April 19, 2021

Where The Startup World Sees Money In Biden’s $2.3T Infrastructure Plan – Crunchbase News

President Joe Biden’s ambitious infrastructure spending plan would see hundreds of billions of dollars spent on high-tech sectors including expanded broadband access, investment in domestic semiconductors, renewable energy and electric vehicles — all areas where venture capitalists and other startup investors spy business opportunities.

The $2.3 trillion bill faces stiff opposition from many Republicans and some Democrats who criticize the steep price tag and proposed corporate tax hikes to pay for it, as well as the bill’s spending priorities. But while the plan could be pared down as it moves through bipartisan negotiations, it holds promise for massive investment in many nascent industries where startups are likely to see a boost, including electric car charging networks, 5G infrastructure, drones, clean energy and health care.

Here’s a closer look.

Connectivity and semiconductors

Although many look at the proposed infrastructure bill as a way to rebuild highways and push into the next generation of energy, Biden’s proposal also includes a significant amount of money for the lifeblood of technology — connectivity and chips.

“We are not just pouring concrete and laying steel,” said Thomas Lee, director of innovation at Union Labs. “This is wires and sensors.”

The plan includes $100 billion for greater broadband access, as well as $50 billion to address not just the semiconductor shortage, but to also shore up the supply chain of chips in the future by bringing more R&D onshore, and even building modern foundries in the U.S.

While broadband hardware and chip manufacturing are not usual startup ventures, the money could have potentially significant impacts as to what it may enable, venture capitalists say.

“In general, VC investment in startups building semiconductor and infrastructure/broadband companies has been limited given the relatively high capital requirements,” said Dan Deeney, a venture partner at Touchdown Ventures.

“VCs typically would back startups building applications and services on top of the broadband networks taking advantage of ultra-low latency in the case of 5G networks,” he added.

Drones, autonomous vehicles and video manufacturing — think companies like Mountain View, California-based Drishti that give video analytics and visibility into the assembly line — all are examples of next-generation applications that could be helped by new high levels of connectivity such as 5G, and attract venture capital interest.

Deeney pointed to how the advent of 4G opened up the ride-sharing industry as an example of what recent upgraded connectivity can bring.

Lee said new networking and broadband developments could well open up large swaths of the country to the ability to use connected and edge devices.

“A lot of the benefit will be for people who can now take advantage of this new broadband,” he said. “You can build an ecosystem off that.”

Agtech and foodtech could see increased interest as rural areas can now take advantage of broadband, Lee said. He pointed to a company like Philadelphia-based Strella Biotechnology — a biosensing platform that predicts the ripeness of produce and one of Union Labs’ portfolio companies — as an example of a company that is helped by increased connectivity in rural areas.

“Investors have been moving into agtech the last couple of years,” said Deeney, who added smart greenhouse tech in particular could see investment interest.

Something similar could play out in semiconductors. While the startups don’t raise the immense amount of capital needed to start their own foundries, shoring up the supply chain for chips is important for them as innovation is based on silicon, investors say.

“There is a lot of that money (in the proposal) to bring back manufacturing and R&D to the U.S.,” Lee said. Bringing research, development and manufacturing closer is one of the key factors of innovation, he added.

If the semiconductor plan comes to fruition, investors could start to eye startups that add value to the chip-making process. Deeney said he could envision companies that innovate around security and modernized packet inspection during the production of chips as being something that could attract VC money.

“There is definitely R&D being done” concerning security, Deeney said. “Embedding something like security in a chip could be interesting.”

— Chris Metinko

Electric vehicles

Electric vehicles are called out specifically in the infrastructure bill, with about $174 billion allocated toward battery-powered cars and the technology that supports their adoption.

A key part of battery EV adoption is the charging network, because although most electric vehicles are charged at homes, the anxiety around not having charging access while on the road is a major barrier to greater electric-car adoption, according to Brian Walsh, head of WIND Ventures, which invests in mobility and energy startups. The Biden administration has set a goal of installing 500,000 new EV chargers by the end of the decade.

“The more EV infrastructure there is, the quicker the adoption curve is for battery EVs for both consumers and fleet vehicles,” Walsh wrote in an email. “Because of this, the administration wants to support this infrastructure buildout to make all of the new battery EV models coming to market successful.”

Policies, including California’s mandate that all new vehicles sold in the state must be zero-emission by 2035, have pushed more manufacturers to invest in electric vehicles. Both General Motors and Ford Motor Co. have publicly committed to investing billions in EV.

Biden’s administration has said it wants to tackle climate change, and transitioning to electric vehicles is a key requirement, according to Walsh. Battery EVs are generally more ready for adoption than hydrogen-electric vehicles.

The infrastructure bill will likely spur more investors to look at the EV industry, according to Tosh Dutt, CEO of ChargeNet, a software platform that integrates EV fast chargers, energy storage and solar power with a payment system. Dutt found part of the challenge was explaining to investors that when it comes to EV charging, both the software and hardware are equally important: You can’t have one without the other.

“People are going to use EV charging in many ways, and the bottom line is that it has to be available,” Dutt said. “If it’s not available, nobody wins.”

Funding from the bill will likely be centered around public infrastructure and incentives, and tax benefits structured similarly to those for solar, energy storage and other renewable technologies, Dutt said.

“The other thing I think is going to be really interesting is, right now you have a bunch of manufacturers that are using different plug types and different EV battery architectures. I think what will happen is there’ll be some standardization around that to support the structure so if you drive a Honda or a BMW and go to a charge point, you’ll be able to charge it without too much grief,” Dutt said.

— Sophia Kunthara

Renewable energy

Part of the infrastructure bill — about $180 billion — is earmarked for new research and development with an emphasis on clean energy, fewer emissions and climate change research.

Both Katie McClain, a partner at Energize Ventures, and Dan Goldman, co-founder and managing director at Clean Energy Ventures, said such spending would have significant implications for clean technology and energy startups.

Energize is primarily interested in the software rather than hardware around clean tech, so for McClain, the proposed 10-year extension of the wind and solar tax credits that expired in 2016 would be a huge driver for the buildout of renewable energy generation, resulting in cost reductions for new projects.

“It’s funny that this has come full-circle,” she added. “The cost has come down on hardware, and renewables will be the go-to source as coal goes away. The question will be, ‘How do I deploy renewable energy projects better, faster and cheaper?’ ”

She expects an investment credit tax would create opportunities for a few of Energize’s portfolio companies, including Aurora Solar, a SaaS company developing tools to help solar professionals design and sell solar remotely, and DroneDeploy, a cloud-based drone mapping and analytics platform.

The bill also proposes $50 billion to be spent on infrastructure resiliency to withstand climate-related disasters, an area where McClain sees companies like Jupiter Intelligence, a climate risk analytics firm, benefiting. Insurance companies that aim to quantify climate risk and improve resiliency could also see a boost, she said, adding that the area has already come into focus in light of the recent Texas energy crisis.

Investment dollars from the infrastructure plan would likely also flow into energy transmission, the energy grid and battery technology to meet the needs of businesses and individuals, she said. In addition, McClain believes that even without the bill, clean technology and clean energy infrastructure will be built out.

“As more investments flow into the physical infrastructure as a result of this bill, venture-backed companies providing digital solutions in these industries have the opportunity to unlock massive value,” she said.

Meanwhile, when Clean Energy Ventures’ Goldman peeled the onion, he found that the R&D money proposed in the bill is not just earmarked for laboratories, but also to commercialize new clean-energy technology. He believes this will include building skills for people among all classes and diversifying the economic opportunities that surround the new technologies.

On the manufacturing side, it will also onshore some of the programs that had gone overseas and will target what he called “America’s heartland,” the Midwest states where many people already have manufacturing skills, he said.

Within Clean Energy’s portfolio, Goldman sees opportunity for companies like Nth Cycle, a metal processing technology company that is targeting the way batteries are recycled. Instead of buying battery materials or having them processed in other countries, Nth Cycle is developing a battery management program to create a circular economy in the U.S.

Another company, ClearFlame Engines, decarbonizes heavy-duty engines so they can run on ethanol and methanol.

“There is a huge opportunity to build infrastructure here,” Goldman said. “If we use ethanol in the new diesel engine, it will be a route for creating new jobs and new trucks.”

Rather than look at the bill as a threat to job losses in the traditional energy space, people should be looking at these changes for clean-energy and climate technology as opportunities for new jobs, he said. He would also like to see advocates provide a state-by-state breakdown of where the funds will go so that people can see it won’t be just going to wealthy, high-tech locations like California and New York, but instead to the entire economy.

That’s especially important when hundreds of the world’s largest companies have made a commitment to be carbon neutral by 2030, he added.

The goal with the Paris Accord Agreement is to limit global warming to approximately 1.5 degrees Celsius, which would require the reduction of annual greenhouse gas emissions at a rate of from 15 to 32 gigatons of carbon dioxide equivalent in 2030. This means reducing today’s level by one-third, according to a Rhodium Group report.

“Those companies will need to purchase renewable energy, but someone will need to invest in those projects so they can buy the power,” Goldman said. “It is our intention to fill that innovation gap and improve existing energy, like more wind and solar.”

— Christine Hall

Elder care

Elder care is another startup space that could see a boost with the infrastructure package. The Biden administration is calling on Congress to put $400 billion toward expanding access to home- or community-based care for aging relatives and people with disabilities.

The policy directive comes as demand for home-based care continues to rise as the population ages and more seniors opt to age in place in their own homes.

In addition to expanding at-home care, the Biden administration says it is seeking to improve compensation for home-care workers, a workforce composed disproportionally of women of color who it says “have been underpaid and undervalued for far too long.”

The administration’s push comes as venture capitalists and startup entrepreneurs are already putting considerable funds and effort into the elder care space. Per an analysis of Crunchbase data, funding for startups in elder care-related spaces has totaled several hundred million dollars annually for the past several years.

Big rounds are also getting done, including most recently a $60 million financing this month for Miami-based Papa, a platform connecting older adults with people to provide companionship and assistance with everyday tasks. Another large funding recipient is San Francisco-based Honor, which raised $140 million last year for its home-care platform.

— Joanna Glasner

Property tech

The infrastructure bill allocates $213 billion toward building energy-efficient, affordable homes and retrofitting older buildings to increase their energy efficiency. The bill has a goal of building and retrofitting more than 2 million homes and commercial buildings to provide more affordable housing.

It also aims to curb “exclusionary zoning laws,” such as single-family zoning and minimum lot sizes. The infrastructure plan would also “extend affordable housing rental opportunities to underserved communities,” specifically communities in rural and tribal areas.

The bill will likely spur investor interest in technology related to energy consumption of building and development planning, according to Jason Doyle, CEO of Gridics, a startup that makes zoning code and real estate development software.

“The challenge has always been in the startup space, there’s plenty of opportunity in the private sector, but more so now than ever, we’re seeing startups look to develop some new and innovative ways to help local government operate more efficiently or make smarter decisions,” Doyle said. “That, I think, is a big opportunity, whether it’s funding grants that come through universities or program grants. … Regardless of how the money flows, I’m hopeful we’ll see some of it push to drive some of those innovative solutions.”

The traditional way of handling planning for zoning has been “real broad brushstrokes” of setting a zone for a single purpose, like residential housing. Some cities like Minneapolis are eliminating single-family zones in general and allowing duplexes and triplexes to be in any neighborhood, Doyle said, adding that the bill gives local governments the opportunity to do “smarter future planning.”

— Sophia Kunthara

Illustration: Dom Guzman

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