Climate tech companies just had their best quarter for fundraising in almost two years, drawing $16.6 billion. Venture capital investment into climate tech is doubling YoY, but the funding gap is not closing fast enough. The first question about investing in climate tech comes into mind – Is this category a capital-intensive play? So, many investors choose only climate software. Actually, there are many variables in answering that question.
One of questions we’ll ask startups is – what’s your capitalization plan? It will impact life or death, speed of growth, capital efficiency for startups, and returns for investors. There are strategies for partnerships and business models to consider for a less capital-intensive growth path. And, when to exit and how? In this panel, we like to cover capitalization and financing strategies in different stages for climate tech startups.
About ClimateTech Investor Panels – This is for accredited private equity angel investors, venture capitalists, and corporate/institutional investors to share insights and investment opportunities and catalyze collaboration to help ClimateTech startups.
Speakers
Paul Burgon, Co-chair of Keiretsu Forum CleanTech Committee, GP of Exit Ventures – Paul is a dynamic operations and investment executive who has invested over $3 billion in almost 100 different companies at high rates of return. Paul balances 1) strategic analysis and strategy development, 2) creating and implementing processes that map to company strategy and 3) team leadership, consistent execution and continuous improvement to create outstanding results.
Karen Sheffield, Finance Director at Visa, Founder & Managing Partner of Pachamama Ventures – Karen is a managing partner of a venture capital firm investing in US early-stage climate tech companies. She is also a Finance Director at Visa and has previously worked for PepsiCo and American Airlines. A self-described operator turned investor, Karen began angel investing 3 years ago and, ever since then, has dedicated much of her time to uncovering opportunities in unlikely places. Karen holds a double degree in Finance and Economics from Texas Christian University (TCU) and an MBA from The University of Texas at Austin.
Interviewed by Jessie Chuang, the topics cover 3 major parts:
- Funding gaps and sources for ClimateTech startups and projects
- Business and partnership models deciding capital intensity & plan
- When to exit and how
Takeaways:
Karen:
I grew up in Peru, and in the country, climate impacts a lot of everyday decisions we make, that’s why I am so passionate about climate investments.
Early-stage startups going to build a proof of concept (POC) need to get initial funding from friends and families, angels (several angel groups focusing on climate tech or impact investing), and government grants – there are so many now for climate tech companies, including IRA and more. Talk to grant writers to help you. Getting grants is hard, but getting funding from VCs before POC is even harder. Non-dilutive funding sources such as grants from governments are crucial for early-stage companies. and now more foundations and family offices want to invest in climate startups. Catalytic capital funds emphasize more on impact instead of maximizing financial returns solely. After you have revenue, there are revenue-based financing mechanisms that can help.
I have 15 years of experience working in Fortune 500 companies, I’ve witnessed the interest in building corporate VCs (CVC) growing significantly. Visa and Pepsi all have CVCs. Most CVCs might take a board seat if they invest to guide the startups, they have very broad interests, not limited to their current business lines, and have lots of funding to experiment. The chief sustainability offices (CSO) in large companies want to partner with climate tech innovators and achieve more than ESG compliance. Of course, there are pros and cons to consider when working with CVCs or corporate partners.
Paul:
The best outcomes in climate tech happen when companies can align their development milestones with their capital strategy.
A big difference between the cleantech 1.0 era and now is that the capital stack for climate tech has been developed rapidly and much more mature in the past 5-7 years. There are billions of hardware or cleantech funds, we see CVCs exploding, we see customer-financing models (customers as investors to build win-win outcomes, be creative, and build partnerships with customers), DOE’s loan office can support commercialization stage projects, and there are growth funds and infrastructure funds looking to back hard tech, etc. These didn’t exist 5-7 years ago, all are narrowing funding gaps substantially for first commercial operations. Especially CVCs can become your potential acquirers, so, look at companies in the ecosystem, and build partnerships.
Funding first commercial productions is still the largest funding gap risk. Although not as fast as we like, we do see that large infrastructure funds are coming down and VCs are going up to narrow the gap and reduce the capital intensity of climate tech startups. Also, a lot of innovations aren’t really as capital-heavy as most people imagine.
Paul wrote the following supplementary notes for reference.
Quote from a large climate tech grant writer: Grants are the quintessential way of filling these valleys of death with patient, risk-tolerant, non-dilutive capital. Government grants have historically done a fairly good job in earlier stages with technology risk by supporting R&D. More recently, with the massive flood of public funding into the climate space, there is sufficient funding for the government to put tens and even hundreds of millions of dollars behind a single project, enabling climate tech companies with high CapEx to undertake the large-scale demonstrations or first-of-a-kind deployments that bridge the commercialization valley of death.
Examples of investors with deep pockets for growth and physical assets are starting to raise and deploy investment vehicles earmarked for climate:
- Growth: Just Climate, established by Generation, raised $1.5B and Decarbonization Partners, a joint venture between Blackrock and Temasek, raised another $1B to invest growth capital into decarbonization.
- Sustainable infra: Generate Capital has been generating the sustainable infra revolution with a fresh $880M and sustainable real assets investor Vision Ridge followed closely behind with a hot $700M in January this year. Others like Climate Adaptive Infrastructure, Ares, and Copenhagen Infrastructure Partners are entering the space as well.
- Mega-firms: Mega-shops like Brookfield, TPG, Apollo, KKR, Carlyle, Stonepeak, and Blackstone are also flocking to climate raising tens of billions to finance the net-zero transition.
DOE Title 17 Clean Tech Loan Program:
The Title 17 program can support technologies at each deployment milestone—first-of-a-kind deployments that solve applied engineering challenges; follow-on deployments that establish engineering, procurement, and construction excellence and lower total project costs; substantial scaling of deployment and manufacturing capacity to drive advancement along the learning curve; and education of commercial debt markets to enable broadly available debt financing.
Commercially ready technology has been demonstrated at near commercial-scale under expected process conditions with results supporting the expected performance of the proposed deployment. Performance data from testing at pilot and demonstration scales (confirming at least a Technical Readiness Level 6) must have been performed and be available for review in order to confirm commercial readiness. Applications will be denied if the proposed project is for research, development, or demonstration.
No minimum loan amount. It can usually cover 50-70% of eligible project costs, and loans for up to 30 years. Low interest rates. Check out the criteria here.
Thoughts on how and when to exit:
- There’s no perfect answer for when to exit. Some people sell too early and leave a lot of money on the table. There are also many, many stories of startups and boards wanting to hold on and try to go public or sell for a billion dollars, and they end up losing a lot of money or almost everything a few years later due to new competitive technology, the team falling apart, or whatever.
- In my opinion, you should consider a few basic things in deciding the right time to sell:
- The required return of the founders and the key investors/board. Have they made enough money to justify the time and investment?
- What are the technology, market and other risks that could derail the future success of the startup and create a loss scenario? You need to be very honest with yourself on this point, most startup teams are way too optimistic about their near-total invincibility in the next several years. There are always big things that can go wrong, even the unknown factors that aren’t visible today.
- Do you have a realistic exit opportunity to pursue in the near to medium term? Is an exit a viable option?
- Is the team ready for an exit? Sometimes people factors can preclude a successful exit. The team has to be ready, presentable, and complete.
- Is the business ready? Are major customers happy, is the business litigation-free, large problem-free? Are major contracts all renewed, not about to expire? Get due diligence issues cleared up before starting the exit process.
- If all of these issues are a go, then I would probably err on the side of exiting sooner rather than waiting of a perfect scenario and perfect valuation. Don’t be greedy, take a win, and stay on with the new owner for a while, maybe a long while, or go to your next big thing in my opinion.
How to exit
- How to exit is a completely different podcast. I have an hour podcast on just how to exit. If you are ready to exit, you need great advisors and a board that is very experienced in the tactical best practices of exits.
About Global League
Global League is a vetted network of accredited and professional investors collaborating on We select startups from top seed investors(VCs/angel groups) and build a disciplined process to get collective intelligence for investments and venture building. Collaboration and co-investing are our core strategies to connect silos and help the most impactful ventures.