An historic investment opportunity

Until recently, nuclear innovation was not something an ordinary investor could invest in, even if you wanted to. For most of nuclear energy’s history, most all design, development and testing was done through the National Labs with government funding and large corporations adapted those designs for the utilities. President Jimmy Carter defunded nuclear energy research and development and privatized that activity. By that time, however, a lot of work had been done to test a wide range of alternative approaches to generating electricity from fission and this work helps set the stage for today’s innovations.

On December 20, 1951, the Experimental Breeder Reactor (EBR-I) made history, generating electricity from fission and proving the thesis that fissile material could be used for peaceful purposes. The National Labs worked on some 52 different designs and configurations over about fifty years. The second Experimental Breeder Reactor, the EBR-II, a liquid metal-cooled fast reactor, ran for more than thirty years between 1961 and 1994.

Eventually, the pressurized Light Water Reactor (LWR), which was preferred and purchased by the Navy, became the utility industry’s reactor of choice. Over the course of three decades, the U.S. built approximately 110 LWRs. Then, in the mid-1990s, President Jimmy Carter ended federal funding for nuclear research within the labs and, like space exploration, further nuclear energy development was privatized.

Fortunately, innovation in nuclear energy didn’t stop entirely. Quite a number of innovative engineering teams sought to move fission and fusion nuclear energy forward through private ventures. In 2016, when Third Way hosted the First Annual Advanced Nuclear Summit and Showcase, there were about four dozen ventures that attended. Since then, the field has continued to grow, with many of these ventures raising capital privately to fund their ongoing work. Today there are about 250 ventures or initiatives working to develop new energy generation approaches, spanning fission, fusion, subcritical reactors and a burgeoning area of Low Energy Nuclear Reactors (LENR) which, given the climate crisis are needed more urgently than ever to replace fossil fuels.

Interest in bringing atomic energy into the 21st Century is stronger than it’s ever been. Congress has been strongly supportive of advanced nuclear, passing the Nuclear Energy Innovation and Capabilities Act (NEICA) in 2018, the Nuclear Energy Innovation and Modernization Act (NEIMA) in 2019, both signed by President Trump, and portions of the Nuclear Energy Leadership Act (NELA) and the Nuclear Energy Research and Development Act (NERDA) as part of the Energy Act of 2020, signed by President Biden. All of these major pieces of legislation seek to support the emergence of next generation technologies through a variety of mechanisms, including providing a growing amount of non-dilutive funding to help these ventures get their innovations certified and to market. Nevertheless, most all of the ventures developing solutions must still raise private funds in order to succeed.

Many ventures have had success attracting venture capital at various stages. Recently, Commonwealth Fusion announced a $1.8 Billion fundraise, which they hope will enable them to prove their approach to producing electricity from fusion, something that has never yet been achieved. From the list of well-known funders, it’s clear there are a growing number of venture firms and wealthy individuals paying more attention to this area. This is good for the sector and for those institutions and individuals who can afford to play at the high-ticket level of traditional venture capital firms. But there hasn’t been a way for the majority of accredited investors to invest in advanced nuclear.

Unfortunately, committing million dollar sums to a single deal or even a venture fund is out of reach for all but a few extraordinarily wealthy individuals in the top 1% of investors. That is until now. In the last few years, venture capital is been disrupted by tech innovations funded by venture firms (see how Venture Capitals are eating their own dogfood.) Specifically, investment platforms have been developed that profoundly automate most all of what historically has made venture capital very expensive. The AngelList rolling fund, which enables investors to participate in ventures funds through a low-cost subscription, has delivered exactly the kind of disruption that brings increased democratization to venture capital.

AngelList is not the only group pioneering new structures. For the first time in history, a range of crowdfunding, angel investment communities and online venture platforms now make it possible for investors at many levels to access a very rich variety of venture deals through both funds and SPV syndications and participate at far lower and more affordable capital levels, not just in advanced nuclear but across nearly every sector where innovation is happening.

Nevertheless, at every level, venture investing remains a high risk/high return asset class. Before one invests in a private angel deal (typically an earlier-stage funding round) or in later-stage venture rounds, such as a Series A or Series B fundings, one needs to assess one’s own appetite for risk and interest in doing some homework to vet the opportunity, called “due diligence.” Investing in private equity can boost returns but, at the same time, it often takes work and mature judgment to reduce mistakes, because an investor cannot easily sell their equity, once cash has been exchanged. One has to plan to hold on to the equity while it remains illiquid, even when it is clear that the venture is failing. This can result in the total loss of one’s capital. The SEC, in fact, deems venture investing too risky for any but sophisticated investors, or those deemed “accredited investors.” These are people or firms with sufficient assets that they are deemed capable both of assessing their investment risks but also being able to afford to lose their capital, without serious impacts, should their investment fail.

Online platforms further open up the possibility for a much more diverse range of fund sponsors and managers with unique types of expertise to create specialized investment vehicles in areas previously overlooked by the large pool of generalist venture funds. Which is great news for innovations happening in many sectors, including advanced nuclear, since highly technical sectors can be very challenging for generalists. This has enabled many new funds, like Nucleation Capital, to develop unique investment theses and connect with the growing numbers of accredited interested in investing in this area. Investors who are deemed accredited are finally able to access private equity at capital levels that work for them.

With the climate crisis driving demand for new types of safe, affordable clean energy, this is an exciting and historic moment of convergence. Not only is there a growing swell of next generation nuclear ventures seeking to create technologies to address the world’s urgent demand for clean energy and carbon management, they are raising capital right when access to private equity has finally become affordable to millions more investors, some of whom are motivated to invest their values.

As new and unfamiliar as it is, there are growing numbers of investors looking to diversify their portfolios with angel and venture investments. Hopefully, they will take the time learn more about what venture capital is and select their investments wisely.  Fortunately, the use of venture platforms are providing both guidance and deal flows, which enables new investors to achieve a level of diversification which, just as with public market portfolios, has been shown to improve returns for angel investors and venture capitalists alike. Diversification is particularly important in venture, however, since the goal of venture investors is to invest a wide enough range of ventures that the few that do succeed more than compensate for those that don’t.

For further reading about venture capital, here are some additional articles that provide more background but there are plenty more.