Climate Tech's Great Bifurcation with Sabanci Climate Ventures' Drew D'Alelio

Drew D'Alelio is an investment manager at Sabanci Climate Ventures, a $200 million corporate venture capital fund investing in energy and climate technology on behalf of Sabanci Holding, a century-old energy and industrial conglomerate headquartered in Turkey.

What is Sabanci Climate Ventures and what does the parent company do?

Sabanci Holdings is a 100+ year old company, with dozens of business units spanning physical industries and the energy transition, headquartered in Türkiye. We own and operate nearly 5 gigawatts of power plants as the largest and most diversified energy player in the country, including 16 wind projects, 12 hydro plants, and 2 solar plants. We are also the largest private utility in Türkiye. In addition, we own and operate cement plants, build EV and mobile charging stations, produce building and composite materials, as well as provide financial services through our banking and commodity trading businesses. 

We’re also rapidly becoming a global energy player. We’ve expanded to the US and established our generation business in Texas, where we’re already operating 500 MW in solar projects today. We plan to develop, finance, and construct more solar and other projects in the US and are executing on a multi-GW project pipeline.

Our venture fund is a $200 million vehicle. We invest early to growth stage, looking for both joint venture collaborations for our businesses as well as customer relationships. Some of our investments include Fervo Energy in geothermal, Commonwealth Fusion Systems for fusion energy, and AI Dash, which uses satellite imagery and AI to support utility vegetation management and wildfire prevention.

What is your background in climate finance and how did you end up at Sabanci?

I've long been passionate about climate finance, but my path wasn’t linear. I studied policy and economics and started out doing research and advisory work with governments and financial institutions exploring those topics, quickly realizing I wanted to work within financial institutions leading transactions. To pivot, I went to get my MBA and MPP from Yale and worked in emerging markets project finance, supporting solar, wind, and storage investments in the global south. In that capacity, I saw the rapid commercialization of mature technologies, while also seeing how much of the technology we needed to decarbonize our economy had not yet been derisked and scaled. VC was a natural destination for someone grappling with those questions. 

My first venture role was helping to build a $100M Climate Tech Fund for the state of Connecticut. I loved being a local investor and building a portfolio from the ground up for an ecosystem. We invested in 20 early stage companies and I took an active board role in many of them, helping them hire, find customers, reduce technology risk, and raise money. I was hooked not just on the intellectual work of investing but on rolling up my sleeves and operating with my portfolio companies to help get them whatever edge they could. 

Then life took me to Boston to join Sabanci. I married into a Turkish family, so being able to work for one of the country’s leading companies in sustainability and get back to my roots focused on energy was a slam dunk fit.

You've worn different climate investing hats for a decade now. What is different about the landscape today?

We're in a dramatic bifurcation right now. Some categories of climate tech are being labeled as too risky due to green premiums and the lack of policy uplift to bridge the valley of death. At the same time, you have sectors that are getting turbocharged: anything that touches AI, energy generation, data centers, electrical equipment, grid tech, and adaptation-related technologies. There is a vast gap in enthusiasm for the companies that fit the moment versus those that don’t. 

The other main difference is that in this era, the “clean” technologies are in many cases cheaper than the alternatives. Where there are more liberalized electricity markets, we see higher penetration for renewables. In contrast, where I am in New England, we have all the incentives in the world, but we do not have a regulatory framework conducive to getting renewables online. It is quite ironic given our sector’s history that the greatest unlock we could ask for right now is market liberalization. As an investor it also impacts where we encourage companies to build and scale so that they can move fast. 

That is what is unique about this moment in time to me. Other dynamics, like climate tech companies struggling to cross the valley of death, are unfortunately reminiscent of earlier clean tech boom and bust cycles, though we have come a long way from clean tech 1.0. The macro dynamics and venture fundraising challenges I attribute more to the highly cyclical nature of VC, high interest rates, and illiquidity from earlier fund investments leading asset managers to be conservative allocators. Climate tech is on the far end of the risk frontier even within venture, and thus is susceptible to the natural cycle of hot and cold. These dynamics don’t strike me as dramatically different than what happens in biotech venture cycles, though.

Is the "climate tech" label still useful for VC, or has it become more of a liability?

I think climate tech is an umbrella term, and every VC category needs one. I’m not in the camp of abandoning the label. It is a necessary term yet also not sufficient on its own to describe this class of investing. Climate tech by itself as a catch-all is somewhat problematic because it classifies sectors together that behave very differently, and each sub-category requires a different investing lens and expertise. The agriculture, energy, transportation, and industrial sectors all have different incumbents, sales cycles, market structures, and tech adoption curves.

We’re actively seeing funds in the space moving beyond the umbrella into niches, which is a sign of sector maturity. Part of this is for branding, but it is not just that. I think it’s healthy for funds to specialize over time, whether that segmentation be based on sector, stage, or risk appetite. It provides clarity to the market and helps funds focus on core competencies.

So everyone in climate tech focusing on data centers is not just doing so to raise money? 

Companies and funds need to move where the puck is going, and we're seeing a lot right now in terms of everyone talking about the data center boom. There are risks to this because the hype cycle is driving overexuberant valuations that will eventually need to stabilize.

There's substance underneath that dynamic that is important not to gloss over though. What data centers are is a customer facing urgent needs, with a higher willingness to pay and take risks that a utility or OEM might not. Startup companies need to demonstrate their technology and find customers willing to take risks alongside them. I look favorably at companies that can deploy their technology at data centers to get in the field and operationally de-risk, while also having an eye toward a bigger eventual end market, such as the grid itself. If you can find a customer to do a pilot for, secure commitments from, and scale with, and they are willing to work on a startup timetable, that’s a game changer. That customer happens to be the data center right now.

How should founders think about the role of corporates, and  the role of corporate venture capital on their cap table?

Work with corporates right away, for a multitude of reasons. You want to build your customer feedback loop as soon as possible so that you get used to iterating and understanding how a customer in an established industry thinks. You'll also get to better understand where within a large business you're actually going to see traction that you can replicate and scale. Corporates have unique advantages in terms of their size, supply chains, and understanding of what it takes to build, manufacture, and scale. The valley of death is much tougher to cross for a climate tech company that has to do it all via first-of-a-kind projects. The companies that capture that value early and get those funds on their cap table tend to be more successful. The more friends you have along the way, the better. 

Corporates might not necessarily say they want to purchase your technology right away, but they will give you feedback. They'll tell you that if you position your product a certain way it might be more successful, or maybe that you should apply your technology to tackle this other problem where we have a more extreme pain point instead. Those feedback loops are essential. 

For VCs, seeing how founders adapt when working with corporates is a huge signal, and one that I overindex on. These markets are disrupted frequently, as we've seen over the past five years. A founder's ability to take in feedback, digest it, and update their vision of the world with new information is critical. Rigidity in these types of industries is not a recipe for success most of the time. Corporate partners can be a helpful sanity check and provide early startup validation. 

What technologies are you most excited about right now?

We just invested in a solid-state transformer company called DG Matrix. Transformers are a core part of the electrical grid. They increase or decrease voltage and modulate frequency among different energy sources for different use cases. The technology has been the same for 50 years: steel, copper, aluminum, and oil. That technology worked really well for a grid that was passive. But the power infrastructure necessitates transitioning to a grid that's dynamic, bidirectional and responsive to shifting consumption patterns and many different generation sources. DG Matrix has the only multi-port solid-state transformer in the market, which reduces the total cost of power electronics by orders of magnitude compared to alternative solutions. 

You could extend that thesis out into other grid-related technologies and ask: If we believe that the grid will look fundamentally different and that our energy system will be more decentralized and distributed, what does that mean downstream for all of this core infrastructure? How do we build it and with what tools? What components are we using and what should they be capable of? A lot of the technology that we have relied on will start to look obsolete once we come to terms with what the future grid will look like and accept that much of our grid is in decay and will need to be rebuilt. 

We also just invested in Halcyon, an AI-powered energy intelligence platform. Halcyon’s data subscriptions and AI agents help corporates navigate the energy transition, starting with regulatory and permitting data. This is a great place for AI to play - taking fragmented, unstructured data and making it actionable. Regulatory and permitting is also where the risk is shifting for those building energy projects and data centers, as well as those financing them. Regulatory shifts, community issues, and permitting timetables are determining what gets built and what doesn’t. Energy companies spend tons of manual hours and consulting budgets digging up siloed information that drive billions of dollars worth of investment decisions, when the information is already right at our fingertips. Halcyon solves for that extreme pain point.

How has the shifting policy environment affected the way you think about what's investable?

I’ll answer this with a US centric perspective. To me, the biggest impact that is not being discussed enough is the lack of grant funding leading to a decline in startup formation. If there are less early-stage grants or commercialization programs, that's an unfortunate door closed for potential founders. It means you're relying on connections to money and angel networks and that inevitably has an impact on who has access to the entrepreneurship path in the first place. Unfortunately, VCs are going to move in that direction too, looking for founders who already have those networks, and so will LPs, piling into the funds with resources and privilege at the expense of emerging managers that have a differentiated edge. It also creates a big opportunity for states to lead on grants, deployments, and startup support. We're seeing incredible work happening across many states to pick up the slack.

The loss of solar, wind, and EV incentives shouldn’t be thought of as permanent. Energy tax credits have come and gone since they were created in the early 2000s. The historical perspective reaffirms the importance of building a business that is not dependent on incentives. The tax credits are a great tailwind and I think there will be huge missed opportunities when they lapse, but there are also bigger market forces at play demanding more power, faster. Solar remains the easiest generation source to build fast. Batteries are doing quite well right now too because they are fast to install. 

I still see a huge planetary risk that large load customers will lean on natural gas for near term power. From an investment perspective, this makes me motivated to find solutions that bring solar and storage costs down even further so that there is no question for data centers about which generation sources to lean on. The cost of solar and battery systems themselves are only a fraction of their true cost. I already mentioned power electronics and the complexities of solar and battery sites, which solid-state transformers solve for. The soft costs are also substantial though - permitting costs, interconnection costs, electrical work costs, financing costs, EPC costs, O&M costs, and more. Many of these workflows involve expensive consultant labor which significantly cut into developer margins. There are so many impactful companies using robotics, AI, and software to reduce these costs and frictions. If you’re one of them, reach out! 

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