Supercharging Climate Tech by Unifying Equity Investment and Non-Dilutive Funding
Supercharging Climate Tech by Unifying Equity Investment and Non-Dilutive Funding
by Joel Armin-Hoiland
Everyone knows that there’s never been a better time for climate tech companies to secure non-dilutive funding… right? Non-dilutive funding, in the climate world, typically takes the form of public and philanthropic grants, concessional debt, and incentives. As in, it doesn’t dilute one’s control over a company by giving up equity or ownership. And non-dilutive funding for the climate is so hot right now! After all, seemingly not a day goes by without a splashy announcement of a new Department of Energy challenge with billions of dollars behind it. The forthcoming $500 million ARPA-Climate is the talk of the Zoom rooms and Slack channels that pass for a watercooler these days. New climate-focused philanthropies are being created at a blistering pace, incumbent philanthropies are shifting more funds to climate, and Jigar Shah has the Loan Programs Office humming.
Why, then, are so many climate tech entrepreneurs focused solely on securing equity investment, and why do other important enabling actors in the climate ecosystem see their primary function as connecting founders and venture capital (VC) firms?
The shifting funding landscape
While it’s general knowledge that there’s non-dilutive funding available to climate tech companies, the process of obtaining it can be opaque and daunting. Completing applications and engaging with funders is laborious. There’s limited support and expertise to help entrepreneurs strategically and efficiently pursue these funding opportunities. Incidentally, these are all issues that my company, Climate Finance Solutions, is working hard to resolve.
In short, non-dilutive funding can be inaccessible, and it may seem easier to just sharpen up a deck and blow an investor away with a killer pitch.
This is an understandable perspective, particularly since we are experiencing a much-heralded surge in VC funding for climate tech and equity investment in climate is starting to go mainstream. Yet, equity investment is still not abundant enough to finance all of the high-impact climate solutions that need support, and it has its own barriers to access: in many cases, climate tech companies need more patient, risk-tolerant capital. Plus, as the world (belatedly) turns its focus to more difficult-to-decarbonize sectors––such as heavy industry, shipping and aviation, materials, and buildings––the solutions will be more hardware-based (i.e., capital intensive with longer development cycles and higher technical risk) and, for a time, early stage. In other words, less readily investable.
A unifying solution
At this point, you’re probably asking, “Okay, so what can we actually do to address these challenges to financing climate tech?”
Well, in working for decades with entities across the climate sector, it has become clear to me that the drawbacks of each funding type can be considerably mitigated and the benefits can be enhanced by using both equity investment and non-dilutive funding in tandem to finance climate tech. For its part, non-dilutive funding can de-risk climate tech investments, accelerate commercialization and market entry, prove product-market fit, and bridge the climate tech valleys of death. Private capital helps demonstrate (and create!) a clear and viable pathway to scale for individual climate solutions.
It seems like a simple solution, but many parts of the climate sector still remain siloed and rely upon just one or another of these funding streams. This gives us all the opportunity to play important roles in helping integrate the funding ecosystem.
What YOU can do
Climate entrepreneurs need to develop integrated fundraising strategies that allow them to secure the right types and amounts of both non-dilutive funding and equity investment at the appropriate stages of their development, commercialization, and scaling. At Climate Finance Solutions, we help all of our clients do this and have observed time and time again how it can supercharge a company’s success.
Investors and VCs should coordinate more closely with non-dilutive funders and funding recipients. This will help them de-risk solutions that they want to become investable and provide market signals that help non-dilutive funders target climate solutions with the best commercialization and scaling potential.
Non-dilutive funders need to accelerate the current trend toward funding climate tech commercialization and design programs that facilitate equity investment based on stakeholder engagement.
Organizations creating the enabling environment, like accelerators and incubators, research institutions, and consultancies, should facilitate funding coordination and ensure that their climate tech partners have the knowledge and wherewithal to exploit all available financial resources and funding streams.
Corporate actors should add non-dilutive funding components to their corporate venture funds and participate meaningfully in the development of channels and forums for funding coordination.
The good news is that I’ve worked directly with people from all of these groups and there is definitely an appetite for unifying the climate tech funding ecosystem. The question, as with most things in climate, is how fast we can get it together. But with the help of the dedicated legions of MCJ climate converts, I know that change can come more quickly than we think.
🎙Startup Series
This week, Jason sat down with Jeff McAulay, Co-Founder & President of Energetic Insurance. Energetic Insurance is an InsurTech startup with a novel, data-driven approach to developing new insurance products for the renewable energy industry.
✨Highlights
Community Announcements
🏔Greentown Labs is hosting a Climatetech Summit on November 4th. At this hybrid event, you will hear directly from Greentown’s entrepreneurs about the solutions they’re developing and what they need to bring them to market. Sign up for the summit here!
Climate Jobs
For more positions and openings, check out the #climatejobs channel in Slack.
Oceanworks is a seed-stage B2B venture building a marketplace for recycled plastic, seeking a Director of Polymers
Galway Sustainable Capital is looking for great analysts to join us in our Denver (maybe DC also) office
The Greenlining Institute is hiring a Climate Finance Strategist and a Senior Director of Economic Equity
Seachange is building an electric, hydrofoiling car ferry seeks a Lead Embedded Systems Engineer to own the onboard control & telemetry systems
Dashboard.Earth is looking for a CTO/Full Stack Engineer
An awesome VP of Operations role is open at Remoov, making it simple to upcycle
Microsoft (Datacenter Energy and Sustainability team) is hiring for a Regulatory Program Manager
Wunder is hiring! Various roles from project development to credit and underwriting teams. Also for operations analysts, an in-house recruiter, and software engineers.
Climate Events
For more community events, check out the #events channel in Slack or the MCJ Calendar on Luma.
💨Carbon Removal AMA hosted by Noah Deich & Erin Burns of Carbon180 hosted via ZOOM (Tuesday, August 10th at 12:30 pm ET)
MCJ alums, Noah Deich and Erin Burns are hosting an AMA about carbon removal. Join the #mcj-ama channel and RSVP here for the zoom link!
💡MCJ Ideas Jam (August 11th at 9 am PT/12 pm ET)
Watch MCJers pitch their climate startup ideas. Guest experts provide feedback, and audience members are encouraged to ask questions and comment as well. RSVP here!
☕️MCJ Happy Hour hosted on Slack in #virtual-coffee (Friday, August 13th at 12 pm ET)
Thai is organizing a casual MCJ “happy hour” for members to convene, meet new folks, and talk about whatever is on their minds. RSVP here!
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