A Survey of VC Attitudes Towards Investing in Nuclear Power
Is there a role for Venture Capital in the nuclear industry? Despite the term “Venture” in their asset class, VCs tend to want to minimize risk as much as possible. And nuclear is full of risk.
Market risk. Technical risk. Regulatory risk. Finance risk.
Most of the investors we spoke with were supporters of nuclear as citizens. But they had difﬁculty rationalizing the timeframes and scale inherent in nuclear with the goals of their limited partners and the dictates of their funds.
We spoke with a number of cleantech investors about their investing attitudes towards nuclear:
Maurice Gunderson, CMEA
The reason that most VCs are scared of nuclear is “because they have no experience” and “are listening to anecdotes in the popular press,” said CMEA partner Maurice
“You have to dig into the details,” said Gunderson, one of the few brave VC investors to make the nuclear bet (He is a lead investor in NuScale.) He has said that NuScale’s model of focusing on modular nuclear power would shift development away from the “cathedral model” of large-scale, over-budget, ten-year power projects.
Gunderson has claimed that the NuScale process – manufacturing modular reactors on a factory assembly line – can cut the time to develop a nuclear plant in half. He argues that incremental modularity eliminates the “single shaft risk” of a conventional plant that must be shut down for repair and refueling.
“The NRC processes have become streamlined in the last few years and can accommodate this model,” he said.
“Jose Reyes Jr. NuScale’s CTO is from the NRC, and he and the team know what is doable and what is not,” said Gunderson, adding that one needed to know the difference between “incremental and revolutionary technology, and technology that was licensable or not.”
Gunderson veriﬁed that NuScale was raising more money.
“Nuclear is necessary, doable, and the markets are gargantuan,” he said.
The other VCs we spoke with, although they had taken a look at a number of nuclear startups, were less enthusiastic about investing in this sector.
Accel Partners, Peter Wagner
“We need more nuclear power in this country – the obstacles for the industry and investors are time and regulation. There’s been an unspoken recognition that there was going to be a nuclear comeback and it’s happened – the licensing process has been streamlined. Now there are approved technologies and a positive change in the regulatory climate. A ﬁrst derivative investment thesis might be successful – ﬁll in spaces adjacent to the platform. Examples: project development – run the licensing processes or in the waste area or in the fuel enrichment process.”
BCC, Rob Day
“There’s a role [for VC in nuclear], but it’s narrow. Most nuclear efforts I’ve seen are early stage and are looking at a likely gestation period longer than the typical VC holding period. I’ve seen discussion of funds with longer investment periods, speciﬁcally aimed at opportunities like this. And some VCs are hoping to be able to get early exits after proof of concept, instead of waiting all the way to revenue. For me, I see nuclear as being one of those long-path-to-market sectors where the investors will need to be very patient, and VCs are not known for being very patient.”
DFJ, Raj Atlaru
“The regulatory risk and timeline are discouraging for the standard VC model. Something needs to change for VC’s to engage. [The deals we’ve seen are] mostly small/modular: 25 MW to 75 MW. We are intrigued, but remain at the sidelines due to regulatory hurdles, capital intensity/timeline and public perception. We do continue to be intrigued with new generation sources.”
Globespan Capital, Ullas Naik
“The key question is still whether it will happen through startups or through federal agencies. Seems to me like there are still too many questions around regulations for private, non-regulated industries.”
Lightspeed Venture Partners, Peter Nieh
“Issues beyond regulatory and public perception are the long time frames and high capital requirements (even by cleantech standards).”
Nth Power, Brian Walsh
“Bigger funds will ﬁnd it easier to rationalize the unique risk of new nuclear reactor bets. The investment time horizon and required dollars are sure to be long and high, but the pay back could also be very big...in other words, the ﬁnancing risk is pretty big. “The way I understand the regulatory process is that way nuclear reactors are scrutinized and approved or rejected as safe in concept and then approved or rejected per location (by the NRC). This limits the number of technology bets available to investors – it has to be a whole nuclear reactor system or nothing at all."
"NuScale, for example, has a novel cooling technology, but it can’t sell that sub system anywhere. It has to commercialize it as an entire system from soup to nuts rather than selling the subsystem into the existing industry. That’s baseload power plants for you... Very unlike automotive/cooling/heating/IT/smart grid/etc. where subsystems can be sold to enhance existing systems. This makes the risk big, but also the potential reward big."
“There is some innovation activity around fuel reprocessing and disposal, which may be an area for VCs to play that is not so “swing for the fences” and for funds that are disciplined to capital efﬁciency… It can be commercialized gradually as an enhancement to the nuclear fuel system of today. Other than system and fuel, I can’t think of another area for VCs to play. I have seen one fuel processing startup. Wish there were more on the fuel side, to be honest, because I think Nth Power, with its political and industry ties, could add great value partnering with a company there.”
VantagePoint Venture Partners, Bernie Bulkin
“We have not been investigating this area for VantagePoint, nor do we have any plans to. There are two reasons: First, I don’t believe that there are opportunities for us in the mainstream of nuclear power, though there could well be venture opportunities in things like waste handling … and in some aspects of the fuel cycle. But the times for development are very long by our time requirements. Second, the limited and strategic partners that invest with us would not consider nuclear power to be a clean tech investment. So while I agree that increased nuclear power is inevitable (though some of our partners do not) our focus is elsewhere and will remain so.”
The December issue of Greentech Innovations offers an analysis of Small Modular Nuclear Reactors and VC in Nuclear Power.