How to evaluate climatetech scaleup strategy

Climate tech faces a critical challenge: existing technologies alone can't solve the energy crisis. We need breakthrough innovations that can scale rapidly to deliver meaningful impact within the timelines we face. To help companies navigate these demands, our climate team has been using the U.S. Department of Energy (DOE)’s Adoption Readiness Levels (ARL) Framework, which moves the conversation beyond “can we build it?” to “can we build AND scale it?” By integrating considerations such as cost, resource availability, and regulatory support, the ARL framework helps make sure we're building cutting-edge climate tech that can have a real-world impact. In this recent whitepaper, cowritten with our colleagues at Boston Consulting Group (BCG), our climate team shares insights for investors and operators looking to put ARLs into action and efficiently bring their technologies to market. https://lnkd.in/gaARZvai Congratulations to Jeff Johnson, Mia Nixon, Vinay Shandal and Parham Peiroo on this excellent piece! Whether or not you're in climate, it's very much worth a read.

Working in climate tech? What's FOAK and why you need to know about it: Solving the climate crisis requires reengineering how we produce and consume everything. Ultimately, this means moving atoms and molecules: i.e. hardware-based solutions. Tech startups instinctively go the VC route to achieve speed and growth but traditional VC models, while effective for software startups, often fall short when it comes to the substantial Capex required for many #climatetech innovations. Let's say a startup comes up with a new way for producing fertilizer; it's shown in the lab and it builds a small pilot facility that demonstrates the technology works well. So far, VC funding in the low millions should work fine. Now it's time to build a first commercial size facility to show that it can work at scale, say at Series A, and all of a sudden you need tens of millions (if not hundreds) to build that commercial facility. #VC economics break. There's little revenue to speak of, capital requirements are too large and you're nowhere near a valuation that makes any sense. It’s an inflection point for startups, which to navigate successfully we need to think beyond the traditional VC model in tech. This is where First-of-a-Kind (FOAK) funding comes in - capital for the first large scale plant that shows the technology and product can meet commercial needs. FOAK requires financial engineering right off the bat, which traditional venture capital is not accustomed to, or usually equipped for. In the last 25 years, VCs have overwhelmingly focused on “software eating the world”. The net-zero transition, the biggest economic opportunity of our time, needs a fresh approach. Following early stage funding at pre(seed) stages, FOAK may be a better approach for many companies, where projects are financed through equity funding separate from the startup’s equity. Eventually startups will want to access more traditional #projectfinance through PE and #infrastructure finance to build new plants and production facilities but these funds typically come in at much lower levels of risk. In between FOAK and project finance, another gap exists where early project finance is needed. In the example of the fertilizer startup, a FOAK fund would provide capital for the first commercial scale plant and once it’s proven and risk is lower, early project finance provides capital for the next handful of plants. Add to the mix things like venture debt and advance purchase agreements and we start getting a more complete picture of the funding required to commercialize and scale climate tech innovation. We need to be able to weave a continuous thread between VCs, PE and infrastructure investors, corporates, banks, and public funding. This was a hard lesson learned by the first wave of renewables startups in the 2000s and one that’s starting to emerge as a challenge for today’s climate tech sector. What do you think? Would love to hear your thoughts.

The newest episode of "The Green Blueprint" is out. I loved this conversation between Lara Pierpoint and Douglas Chan. It offers a candid look at the challenges and opportunities of scaling direct-air capture. As the industry moves from demonstration to commercial deployment, a few key insights from Climeworks stand out: Strategic site selection: The intersection of clean power and storage geology proves critical for DAC economics. Iceland's case study demonstrates how access to carbon-free energy and suitable storage formations can dramatically impact project viability. Manufacturing & design evolution: The industry is learning valuable lessons about modularity and mass production. The progression from custom-built units to standardized, repeatable designs highlights a crucial shift toward manufacturability -- a key factor for cost reduction and scale-up potential. Project Finance: DAC projects are pioneering new financing approaches by: - Securing offtake contracts during construction - Blending public funding with private capital - Testing various project finance structures as facilities reach commercial scale Market reality check: Challenges center on demand creation. While voluntary markets provide early momentum, the industry recognizes that compliance markets and policy support will likely be crucial for achieving gigaton scale. This suggests the need for parallel tracks of market development. Scaling considerations: The path from thousands to millions of tons of annual capacity raises important questions: - How to optimize between plant size and geographic distribution - The role of modular design in risk management - Balance between standardization and site-specific optimization I couldn't recommend this podcast more! It's such a helpful breakdown of how companies are navigating the path to commercialization for a wide range of climate technologies. Subscribe!

Ever wonder how climate founders get the best terms on their equity rounds? We've found they're engineering their capital stacks. They blend customer commitments, early revenue, LOIs, offtakes, grants, project debt, and equity into one cohesive plan. Why? Hardware isn’t software. Plants, batteries, charging networks are capital-heavy and investors want proof before they pour in fuel. Here's our playbook we share with our partners: 1. Revenue: the original non-dilutive capital. Paid pilots and early sales tightened our unit economics and cut dilution. 2. LOIs & Offtakes: contracted future revenue. They anchored pricing and made growth financeable. 3. Grants & Subsidies: de-risk the technology. They extended runway and made every equity dollar go 2–3× further. 4. Project Debt: scale without dilution. Once customers were lined up and the math worked, lenders funded assets, not your cap table. 5. Equity: used twice, with intent. Early: a small dose to recruit the team, ship the prototype, and hit real proof. Later: once leverage existed, to accelerate milestones — not to finance assets. Our takeaway: Equity is often the most expensive money you’ll take. The better you manage revenue, contracts, grants, and debt, the cheaper that equity becomes. If you’re building in climate tech today: Are you raising a round, or engineering a stack? ClimateDoor