Fewer dollars, more climate innovation in 2022 climate tech market report
Back in 2011, Breakthrough Institute published a report articulating something that the climate tech sector long already knew: that building a company in climate looked similar to tech, but felt different in many ways. Breakthrough keyed in on the difference — climate companies face more hurdles on their way to success. In addition to crossing a valley of death when getting ready to raise their first round, startups building in essential industries such as energy, water, agriculture, mobility, and waste have more valleys of death greeting them down the road than a typical SaaS startup.
Ramsay Siegal and the team at Elemental Excelerator wrote about this in 2018. And as the industry has evolved, with both more startups and more capital coming into the space (hooray!), we’re overdue for an updated look at how climate vs pure play tech companies actually grow and what it means to succeed at each stage.
In 2009, when Elemental Excelerator started its mission to redesign systems at the root of climate change, the startup and funding landscape was quite different. Very quickly, the team identified a funding gap for deploying technologies after the initial launch. Early stage venture capital and government research funding help to launch new companies, and later stage venture capital and growth equity help them grow once the technology and business model are proven. With that gap in mind, just over a decade later, the Honolulu and East Palo Alto-based, majority female-led organization has funded ~$50m across 130+ climate tech cos and supported 100+ (primarily first-of-a-kind) project deployments with a focus on the frontline communities typically impacted first and worst by climate change.
The scales most typically used in our space, such as Technology Readiness Level (TRL) – which was developed by NASA in the 1970s to determine how mature any given technology is – are used by organizations far and wide, well beyond the US government. However, scales like TRL often stop at “market introduction” or “launch.”
But technology launch is often just the beginning. In Elemental’s experience supporting 130+ climate tech companies over the last decade, the launch of the product is actually only the end of the technology development cycle. A major funding and expertise gap begins at TRL 9, or what Elemental calls Commercial Inflection Point 4.
This is when the really difficult work begins: deploying technology with customers in the real world. With climate technologies in particular, the path to scale often requires significant capital, involves numerous strategic and community partners, and calls for thoughtful, complex, and iterative deployments. What a company learns from its initial deployments informs its future trajectory, and integrating these learnings is critical for success. More times than not, Elemental’s portfolio companies experience a fundamental, game-changing evolution after their first deployment.
Elemental Excelerator has developed a novel, climate tech-friendly Commercial Inflection Point (CIP) scale to capture the major milestones from ideation to mass market adoption.
By expanding the traditional measuring stick for company growth, the CIP scale 1) helps entrepreneurs navigate commercialization, and 2) helps investors successfully invest before, through, and after this gap. An extended scale, capturing something closer to the true journey of a climate startup, gives entrepreneurs and investors a common language that helps unlock funding and accelerate climate impact.
The CIP scale is a blend of commercial and technical milestones and most applicable for B2B and B2G (business-to-government) companies.
The CIP scale also offers a framework for how to build diversity, equity and inclusion into a company's DNA at the team, leadership, and board levels as early as possible. Between inflection points 4 and 5, startups should look to structure equity & access into their deployment plans. At inflection point 4, companies are developed enough to understand what their technology can achieve and where they will most likely deploy. Case in point: prioritizing frontline communities - those that experience the first and worst consequences of climate change and are most often communities of color, indigenous, and low-income. Around inflection point 4, startups can also start to assess the potential unintended consequences that their business models may create. At this point, scaling their technology relies on ‘how’ they deploy and doing so equitably requires building relationships needed for a successful deployment.
Elemental helps their entrepreneurs integrate equity & access early by helping them partner successfully with community partners (non-profits, government agencies, and community-based organizations) - building principles of equity and access into its projects, tracked alongside commercial inflection points. (Listen to Dawn’s TED talk here, and find tools and templates here).
A large part of Elemental’s support is directed to first-of-a-kind projects, which captures the iterative nature of learning through deployments. These can be first in-the-ground or in-the-cloud – or they may be when a company expands to:
🌍 A new geography
⚡️ A new business model
🧩 A new customer segment
💡 A new product offering
🤝 A new community, or with a new community partner
In case this feels theoretical, here are a few examples of how this has played out with Elemental’s portfolio companies on the ground:
🌍 Geography: BlocPower is focused on greening aging urban buildings.
Supported through funding and strategic engagement from Elemental, BlocPower scaled from a CIP 5 to CIP 7, expanding beyond their home market of New York to establish a beachhead in California and projects in other states. The market expansion helped secure a $63M Series A fundraising round in 2020 and validated their continued scale to dozens of additional cities across the country.
⚡️ Business Model: SOURCE Global creates pure drinking water from sunlight and air.
When SOURCE joined Elemental they were at CIP 7, selling Hydropanels direct to consumer and wholesale in 18 countries. SOURCE and Elemental piloted a new business model: a Water Purchase Agreement where customers could buy water by the liter, rather than pay for a system upfront. They successfully established a water production, bottling, and distribution business with an Indigenous-owned partner in Australia. This proof point enabled SOURCE to reach CIP 8, and get real-world project data to unlock project finance — fueling their growth to more than 50 countries.
🧩 Customer: Vence provides an animal management platform for livestock farmers that enables regenerative agriculture.
Vence joined Elemental at CIP 4, with a number of smaller-scale pilots across the US. The Elemental project was their first demonstration with an enterprise customer. It successfully validated the commercial readiness of the second iteration of the technology and helped them scale into a new geography: Australia. Today, Vence is at a CIP 6, with dozens of commercial customers across the US and Australia.
💡 Product: Ampaire is developing scalable electric powertrains for aircraft.
When Ampaire joined Elemental at a CIP 4, they had demonstrated the company’s Electric EEL airplane - an upgraded six-seat Cessna 337 technology - in small-scale trials. Through the Elemental project, Ampaire became the first to fly a hybrid aircraft on an actual commercial airline route in partnership with Mokulele Airlines. Mokulele is a subsidiary of Southern Airways, one of the largest commuter airlines in the US. Since then, Ampaire, now at CIP 5, has successfully flown multiple first flights with new generations of their system, refined and scaled their technology and supply chain, and has begun to integrate into much larger aircrafts.
🤝 Community Partner: Remix is the software platform for shaping urban mobility.
When they joined Elemental at CIP 7, they were already used by 4,000 planners in 325+ cities on three continents. However, as their customer base grew from transit agencies to city departments of transportation, they saw a need for more “impact insights” on the platform. Through Elemental, Remix partnered with a group of equity and transportation advocates assembled by Oakland-based mobility justice non-profit, TransForm, to develop a software tool to more quickly discover and understand demographic and income data. Remix, now at a CIP 8, was acquired by Via shortly after completing the project.
The gap identified 10 years ago, for first-of-a-kind projects between commercial inflection points 4 and 7, still persists (check out The Climate Capital Stack for more on this). Far too often, climate tech companies are still stuck raising expensive dilutive venture capital to deploy their first pilots, diluting potential returns and creating suboptimal incentives. Most growth-stage capital providers require multiple commercial proof points from startups.
The good news is that there are more vehicles that have emerged to finance and support startups through this gap along with Elemental - such as Breakthrough Catalyst and LACI Market Transformation. These are largely powered by philanthropic dollars, and the vehicles are specifically designed to enable companies to scale to the point that debt vehicles (i.e. Generate Capital with $3B to deploy), government programs (i.e. the Loan Program Office with $40B to deploy), and other capital can get in the game.
Scale is how to achieve climate impact. As John Kerry recently noted, “from IEA research, we know around half of the technologies we need to reach net-zero still need to scale.”
In order for those technologies to contribute to climate impact, they need to get to first, second, and third commercial-scale deployments and deployment at scale. Ultimately, they need to become market leaders supplanting fossil fuels, plastic, and other extractive practices.
And in order to bridge the gap, those of us in the climate space need hundreds of philanthropists, banks, and structured programs to help serve as the bridge from initial technology development to commercialization at scale. The faster that entrepreneurs can get through the commercialization inflection points, and become leaders in their markets, the more climate impact they will deliver. And that’s something we all want to see.
Special thanks to Dawn Lippert (CEO), Danya Hakeem (current Managing Director, Portfolio) and Ramsay Siegal (former MD, Portfolio) at Elemental Excelerator, a nonprofit investor on a mission to redesign systems at the root of climate change. Special shoutout as well to current and former Elemental Excelerator team members Sherrie Totoki, Amanda Denney, Sara Chandler and Avra van der Zee for their support.