A Practical Guide to First-Market Fit for Climate Tech Founders

by Dr. Stephen Beaton, Co-founder & CEO at Circularity Fuels

Jun 24, 2025

Only products that can displace large-scale incumbents can meaningfully slow down climate change. In the case of Circularity Fuels, fossil fuels make up over 40% of all international trade by mass. Competing with a product so far down the cost curve is daunting. However, the climate payoff could be massive: nearly 75% of all anthropogenic emissions come from burning fossil fuels.

Even if a startup has a combination of cheaper, better, and cleaner technology, it will always struggle to compete with the low cost of capital, proven technology, and mature supply chains available to the incumbents. To access project finance at reasonably low rates, startups must demonstrate that their technology can perform nominally for years without interruption or the need for excessive maintenance. Without project financing, these plants will always struggle to be commercially viable in a conundrum frequently called the first-of-a-kind (FOAK) problem.

Some climate companies, such as Monolith Hydrogen, have succeeded in building their FOAK plants to demonstrate a largely unproven technology by cobbling together government-subsidized loans, grants, and large corporate partners. However, with the recent changes in many climate-focused grant and loan programs and the increasing economic uncertainty that decreases corporate partners’ willingness to pay green premiums, this approach is increasingly challenging.

There is another path to build a FOAK technology that resembles a more traditional go-to-market strategy for startups. Identify a customer with a specific “hair on fire” problem that is willing to pay a premium for the technology in the short term, as it solves a costly issue. Use that first limited customer set to mature the technology, get 10,000+ hours of operating data, and then use those lessons to scale the technology for massive impact and markets. Applying these principles well leads a climate tech company to find good “first-market fit” on the way to scaling.

The most famous company that scaled through finding first-market fit is Tesla. The original Tesla Roadster was meaningfully cheaper than sports cars with similar performance specifications. The car was not intended to have a massive climate impact. Instead, it was meant to prove out the concept, teach the organization how to design and build electric vehicles, and mature the supply chain.

Despite this clear example of a path to success for a climate tech startup, this approach is not without its risks. Premium markets are often smaller than the eventual target market and may require more precision, more luxury features, or more performance than the larger markets. Getting distracted in those markets can decrease a startup’s odds of success in the market that actually matters. After all, another early electric car manufacturer, Fisker, introduced a similarly premium sports car that ultimately did not reach the market before Fisker declared bankruptcy.

Putting First-Market Fit into Practice at Circularity Fuels

At Circularity Fuels, we took the first-market fit (FMF) approach seriously. Our initial product is a reactor that produces high-purity methane for companies growing diamonds and other advanced carbon materials. Building reactors to help grow carbon-negative diamonds may not be the most obvious first market for a company focused on decarbonizing aviation and shipping, but here is what we found compelling about the opportunity.

First, our customers are growing diamonds for more than just jewelry. Lab-grown diamonds are essential in next-generation geothermal energy, more efficient power electronics for electric vehicles, and even fusion energy. Some of these applications require ultra-high purity methane, which is impossible to scale with purified fossil fuels. Instead, our reactors unlock higher purity at a much lower cost, enabling new markets and applications for diamonds. Rapid adoption of new technology is usually driven by the promise of greater revenue rather than just cost savings, and our reactors will help unlock new markets. Second, the market for high-purity methane is currently small but compelling. While natural gas sells for about $2.50/MCF, high-purity methane can fetch nearly $1,000/MCF—a 400x premium. That’s because it’s at least 99.9999% pure, compared to ~98% for natural gas. That last mile of purity matters: it means we are providing gas with fewer than one contaminant molecule per million molecules.

Reaching that level of purity using catalytic processes at a competitive price point for diamond growers requires novel reactors, highly selective catalysts, and adaptive controls. These are the same core technologies needed to make synthetic fuels cost-competitive with fossil fuels. Entering the high-purity methane market lets us deliver real value today by displacing fossil methane with a green alternative. But there are tradeoffs. Premium markets can dilute a startup’s focus—its most precious resource. Choosing this path was a deliberate decision, and one that set the foundation for our larger goal: scaling synthetic fuels.

Our 3 Principles for Choosing a First Market

1. Start with a Market Aligned to Long-Term Tech and Customers
First markets are about proving core technology and go-to-market motion, not revenue. We avoided paths that would pull us too far from our long-term mission. The reactors used to make high-purity methane are the same highest-risk, highest-value components in our full-scale system that make synthetic aviation fuel and renewable diesel. We also stuck with an industrial business model. Although consumer products always command a premium over the sum of their inputs, climate entrepreneurs who intend to scale up by selling their product to other businesses should be wary of attempts to sell a finished product directly to consumers. Consumer-facing businesses require a completely different skill set, like branding, customer support, and marketing, that can distract from the core technology. AIRCO’s vodka is a rare exception. Most consumer pivots in climate tech don’t end well.

2. Choose Markets Where You Have Costing Power
Sports cars are expensive primarily because they are manufactured in low volumes, which allowed the Tesla Roadster to compete on cost and performance directly with existing internal combustion engine cars. Specialty markets exist in every sector. High-strength concrete, high-purity hydrocarbons, and high-utilization vehicles exist, command a premium, and are underserved by existing players because of the size of the market. These markets are ripe for disruption by climate tech companies that intend to eventually scale. For us, diamond growers are already paying a 400x premium over natural gas and still expressed frustration with existing gas suppliers that are poorly suited to deliver high-purity methane. In part, the frustration exists because high-purity methane is a small market with demanding requirements. Specialty gas suppliers cannot apply their advantage in scale to generate huge quantities of gas. Their disadvantage is our advantage. We can’t out-scale major suppliers, but with better engineering and chemistry, we can deliver targeted value, collect performance data, and generate revenue.

3. Treat the First Market as Base Camp, Not the Summit
Entrepreneurs and investors can get addicted to the revenue growth from the first market, and that can lead to distraction. We have been mindful about our willingness to leave money on the table in the first market. Once we have proven the technology, we intend to shift our focus from growing in that first market. It may be painful because we intend not to pursue additional revenue in a market that we understand, but ultimately, venture returns (and climate impact) only come at massive scale beyond that first market. We view our early success with high-purity methane as a basecamp on the way up to the summit of our Mount Everest–decarbonizing global travel.

Putting It All Together: First-Market Fit in Action

When all these principles come together, it provides a startup with great first-market fit. First-market fit resembles the concept of product-market fit, championed by Andy Rachleff for consumer-facing businesses, in that a startup has found an excellent market that solves a meaningful pain point for the customer. It differs in that the first product and customer are not the intended long-term product or customer. Instead, the first market provides essential revenue, technology demonstration, and learnings to conquer the eventual market. In practice, FMF does not guarantee scalable revenue, but great FMF can help a deep tech startup mature a technology in a capital-efficient way.

Carbon-negative diamonds may not solve climate change, but right now, they are our best friends. Our reactors will help make our customers' operations truly carbon negative and more profitable while also proving out our core technology. That success will springboard us to generating synthetic jet fuel at fossil parity. We look forward to the day when we can decarbonize thousands of international flights, turning them from symbols of how hard decarbonization is to symbols of climate technology success.

🎙️ Inevitable Podcast

🛣️ Norway’s Carbon Crusher is reinventing road construction to be cheaper, stronger, and carbon negative. In this week’s episode of Inevitable, guest host Thai Nguyen talks with CEO Haakon Brunell about how their bio-based tech and AI platform aim to sequester a gigaton of CO₂ by 2035. Listen to the episode here.

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🗓️ Mark Your Calendar

⚡️ Sometimes Boring, Always Important - What Investors and Founders Should Know About US Electricity Regulation: Join us for a tactical session designed by Greg Geller for early-stage climate tech founders and investors navigating utility-facing business models. Greg is the former Head of Regulatory Affairs at Enel North America and has been in the space for 20 years. He now runs Stack Energy, a regulatory affairs consultancy. We’ll cover how U.S. regulation works and the commercial implications for your business. (Tues, June 24)

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