Younger companies are finding it challenging to raise money to build commercial-scale plants, making early-stage technology difficult.
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(Bloomberg) — Climate tech startups are facing a major bottleneck: Funding for companies poised to build commercial-scale facilities is down.
Investments fell by 20% in the first half of 2024 compared to the same period last year, but support for companies in the growth stage is declining, according to a new report published on Friday by intelligence firm Sightline Climate.
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Overall, investors poured $11.3 billion into the climate technology sector globally, with only $2.8 billion for growth-stage startups. In comparison, companies at that stage received an investment of $ 4.2 billion in the first half of 2023. Sightline Climate data goes back to 2020, and the first half of that year – right after the Covid-19 hit – was only the funding of the growth stage. is below.
Growth and later-stage infrastructure capital is not widely distributed because funders are looking for startups with at least $10 million, a threshold that many climate technology companies have not reached, according to Sightline’s founder and CEO. Executive Officer Kim Zou. Investors are used to more mature infrastructure assets like solar, wind and battery storage, which are more bankable than emerging clean technologies like advanced nuclear, geothermal, carbon capture and hydrogen.
As a result, climate technology companies in the Series B and growth stages are “stuck in a financial no-man’s land,” Zou said, noting that venture capital focuses on lab and pilot phase projects, while financing existing target projects. has proven its value on a commercial scale. He added that if startups want to get through this “valley of death,” they must focus on securing buyers for services with binding agreements, whether hydrogen, batteries or green steel.
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There are even warning signs for young companies, with the start of the seed stage experiencing a decrease in deal activity from the peak of 2023. “When we talk to seed investors, the days of having great ideas and good conversations and automatically checking grades are over,” said Zou. Now, companies are being asked to undergo a more structured testing process. This reflects a pullback in the overall venture landscape amid inflation and investor concerns about when interest rates might come down.
The good news is that startups with viable roadmaps for project development at scale are still getting funding. In February, geothermal developer Fervo Energy raised $244 million in a strategic round led by Devon Energy Corp., for example. Fervo has a big focus on providing really clean power for data centers, which are hungry for energy thanks to the artificial intelligence boom.
Silicon anode battery company Sila – formerly known as Sila Nanotechnologies – and electric vehicle charging startup Electra led the pack in the first half of the year by raising $375 million and $330 million, respectively, according to Sightline analysis. Both companies are relatively mature, and the fundraising is also a sign that transportation and battery companies with large customer bases dominate the sector.
A more prudent investor approach means that startups must fully prove themselves. “Companies that get these metrics, that can overcome the first, second project hump, still get a lot of term sheets,” Zou said.
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