Tackling the climate crisis is capital intensive. We need to invest in research, re-imagine systems, upgrade the built environment, and do it quickly. If you raised exclusively venture capital to build a deeptech climate startup, you would be completely diluted before making any impact. Founders, therefore, architect capital stacks including grant funding, RFPs, loans, debt, and venture.

For the first annual SF Climate Week, Streamline Climate (grant streamlining with AI) and Pear VC (early stage VC fund) hosted a panel with founders and financiers to share stories and advice for early stage founders.

(Re-imagining climate tech financing, was a very hot topic this year: Enduring Planet actually hosted a session earlier in the week as well!)

Insights from Panel

“Venture is the most expensive form of capital” - Apoorv Bhargava, CEO and Founder at WeaveGrid shared. Apoorv along with Laureen Meroueh, PhD from Hertha Metals and David Schurman from Perennial, advised founders just getting started how to think about funding climate tech startups. When do grants make sense? What about VC? Debt? Loans?

tldr; there is no single answer as every startup is different. Below we attempt to synthesize takeaways that apply across the board, and hopefully help you think about scaling climate tech solutions in a new way.

Insight #1: Build something people want. Building a business means building something people will pay for.

Panelists went back and forth about the economics of solving climate change. In simplest terms to drive change in today's world, you need capital. The easiest way of getting financial capital, is to convince those with capital that you can return capital at a significant return. The greater this rate of return, the easier it is to attract capital.

(Note that other non-financial forms of capital exist and drive change & for driving a movement we need all of them.)

Apoorv drives this point home with an example about vast amounts of innovations that have emerged from academia, that never went anywhere. None of them had any customers or people willing to pay.

"The IPCC report might show you problems you need to solve, but as a founder you need to solve a problem people will pay you to solve. There’s a huge difference."

The conflict here is hopefully abundantly obvious:

Today, so much of what we need to do to save the planet, may not have financial returns. In fact, it's often the opposite: many profit driving mechanisms have directly caused the climate disaster.

As a human looking to make an impact, this leaves you with two options: change the incentive model (taxes, credits, regulation) or build a business within the existing incentive model. The irony, is that these same incentives are often lobbied for by large capital holders - usually businesses - which means there's a powerful lock-in effect incumbents leverage to drive their political agenda. Businesses either do this directly or through marketing campaigns which influence voters.

It's happened over and over again, most related to this article would be the "carbon footprint" shenanigans that BP pushed to make regular people feel terrible about how they interact in the world -- a clever strategy to subvert blame from Big Oil.

Insight #2: Align funding type with the timeline of your goals

A panel on financing could not be complete without someone in the weeds: Chase Little, head of Credit and Venture Debt at Mercury (a banking service provider that's loves working with climate startups). Chase advised sartups to "seek the kind of capital that aligns with your needs." He explains, debt is shorter term than venture and comes with different strings attached.

Many founders we work with come from a B2B SaaS background and see VC funding as the default, only to realize the hypergrowth requirement cannot be met. This can be a big missed opportunity.

Apoorv Bhargava expanded on these points, describing how a company is a vessel for business innovation. Technological and scientific innovation had different pathways and could be financed in other ways. For example, use venture capital to finance parts of your company that will have a 10x return, use grants for scientific breakthroughs, and use traditional debt or loans to deploy infrastructure.

Laureen Meroueh, PhD, CEO and Founder of Hertha Metals, added that, as a climate tech founder, growth curves are not going to fit what 90% of VCs out there are looking for. However, she warned founders from diverging from their business plans with so called "free money":

Grants are great but they are not free money. Be careful chasing them and ensure you’re still setting the roadmap of your company and not going down the wrong paths.

🌵 To build a roadmap, consider working with experts like Terra Prosody

VC funding allows companies to remain autonomous. Investors are with you from day zero; Vivien Ho from Pear VC noted, founders are "basically married" to their investors. They partner in a different way by having an ownership stake and share in the upside.

David Schurman, Founder and CTO of Perennial walked us through how their non-traditional VCs were a perfect fit and better aligned with a slower rate of return:

Finding alignment with investors is the most important. In Perennial’s case, this means understanding that carbon takes a while to build in the soil!

🌵 CTCV Keeps a list of climate investors here.

Startups Pitched for Feedback

After the panel, we had seven amazing climate champions pitch – all with unique funding questions. If you'd like to pitch at our next event, let us know in the comments!

1️⃣ Bernat Fortet on tooling for forestry project planning

2️⃣ Karen Baert on green ammonia

3️⃣ Samet S. Yildirim, MSc, MBS on alternative proteins at Orbillion Bio (YC W21)

4️⃣ Amy Hansen about CO2 capture on trains at CO2Rail Company

5️⃣ Ryan Buckley about construction data at Shovels

6️⃣ Sonja Salo on building upgrades like #HeatPumps at Kapacity.io

7️⃣ Hansi Singh, PhD and Kalai Ramea, Ph.D. for climate risk intelligence

^ Karen pitches her green ammonia startup on stage at SF Climate Week

Streamline automates grant sourcing, qualification, and writing for climate startups using AI. If you're looking for non-dilutive funding that aligns with your business plan, we'd love to support you ☀️