Addressing the Energy Transition Funding Gap

Key Takeaways

1. Climate tech start-ups face two critical funding gaps: the Technology Valley of Death (concept to prototype) and the Commercialisation Valley of Death (prototype to market).
2. Late-stage funding for climate tech has significantly declined, with Series C volumes dropping 35% and growth investments decreasing 41% in 2022-2023.
3. A structural misalignment exists between venture capital preferences and energy transition climate tech characteristics, as climate tech typically requires longer-term, sometimes capital-intensive investments.
4. Major barriers to capital flow include insufficient government support leading to incomplete markets, short-termism of financing funds and their lack of expertise and sector knowledge, and incumbent competition from low-cost fossil fuel technologies.
5. Growth capital is essential for achieving system building across various technologies, necessitating strategic investments in low-carbon technologies and digital and resource efficiencies to accelerate progress toward a low-carbon energy transition.
6. Growth equity investors face the challenge of assessing a dynamic opportunity space across different geographies. Successful strategies will identify realistic, resilient, and scalable solutions that require growth capital to accelerate their development and the success of the transition.