The refrain from all seasons of the Games of Thrones series, ‘winter is coming’, can also be a good metaphor for venture capital and start-ups.
The term valley of death in the venture capital world refers to the period when a start-up spends money (on research, personnel, labs or offices) but does not yet generate revenue.
For the climate technology startups going through this phase, as Pitchbook puts it, ‘it’s going to be a tough six months‘. As the industry adjusts to a new energy policy regime under newly elected President Donald Trump, ‘there will be a chill in the air for project funding and major fundraising for companies in the line of fire’.
In the eight years since Trump’s first victory, early-stage climate-tech investments have become the norm. Huge amounts of capital flowed into infrastructure funds dedicated to the energy transition, driven by pressure from pension holders and students, as well as the belief that the energy transition was a profitable investment . Nel 2024 i fondi per le infrastrutture di transizione energetica hanno raccolto 33,5 miliardi di dollari , compared to $9.5 billion for non-energy transition infrastructure funds, according to PitchBook research.
This is because institutional investors operate with a long-term perspective, looking at ten-year horizons rather than single election cycles.
A decisive impetus in this direction was given by the Inflation Reduction Act (IRA) of 2022, sponsored by the Biden administration, which allocated over a trillion dollars to finance energy transition technologies over ten years. This legislation has found bipartisan support, thanks in part to policy measures such as creating more resilient supply chains, relocating production of essential minerals, and creating clean energy jobs in swing states.
Now, with the new president, something might change. First of all, one cannot forget the symbolic decision of Trump’s fight against the ecological transition, namely the exit of the United States from the Paris Agreement on climate and the near-absence of participation in UN COPs during his presidency. Not least, the famous pre-election statements, such as:
“The biggest threat is not global warming, where the ocean is going to rise an eighth of an inch in the next 400 years… and you’re going to have more oceanfront property… The biggest threat is nuclear warming… For me, the biggest problem is not climate change.” (August 2024 [completely false statement: today the sea is rising about 4 millimetres every year, ed]).
“We want to end the Green New Deal scam. (August 2024)’.
“We will drill, baby, drill… A lot depends on energy. And remember, we have more liquid gold under our feet than any other country by far. We are a nation that has the opportunity to make an absolute fortune from its energy. We have it and China does not’. (July 2024).
Finally, there is the conservative and sovereignist action plan, Project 2025, which would frown upon democratic climate policies:
- “Stop collaboration and funding towards progressive foundations, companies, international institutions and NGOs that promote ‘climate fanaticism'”
- “End the Biden administration’s ‘war’ against fossil fuels in developing countries and support responsible management of oil and gas reserves as the fastest way to end poverty and dependence on international aid”
- ‘Deregulation for large companies and the oil industry’
- ‘Increased drilling in the Arctic’.
And such actions could have an impact by reducing incentives and government support for start-ups in the climate tech sector.
Late-stage and growth-stage companies raised a total of $5 billion in venture capital this year, compared to $14.8 billion raised in 2023, according to the Carbon & Emissions Tech Report of PitchBook’s third quarter 2024. The state of venture capital funding for climate technology looks very different from a few years ago, most likely because previously low interest rates had driven the high activity of generalist funds bullish on the energy transition.
So it is precisely for hardware companies developing climate technologies that the valley of death may be much longer than elsewhere: a company may be forced to mitigate the risks associated with its scientific approach, devoting itself to long years of research and development before it can reach a sustainable commercial scale. This delicate transition period has proved fatal for many companies in the climate technology sector. For example, recently, the company developing hydrogen-powered aircraft, Universal Hydrogen, went bankrupt after raising hundreds of millions of dollars from VCs.
For those in the hardware industry, starting up and running pilot plants is a process that takes years and is further complicated by the high costs associated with interest rates on loans, a particularly heavy burden for climate technology companies. On the other hand, economic and business uncertainty will only exacerbate their situation. ‘There’s going to be a window of time where a lot of projects will be slowed down or at least frozen in 2025, and I’m talking about hardware projects, as we start to realise the impact of the IRA,‘ said Sharo Atmeh, co-founder of climate startup fund and incubator Montauk Climate. And Trump has already promised to redirect climate funding: remember, the basis of the IRA is a series of new and expanded 10-year tax credits that are driving nationwide investments in factories that produce solar panels, sustainable aviation fuel, electric vehicle batteries, and other technologies critical to the energy transition.
Although the future US environment and political landscape would seem less favourable to climate initiatives, it should not be forgotten that Trump will find it difficult to get rid of the Inflation Reduction Act, despite the fact that as a candidate he promised to do so while pushing for new oil exploration. Indeed, many ‘conservatives have seen a disproportionate influx of clean energy investment and jobs into their constituencies’, writes the Guardian, and indeed, that the green transition will require more jobs than it will lose has long been known according to the International Energy Agency. Moreover, this prospect of less federal support for new climate technologies is already motivating some investors to step in to fill the gap: for example, the European Investment Fund (EIF) has committed €50 million to the World Fund, dedicated to the development of climate technologies. This commitment joins that of more than 200 other investors, including PwC Germany, Ecosia and the UK Environment Agency’s pension fund. “The last time Trump was in power, there was an acceleration of private capital pouring into certain climate areas to make up for the gaps from which the government was retreating, and I expect the same thing to happen again,” says Philip Krim, co-founder and CEO of Montauk Climate. “We think of this as an opportunity to get in where the capital is starting to dry up.” Indeed, some investors see Trump’s return as an opportunity, despite governance-related macroeconomic uncertainty. ‘Politics goes up and down. It’s like a rollercoaster,” explained David Miller, co-founder and managing partner of Clean Energy Ventures. “A good investment strategy is to invest at a low price when things seem less certain and sell at a high price.” (photo by Mika Baumeister on Unsplash)
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