Rondo Energy’s funding highlights a new path through the climate startup ‘valley of death’
Outside of AI, few startups have drawn venture investments like climate tech. And like AI, companies in the sector need large infusions of cash, sometimes well beyond what a typical venture investor might offer, to reach a size where they’ll be able to make a mark.
A new deal involving Rondo Energy, which makes thermal energy batteries, suggests a new way forward: Philanthropic grants.
Climate tech startups like Rondo, especially those that are building hardware, face a particular challenge when trying to move beyond the prototype or pilot phase and start selling finished products to customers. Some have called it the “commercial valley of death,” others say it’s the “first-of-a-kind” problem.
It’s very difficult to raise funds at that stage because investors don’t have a blueprint to help them balance risk and reward.
Venture investors hesitate to commit at that stage because a lot of the technical risk has already been sorted, meaning returns won’t be as high. On the other side, infrastructure investors, who would normally underwrite projects of that scale, aren’t forthcoming because first-of-a-kind plants are considered too risky. The quandary is so widespread and pressing that it has become a constant topic of conversation among climate tech investors — almost to the point of obsession. (To wit: Exantia has made “first-of-a-kind” themed merch.)
The folks at Bill Gates’s Breakthrough Energy Ventures aren’t immune, either. In addition to its venture arm, the organization also has a growth-stage platform, Catalyst, which helps promising venture-funded companies cross the valley of death. This week, it announced a deal that could serve as a template for others.
Along with the European Investment Bank, Catalyst announced on Wednesday that it would provide €75 million in project finance to install three of Rondo’s thermal batteries, which can store searing heat for up to 18 hours. One goal of the financing is to prove that the startup’s product can replace fossil fuels in a range of industries. But it’s the nature of the transaction that may ultimately have a broader impact.
While the European Investment Bank’s portion of the financing is a loan, Catalyst’s is a grant. Now, grants aren’t atypical in climate tech, but they’re usually made earlier when the core science or technology has yet to be proven. Here, Catalyst is hoping to use its grant to help Rondo tackle a later-stage concern: Customer adoption.
