After venture capitalists burned mountains of cash on "cleantech" investments in the late aughts, the postmortems stressed that VC shouldn't be used as a substitute for project finance.

Why it matters: VCs forgot the lesson, pumping billions into electric vehicle makers.

• Some of them never got to commercialization, or at least to delivery.
• Some went public, and have since seen their shares delisted or severely devalued. Last week's example of the former was Arrival, which had raised more than $100 million in VC funding before going public in 2021 via SPAC.
• Rivian still is valued at around $15 billion, but that's a far cry from the $27.6 billion valuation it got in its Series F round.

What happened: Tesla, which is proving to be the exception to the rule.

• VCs, including those that passed on Tesla in its early days, looked at Elon Musk's success and assumed it could be replicated. Detroit by the Bay.
• Never mind that many of these VCs had never invested in complex manufacturing, let alone vehicle manufacturing. This was as much about software and consumer marketing as it was about hardware, they thought, and automaking was a commodified task that predated the semiconductor.

Zoom out: VCs also trusted that they'd solved for the other big cleantech-era error — getting out too far ahead of the market, in terms of cost and wider infrastructure.

• In this case, there seemed to be customer demand, from both consumers and transportation businesses. Particularly as new government incentives kicked in.
• Moreover, there appeared to be a burgeoning network of EV chargers that would only grow (even before passage of the Inflation Reduction Act).
• Both of these were true, but not nearly to the extent that VCs expected.
• Even many traditional automakers have struggled with EVs. Just last week, Volvo announced that it will stop pouring money into Polestar, whose shares are trading at just 15 cents, while Renault recently canceled a planned IPO for its EV unit and Ford cut back productions plans for its F-150 Lightning.

Disclaimer: I own an electric vehicle (Ford, not Tesla), enjoy it (minus the severe range issues in winter), and do believe EVs are the auto industry's long-term future.

The bottom line: Cleantech has been rebranded to climate tech, and has become a viable venture capital category.

• But not giant equity funding rounds for EV manufacturing, which was and remains better suited to project finance.