A surge of funding and favorable economics have primed climate tech startups for growth. To meet the urgency of the climate crisis, everything from community solar and water-system upgrades to building retrofits and electric vehicle infrastructure must be rolled out at scale.
Deploy, deploy, deploy, as the mantra goes.
The shift from innovation to implementation is precarious. That’s why the current climate moment hinges on the exploration and piloting by funders of new tools and mechanisms that can bridge the valleys of death that companies face at the early deployment stage.
Technology solutions do not exist in a vacuum; they must be woven into a system that leverages distributed projects and human capital. These implementation projects must be financed at a global scale to be fruitful.
Oddly, the oil and gas industry presents a blueprint for what a reliable system of integrated solutions that reinforce one another looks like.
The oil and gas industry relies on a robust ecosystem composed of optimized processes and cross-sectoral actors including joint ventures, strategic alliances, and relational agreements. There are exploration specialists who identify oil and gas reserves, drillers who extract the raw materials and refineries that turn them into end products. A network of stakeholders manages the necessary storage, transportation, supply chain, talent network, real estate, etc. for capital project delivery.
As a climate tech strategist, I spent the past four months speaking with over 150 founders, operators, government stakeholders, policy wonks, think tanks, corporate leaders, investors, and financiers to explore what is necessary to adequately resource and finance the deployment of climate technologies past initial demonstrations into successful project implementation.
Understanding the interconnection between technology and its corresponding projects that require integration with existing and new physical assets is instrumental to addressing this gap.
Climate tech projects
Years ago, I worked with a climate tech founder to build the team’s go-to-market strategy. Their closed-loop technology, an anaerobic digestion technology, upcycled food waste and biodegradable matter into new products that could be sold back to industry and communities. The proprietary technology was tested and proven, already had customers, and was creating valuable outputs.
The solution could be deployed significantly faster than incumbent solutions, required less space at a fraction of the cost, and passed safety and environmental health standards.
The aim was to build a network of distributed micro facilities within a region that would cut costs for the company, lower environmental impact due to shorter transport routes, and serve local customers, workers, and communities.
The biggest challenges and risks were not from the technology itself, but instead hidden in the processes of site selection and pre-development, areas where venture capital investment is not intended to be used. That capital is expensive to a founder and their team at this stage. And the majority of the time, the venture investors do not have expertise in navigating project implementation.
Specialized lenders like Silicon Valley Bank play a critical role in supporting venture-stage climate tech companies in commercializing their solutions. The bank’s recent collapse demonstrates what is at stake when founders – and entire sectors – rely too heavily on one or a few institutions to get the capital they need to scale.
What is needed is distributed funding that can bridge the gaps and bottlenecks that companies experience in the project deployment phase.
Founders are expected to navigate tasks like zoning analysis, feasibility and design assessments, permitting, environmental assessments, procurement, and project finance structuring on their own, for the first time, at an pivotal moment in their growth journey – in addition to all of the usual obligations of running a scale-up.
For many founders, the shift from building a product ready for customers to pre-construction processes requires a new set of skills, tools, and relationships. That’s even more true for founders pioneering new technology and deploying first-of-a-kind plants and projects.
Climate tech funding represented more than a quarter of every venture dollar invested in 2022, according to PWC. Some $70 billion was invested into climate tech across the globe, nearly double 2021’s record total, a report from Holon IQ showed. The private investment – and a raft of federal funding unleashed by the Biden administration – bodes well for startups developing climate technologies
Yet, that’s only part of the equation. If we want to successfully deploy the most impactful technologies across communities, we need the kind of capital that flows beyond initial checks from early-stage VCs.
The Inflation Reduction Act, the largest investment in climate and energy in America’s history, is reducing the costs of implementing solutions across the country. Its passage has created at least $396 billion in clean energy incentives for consumers and companies.
The act includes billions of dollars in grants and loans to spur financing and deployment of new clean energy projects that cut greenhouse gas emissions and other pollutants, with a focus on projects in disadvantaged communities. The CHIPS and Science Act authorizes $10 billion to invest in regional innovation and technology hubs spurring place-based economic development.
In addition to policy advancements and the significant increase in VC dollars, there has been a growing focus on how philanthropies can offer catalytic capital to fund climate projects. A ClimateWorks Foundation report released in October of last year found that in 2021, total grantmaking to address climate change grew 25% from 2020 levels, to $7.5 billion in climate initiatives. While this number is relatively small for total philanthropic giving, it shows an upward trend.
As public and private dollars committed to boosting local economies and advancing the clean energy transition surge, funneling them into a broader ecosystem that supports technology and real assets is crucial. This includes the intentional streamlining of processes and involvement and of the local talent, networks, and institutions they rely on.
Funding early infrastructure
The good news is, this kind of massive, multi-stakeholder rollout has been done before. Most of us use the internet daily without thinking about the fact that it is powered by undersea cables laid at the bottom floor of the ocean. The deployment of those cables involved government tax credits and telecommunications companies (who overbuilt) and Silicon Valley companies such as Google and Microsoft, which funded a significant number of the underwater cables that the entire ecosystem now relies on. These companies have doubled down on investment to create an even more robust network of cables in and out of water in recent years.
That is no small feat. The creation and maintenance of a complex global network reflects the tech industry and Silicon Valley’s willingness to work across sectors to fund infrastructure that provides stability and scalability for the digital solutions the venture capital world invests in.
This example demonstrates what is possible when we understand the value of building, maintaining, expanding, and sharing ownership of integrated solutions for climate evident through our underwater cable network.
The use cases of the anaerobic digestion micro facility network and a global internet both illustrate the distributed projects and integrated solutions that are required to make commercial facilities and other large projects feasible. The current focus on first-of-a-kind, or FOAK, projects prioritizes large commercial facilities, leaving out a broader range of distributed projects that need to be implemented in order for larger facilities to be successful.
Data For Activation
To build an integrated system of solutions for the climate, we must understand where money and capacity have gone in the past to advance climate technologies and assets and allow this understanding to inform strategy.
Demystifying the capital stack to date. There is a growing discussion about the risks – including technical, market and operation – associated with climate technologies and the early infrastructure projects that they are intertwined with.
Yet there is not enough detailed data that identifies where project capital has come from in the past, at what stage it was provided, and how it either resulted in the success or failure of the project. By understanding previous projects – where and how they were deployed, and who financed them – we can build modeling tools for current and future deployments.
Deployment as a service. Building on capital analysis, data on where projects have been deployed and what was true about the environment and infrastructure that allowed these projects to grow, would be useful to track.
Data that standardizes project parameters, specifications, and zoning designations, for example, can be used to build blueprints for fast-tracking the implementation of categories of climate technology that various stakeholders involved in expediting distributed projects
Quantifying opportunities for capital flow. These modeling and blueprint tools will better inform where there is an opportunity to implement and fund solutions like regulatory innovation “sandboxes,” financial structuring tools that allow for project deployment, talent networks that projects rely on, and templates for site selections that work for specific climate technologies.
Building and funding an ecosystem of integrated solutions is complex. The review of data, models, processes, and tools used for established industries like oil and gas and the internet lend insights to the climate industry as it works to build its own robust ecosystem, and may serve as a guide for where capital for deployment can be most successful. I am currently leading the buildout of a robust data platform that addresses all of the categories above and can help funders channel capital into projects in the most impactful way.
Data and analysis is only one part of the equation. Stay tuned for a subsequent article outlining promising solutions, funding mechanisms to propel them forward, and strategies for creating an ecosystem of integrated solutions.
Chante Harris is a champion of climate and financial innovation with experience funding and building solutions across mobility, water, energy food waste, agriculture, carbon, and the built environment.