Precisely because sustainability offers such a massive opportunity, it evokes the success achieved by technology companies over the past three decades. Yet while software may have eaten the world, its appetite for capital wasn’t voracious. Asset-heavy climate tech solutions—such as green steel, the removal of carbon from the atmosphere, and new ways to produce and store renewable energy—are different. Unlike software or other asset-light businesses, these climate tech ventures require substantial capital at early stages in their life cycle and need more time to break even and scale up. And in contrast to existing solar and wind energy farms, they face greater commercial uncertainty, including the development and adoption decisions of other players across the value chain. Put another way, capital-intense climate tech ventures aren’t quite a fit for traditional venture capital (VC) (their businesses offer the promise of extraordinary growth and don’t yet have positive cash flow, but need more capital, sooner than VC firms typically provide), aren’t quite a match for private equity (PE) (which tends to invest in businesses that are already cash flow positive), and would appear to be too early in their business building to receive significant bank financing. Like other new ventures across sectors and over time, some will surely fail.
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