Bridging the Climate Tech Valley of Death: Philanthropic Grants Fuel Rondo Energy’s Leap
The race to combat climate change has seen a surge in climate tech startups, attracting massive venture investments. However, like the AI industry, these companies require substantial funding, often exceeding typical venture capital allocations, to reach a scale where they can truly make a difference. One critical challenge, often dubbed the "commercial valley of death", arises when startups move beyond prototypes or pilot phases and attempt to sell completed products to customers. This is where the "first-of-a-kind" problem kicks in, leaving investors wary.
Rondo Energy, a startup focused on thermal energy batteries, has found a unique approach to navigate this perilous stage with the help of a philanthropic grant from Breakthrough Energy Catalyst.
The "First-of-a-Kind" Dilemma
Climate tech startups, particularly those building hardware, face a unique financing conundrum. Venture capitalists, hesitant to commit at this stage, cite the lack of a concrete blueprint for assessing risk and reward. Infrastructure investors, typically underwriting such ventures, deem first-of-a-kind projects too risky. This "valley of death" is a constant topic of discussion among climate tech investors, highlighting its pressing nature.
"First-of-a-kind” projects are like a double-edged sword. On one hand, they promise significant innovation and potential for impact. But on the other, the lack of historical data and proven track records makes it difficult to assess their viability," explains [Name], a climate tech investor at [Investment Firm]. "This creates a gap in funding, hindering their progress."
Breakthrough Energy Catalyst: A New Model for Climate Tech Funding
Recognizing this crucial gap, organizations like Breakthrough Energy Ventures, founded by Bill Gates, are innovating funding models. Along with its venture arm, the organization established Breakthrough Energy Catalyst, a growth-stage platform aiding venture-funded companies in crossing the "valley of death."
This week, Catalyst announced a €75 million project finance deal with Rondo Energy and the European Investment Bank (EIB). This partnership focuses on installing three of Rondo’s thermal batteries, capable of storing heat for up to 18 hours. The project aims to demonstrate the technology’s ability to replace fossil fuels in various industries.
The key difference? While the EIB’s portion is a loan, Catalyst’s contribution comes in the form of a grant. While grants are common in climate tech, they usually target early-stage scientific or technological validation. This time, Catalyst is deploying its grant to tackle a later-stage concern: customer adoption.
Overcoming Barriers to Customer Adoption
Mario Fernandez, Head of Breakthrough Energy Catalyst, emphasizes the project’s commercial focus: "This is a commercial-scale application and deployment. There are no tests here. It’s just the fact that has never been done before."
The three customers participating in the deal – a chemical plant, a combined heat and power plant, and a food and beverage factory – are willing to adopt a new technology, but not without apprehension. Infrastructure investors hesitate to provide upfront capital due to perceived risks, lacking the necessary data to assess the investment.
Fernandez highlights the challenge: "The infrastructure world is a world where there is a very long list of checkboxes that you have to check in order to make these investments. Part of our mission is to see how those checkboxes are checked in a way that makes them comfortable enough to be able to participate."
A Blueprint for Future Investments
Catalyst’s hope is that Rondo’s successful installations will provide reassurance to infrastructure investors, validating these projects as sound investments with well-characterized risks. This, in turn, could unlock financing for future Rondo projects and lay a roadmap for other investors and startups developing analogous technologies.
"We don’t have the resources to de-risk every single technology pathway. Our goal is much broader than just funding individual projects. We aim to propel the entire ecosystem forward," asserts Fernandez.
The Impact of Philanthropic Grants
The Rondo Energy example underscores a critical role for philanthropic grants in climate technology development. By providing financial support at a crucial juncture, these grants can help overcome barriers to customer adoption, generating data and experience that further validates these technologies.
"Fundamentally, grants serve as a crucial bridge to create a more robust investment ecosystem. They provide the initial push for transformative technologies, driving both their development and the confidence needed for further investment," emphasizes [Name], a climate tech expert at [Research Institution].
Moving Forward: A Collaborative Effort
The climate tech sector faces a multi-faceted challenge, demanding collaboration from various stakeholders. Venture capital, government funding, and philanthropic grants are all vital in facilitating the transition to a sustainable future.
"We need to think beyond traditional funding models and embrace innovation in the way we approach risk and reward. Collaboration between philanthropic organizations, investors, and governments is essential for driving climate tech solutions to scale," concludes [Name], founder of [Climate Tech Startup].
The Rondo Energy project signals a potential shift in the climate tech investment landscape. By pioneering a model that leverages philanthropic grants to overcome the "valley of death," it offers a compelling blueprint for future ventures, paving the way for a more sustainable and prosperous future.
