Closing the $150B Funding Gap With ‘Old Tools’ and ‘New Friends’

Today, we are excited to announce the release of Traversing the Climate Technology Scale Gap, a collaborative effort between Elemental Excelerator and Boston Consulting Group to detail the critical challenges and opportunities in scaling climate technology.

(The following is adapted from the report’s letter from the authors Melissa Uhl, Chief Growth Officer at Elemental Excelerator, and Parham Peiroo, Partner at Boston Consulting Group.)

Broad adoption of climate technology is critical to reducing and mitigating the worsening effects of a warming planet. Yet, innovators often struggle to secure the funding needed to support early-stage commercial deployments. The result is a sizeable “Scale Gap” of $150 billion. Within Elemental’s portfolio alone, the gap is greater than $500 million. That gap is exacerbated by economic and geopolitical turbulence. Rising interest rates, inflation, capital markets volatility, (especially across the technology sector), and a spike in global hostilities all contributed to a near 40% drop in climate-related funding in 2023.

Despite these headwinds, there are many reasons for optimism. Over the last several months, Elemental and Boston Consulting Group met with over 100 investors from across the capital stack, as well as corporates, engineering, procurement, and construction firms (EPCs), insurance providers, and foundations. We came away inspired. Everyone we’ve engaged with is eager to collaborate on potential solutions, be it through financing deals, capacity building, or devising solutions to de-risk deal making.

This report presents the key insights from these discussions. Our hope is that it will be a collective catalyst for action. We see an urgent need to bring capital and knowledge into the Scale Gap and ensure that the technologies most needed to make our planet and our communities cleaner, safer, and healthier are widely available.

With every investment and every conversation, we learn. The highlights from this work show how we can traverse the Scale Gap and unlock funding for innovative climate technologies by:

• Bringing “new friends” together for innovative and diverse deal-making collaborations to help improve overall risk/return profiles. Banks, private equity, institutional investors, and infrastructure investors represent a growing share of climate technology funding. In addition, new tax incentives and funding programs from the Inflation Reduction Act (IRA) are entering the market and impact and philanthropic funders are bringing more catalytic capital into climate technology.
• Putting “old tools” to work. Tried and true financial instruments — creatively applied in new deal models — can help investors align economic interests, mitigate risks, and improve deal governance. You’ll see Elemental’s Commercial Inflection Point Scale, our expansion upon technology readiness levels, in the report itself. Elemental’s Development Simple Agreement for Future Equity (D-SAFE) is another example of how familiar financial instruments, like Y Combinator’s SAFE, can be innovatively repurposed to provide flexible, early-stage funding for the critical early stages of project development. And, we’ll be releasing more tools soon.

Read the report for successful examples of traversing the Scale Gap and tangible actions different types of investors can take to help aid the broad adoption of climate technology. Traversing the Climate Technology Scale Gap can be downloaded below.

Are you interested in partnering with Elemental? Get in touch.

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