $4.73 billion.

Early-stage investment in climate tech hit a record $53.7 billion in 2021. While the totals this year aren’t likely to reach 2021 levels, climate tech investors have said they aren’t seeing the size of pullbacks and slowdowns in other sectors. Despite the VC slowdown this year, clean tech and climate tech have remained attractive investments. This includes Texas. For example, the Rice Alliance Clean Energy Accelerator reported in August that 17 of its early- to mid-stage startups have already raised more than $54.5 million this year. Also in August, geothermal startup Fervo Energy, based in Houston, raised $138 million in new VC funding. Earlier in February, Houston’s Zeta Energy, which has developed a battery for the electric vehicle and energy storage markets, closed a $23 million financing round. We expect continued funding in this space.

Large corporates in Texas are building external innovation programs such as venture arms and accelerators. For instance, Houston’s Halliburton Company developed Halliburton Labs, an accelerator that has backed a number of startups in the carbon capture, clean hydrogen, and solar energy tech developers. Big energy companies are also joining Texas-based accelerator hubs such as The Ion in Houston. The Ion’s founding partners include Aramco Americas, Chevron Technology Ventures, and ExxonMobil.

It will require long term efforts to achieve results in climate tech and clean energy projects, but as the benefits of the IRA materialize, more startups in Texas will have the ability to obtain more long-term financial support and resources from all of the sources – government, universities, and research organizations, venture investors and corporations — that are required to develop solutions to the energy and climate challenges and capitalize on the business opportunities of today and tomorrow. Startups are creating transformative innovations that are key to the United States being a leader in clean energy and fighting climate change. And there’s no better place to do that than in Texas.

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Michael Torosian is a partner in the corporate practice in the San Francisco office of Baker Botts. He is outside general counsel to emerging companies and their investors and advisors at all stages.

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Building Houston

 
 

Juliana Garaizar is now the chief development and investment officer at Greentown Labs, as well as continuing to be head of the Houston incubator. Image courtesy of Greentown

The new year has brought some big news from Greentown Labs.

The Somerville, Massachusetts-based climatetech incubator with its second location at Greentown Houston named a new member to its C-suite, is seeking new Houston team members, and has officially finished its transition into a nonprofit.

Juliana Garaizar, who originally joined Greentown as launch director ahead of the Houston opening in 2021, has been promoted from vice president of innovation to chief development and investment officer.

"I'm refocusing on the Greentown Labs level in a development role, which means fundraising for both locations and potentially new ones," Garaizar tells InnovationMap. "My role is not only development, but also investment. That's something I'm very glad to be pursuing with my investment hat. Access to capital is key for all our members, and I'm going to be in charge of refining and upgrading our investment program."

While she will also maintain her role as head of the Houston incubator, Greentown Houston is also hiring a general manager position to oversee day-to-day and internal operations of the hub. Garaizar says this role will take some of the internal-facing responsibilities off of her plate.

"Now that we are more than 80 members, we need more internal coordination," she explains. "Considering that the goal for Greentown is to grow to more locations, there's going to be more coordination and, I'd say, more autonomy for the Houston campus."

The promotion follows a recent announcement that Emily Reichert, who served as CEO for the company for a decade, has stepped back to become CEO emeritus. Greentown is searching for its next leader and CFO Kevin Taylor is currently serving as interim CEO. Garaizar says the transition is representative of Greentown's future as it grows to more locations and a larger organization.

"Emily's transition was planned — but, of course, in stealth mode," Garaizar says, adding that Reichert is on the committee that's finding the new CEO. "She thinks scaling is a different animal from putting (Greentown) together, which she did really beautifully."

Garaizar says her new role will include overseeing Greentown's new nonprofit status. She tells InnovationMap that the organization originally was founded as a nonprofit, but converted to a for-profit in order to receive a loan at its first location. Now, with the mission focus Greentown has and the opportunities for grants and funding, it was time to convert back to a nonprofit, Garaizar says.

"When we started fundraising for Houston, everyone was asking why we weren't a nonprofit. That opened the discussion again," she says. "The past year we have been going through that process and we can finally say it has been completed.

"I think it's going to open the door to a lot more collaboration and potential grants," she adds.

Greentown is continuing to grow its team ahead of planned expansion. The organization hasn't yet announced its next location — Garaizar says the primary focus is filling the CEO position first. In Houston, the hub is also looking for an events manager to ensure the incubator is providing key programming for its members, as well as the Houston innovation community as a whole.

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