Energy Capital Ventures has just touched down back in Chicago after a very successful conference season. Our travels brought us to the heart of the energy world, the City of Houston, which is quickly becoming, among other things, the Green Molecules capital of the world. We couldn’t have ended the tour better than with Greentown Labs at their Annual Climatetech Summits in Houston and Boston. We always enjoy catching up with the Greentown team and seeing what the member companies are up to. This year did not disappoint.

The event kicked off in Houston, one of Energy Capital Ventures’ favorite cities and the cradle of some of the most exciting innovation in Green Molecules! It’s no surprise we are racking up frequent flier miles with our trips to Houston, they are just as excited about Green Molecules innovation as we are! As always, the event opened with some Houston pride, and rightfully so, as the climatetech ecosystem in Houston has been making strides the last few years.

The event panels mostly focused on creative financing for climatetech companies and projects- a conversation that’s becoming more and more popular within the community. Although venture capital plays a critical role, Climatetech startups have unique funding needs to truly scale- which means more funders and more collaboration.

Here are some takeaways from the discussion:

Who doesn’t like Free Money?

Non-dilutive grants are a crucial element in scaling climate technology, providing essential funding for early-stage research, development, and pilot projects. They mitigate technical risk, enhancing the appeal of climate technologies to private investors and expediting their progress. These grants bridge funding gaps, particularly for innovative and high-risk projects, bolstering startups' attractiveness to venture capitalists and corporate partners. The application process for grants, however, can be time-consuming and divert resources from product development and customer satisfaction. Fortunately, solutions like Streamline, led by Helena Merk and her team, are improving the grant application process, saving climate tech companies 50-80% of their application time and simplifying access to vital funding.

Alternatively, there are several fellowship opportunities that also offer non-dilutive funding and a number of them got shoutouts on stage. We had the opportunity to chat with the Managing Director of Activate’s new Houston community, Jeremy Pitts. Activate offers a two-year fellowship that provides early-stage science entrepreneurs with funding, technical resources, and support from a network of experts. Applications recently closed for Activate's 2024 cohort, which will be the first in Houston, but Jeremy is still on the lookout for innovators and ecosystem partners in Houston and beyond.

The Role of Venture Capital

As a startup matures, venture capital becomes crucial for scaling climate technology. Energy Capital Ventures gets to play a really interesting role in the capital stack. First, we get to invest in some of the most groundbreaking Green Molecules technologies. An area that has historically been underfunded but is crucial to achieving sustainability goals and ensuring access to clean and reliable energy. Second, we get to invest pretty early, at the Seed and Series A stages.

By investing early, we really see our investments' role to help derisk the technology while instilling a strong sense of financial discipline. This is especially true for hardware or deeptech businesses which tend to be more asset- / capital-intensive businesses. Fiscal discipline enables our portfolio companies to execute early on, while remaining capital efficient, and is an essential piece in unlocking alternative funding in the future.

Climate Venture Capital is Different

Climate tech companies face distinct challenges. Some of the challenges discussed include the capital-intensive nature of hardware and deep tech, as well as the need for first-of-a-kind projects and facilities lacking clear financing mechanisms. Given the unique challenges, climate technology companies are unlikely to follow the same funding paths as software firms. Instead, they must proactively seek alternative sources of funding and create new financial models and platforms.

However, establishing innovative venture models and methodologies for climate tech ventures remains a persistent challenge. Collaborative efforts across the entire capital spectrum are crucial. Clearer expectations between funding rounds and sources are essential for entrepreneurs to engage with alternative funding sources from the early stages of their ventures. This collaborative and innovative approach is vital for addressing the distinctive funding needs of climate tech companies.

Looking Ahead

The final takeaway from the event was collaboration:

With Funders: There was a call to action for funders to start communicating more to ensure climatetech companies can advance more easily through the capital stack. Whether it is engaging infrastructure funders early on, or wanting to access debt sooner than expected, climatetech companies will have a unique set of metrics and growth requirements to unlock sources of funding beyond venture capital. The sooner we are able to define those metrics and subsequently design new funding models or profiles, the sooner technology will be financed, scaled and deployed. If you’re already thinking about this and want to start brainstorming, let’s talk.

With Corporates: Collaborating with a corporate partner offers several advantages to climatetech companies. These benefits include access to financial resources, industry expertise, and research and development facilities, reducing the financial burden and accelerating technology development. Corporate partners can provide valuable market insights and regulatory guidance, making it easier for climatetech companies to refine their products and navigate complex regulatory environments. Collaboration with corporate partners mitigates risks, enhances scalability, and supports long-term sustainability.  

With Government: It has been a year since the Inflation Reduction Act was passed and a few weeks since the Hydrogen Hubs were announced. The government subsidies offer a unique opportunity for climatetech companies to establish new markets and reach meaningful scale. It is absolutely critical that early government-funded companies scale responsibly to ensure additional government funding in the space. The recent commitments are a huge win for Green Molecules deployment, but it’s just the beginning. Disciplined use of capital and strong execution will ensure more commitments.

Energy Capital Ventures is happy to collaborate with fellow funders, innovators and enthusiasts who are excited about Green Molecules innovation. If we didn’t get a chance to chat at Greentown Labs, don’t be shy.