Climate Tech Is Back—and This Time, It Cant Afford To Fail
Francis O'Sullivan, author of a 2016 MIT report and lead climate investor at S2G Ventures, says the way startups get funding is still flawed. The problem now, O'Sullivan says, is that the money is in different buckets. Huge sums of money are invested in the early stages. And banks and institutional investors are pouring a lot of money into infrastructure spending related to proven technologies (like building new wind or solar parks). But funding for the critical "development phase" - one-of-a-kind technology demonstrations - is relatively low.
In the latest report, S2G Ventures colleagues O'Sullivan and Gokul Raghavan estimate that between 2017 and 2022, US and European private investors have raised $270 billion in what the authors broadly describe as the energy transition. About $120 billion was allocated to venture capital-backed start-ups, and another $100 billion was allocated to ongoing infrastructure spending. Only $50 billion is defined as funds for the development phase.
What's changing, O'Sullivan says, is the growth funding of risky new technologies, the stage where startups know their innovative technologies actually work and are profitable. This means that many high-value climate tech startups may be stagnating without a clear path forward. This is "one of the most significant obstacles" to industrial carbonation, says O'Sullivan.
Green gets out of the shower
Beyond financing, there are other major barriers to industrial carbon. First things first: startups need to understand the challenges of large-scale manufacturing processes. Ramana Nanda, a professor of finance at Imperial College London and founder of the DeepTech Entrepreneurship Institute, says many investors in cleantech 1.0 are coming from Internet companies and are “clearly applying software heuristics to things that are not software publishers.
"I think the biggest lesson from Clean 1.0 is that molecules don't work the same way as bytes." On the one hand, he said, "We won't really know if something is going to work until we spend a lot of money building this big demonstration plant." »
And even if the new technology works, Nanda says, startups often find themselves facing risky industrial clients who have invested millions of dollars in existing equipment and processes. "What you don't want to do is throw everything away and start a new process only to have unexpected results 10 years from now," he says.
One promising approach is to develop parts that can be selectively added to existing manufacturing operations, thereby reducing risk, Nanda said. Rather than hoping to build an entire industry like steel, the trick is, "Can you participate in the production process?" Can it be integrated into the existing infrastructure? "that's the question. From a practical perspective, this often means providing modular solutions that existing industry players can incorporate into their processes with minimal disruption.
Take for example Boston Metals, which wants to transform global steel production. Industry is responsible for one-tenth of the world's carbon emissions and is growing rapidly in many parts of the world. The company is a blast furnace that wants to replace the first stage of steel production with an electrochemical process that turns iron ore into pure metal. It's an almost audacious goal to replace the centuries-old technology that underpins the world's largest industry.
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