For climate hardtech companies, the Valley of Death is the proverbial ‘hitting of the wall’ in the marathon. It is tough. Employees are burnt out, cash is tight, time is running out. But that is why it is the best part -
Context: The Critical Gap to Financing the Climate Crisis
There is a well-known gap between funding that is committed to advancing climate technologies today and the funding required to achieve global climate targets, such as The Paris Agreement. World Fund estimates that climate funding must reach at least $4.35 trillion annually by 2030 to meet climate targets (source). And yet in 2023, global climate funding totalled only $33B - representing a gap of 509% (source).
One explanation for the climate funding gap is a mismatch in the risk to reward profile for climate technologies. To access many sources of capital required to build the perfect Climate Capital Stack, firms must demonstrate to investors an acceptable level of risk for the potential of return (and must demonstrate superiority in this regard in comparison to all other companies looking for financing). A huge challenge for climate companies in showing a ‘low enough’ level of risk is when a climate firm is building the first commercial scale facility for a given climate technology (called a ‘First of a Kind’ - FOAK - factory). These projects are notoriously difficult to finance, as there is a significant increase in risk when a technology is being scaled for the first time. The three main risks can broadly fit into the following buckets: commercial risk, technology risk and operational risk.