Beyond AI, few startup sectors attract as much venture capital as climate tech. Yet, like AI ventures, climate tech companies need substantial funding, often exceeding traditional venture capital, to achieve impactful scale.
Rondo Energy, a thermal energy battery developer, showcases an innovative funding strategy: philanthropic grants.
The Challenge of the “Valley of Death”
Climate tech startups, particularly hardware-focused ones like Rondo, confront a unique hurdle transitioning from prototypes to commercial sales. This is often referred to as the “commercial valley of death” or the “first-of-a-kind” problem. Fundraising at this stage is challenging due to the lack of a proven model for investors to assess risk and reward.
The Funding Gap in Climate Tech
Venture capitalists hesitate at this stage because much of the technical risk is mitigated, implying lower returns. Conversely, infrastructure investors, typically involved in large-scale projects, are hesitant due to the perceived risk of first-of-a-kind plants. This widespread dilemma is a constant topic, almost an obsession, among climate tech investors.
Breakthrough Energy Ventures: A New Approach
Bill Gates’s Breakthrough Energy Ventures, with its venture and growth-stage platform Catalyst, is addressing this challenge. Catalyst aims to assist promising ventures in crossing the valley of death. A recent deal involving Rondo Energy may serve as a model for others.
A Unique Financing Deal for Rondo Energy
Catalyst, in collaboration with the European Investment Bank, announced a €75 million project finance deal to install three Rondo thermal batteries. While the European Investment Bank provides a loan, Catalyst’s contribution is a grant. This grant aims to address later-stage concerns regarding customer adoption.
The Role of Grants in Climate Tech
Grants are common in climate tech, usually at earlier stages when core technology is unproven. Catalyst’s grant aims to tackle the challenge of commercial adoption. The three customers involved, a chemical plant, a power plant, and a food factory, were willing to adopt the technology but not to finance it.
Bridging the Gap for Infrastructure Investors
Infrastructure investors were also hesitant due to the novelty of the technology. Catalyst’s grant aims to demonstrate the viability of such projects and de-risk them for infrastructure investors. The hope is that these installations will pave the way for future Rondo projects and similar technologies.
A Broader Impact on the Climate Tech Ecosystem
Catalyst’s mission extends beyond funding individual projects. The goal is to propel the entire ecosystem forward by demonstrating the feasibility and de-risking innovative climate technologies. This approach could unlock further financing and encourage wider adoption of sustainable solutions.