Outside of AI, few startups have attracted enterprise capital investment like climate tech. Like AI, corporations in this sector need large infusions of money, sometimes well beyond what a typical enterprise capitalist could offer, to get to the size where they’ll make a mark.
A brand new agreement with Rondo Energy, a manufacturer of thermal energy batteries, suggests a recent solution: philanthropic subsidies.
Climate tech startups like Rondo, especially those building hardware, face a particular challenge as they fight to maneuver beyond the prototype or pilot phase and start selling finished products to customers. Some call it the “commercial valley of death”, others say it is a “first of a kind” problem.
At this stage, it is very difficult to lift funds because investors do not have a plan to assist them balance risk and reward.
Venture capitalists are hesitant to get involved at this stage because many of the technical risks have already been addressed, meaning the returns won’t be as high. On the other hand, infrastructure investors who would normally underwrite projects of this scale are reluctant because first-of-a-kind plants are considered too dangerous. The dilemma is so widespread and urgent that it has develop into a constant topic of conversation among climate-tech investors—almost to the point of obsession. (To put it bluntly: Exantia has made “first of its kind” themed gadget.)
The folks at Bill Gates’ Breakthrough Energy Ventures aren’t immune either. In addition to its enterprise arm, the organization also has a growth platform, Catalyst, that helps promising venture-backed corporations get through the valley of death. This week it announced a deal that might function a model for others.
Together with the European Investment Bank, Catalyst announced Wednesday that it would offer €75 million in project financing to put in three Rondo thermal batteries that may store searing heat for as much as 18 hours. One goal of the funding is to prove that the startup’s product can replace fossil fuels in a range of industries. But the nature of the deal could ultimately have a broader impact.
While part of the European Investment Bank’s financing is a loan, Catalyst is a grant. Grants are commonplace in climate technology, but they are typically awarded earlier when the underlying science or technology has not yet been proven. In this case, Catalyst hopes to make use of its grant to assist Rondo address a later issue: customer adoption.
“This is an application and implementation on a commercial scale. There are no tests here. It’s just a fact that it’s never been done before,” Mario Fernandez, head of Catalyst at Breakthrough Energy, told TechCrunch.
The three clients involved in the transaction, a chemical plant, a thermal power plant, and a food and beverage plant, were willing to bear the risk of adding recent technology to their operations, but weren’t necessarily interested in paying for the privilege of doing so. Infrastructure investors weren’t willing to offer them money either — at least not yet.
“The infrastructure world is a world where there’s a very long list of check boxes that you have to check in order to make these investments,” Fernandez said. “Part of our mission is to see how those check boxes are checked in a way that makes them comfortable enough to participate.”
Catalyst hopes the three Rondo installations will reveal to infrastructure investors that projects like these are solid investments and that their risks are sufficiently characterised. Ideally, the recent projects won’t only unlock funding for future Rondo installations, but also provide a roadmap for other investors and startups working with similar technologies.
“It’s clear that we don’t have the money to de-risk every single technology path,” Fernandez said. “Our task is much bigger than just funding individual projects, but rather how to move the entire ecosystem forward.”