The Valley[s] of Death?

The world of climate tech is a challenging one. Developing large-scale industrial processes, technologies, or grid-scale solutions is fraught with significant technology and investment risks.

Many make it through some early challenges - initial technology prototyping, grant funding, team development and establishing indicative product or solution-market fit.

But as time moves on, and the technology roadmap leads in hope towards partnerships through pilot projects and into potential commercialisation, the 'valley of death' curve looms large. 😱

It's a familiar term and challenge that keeps startups and early-stage investors awake at night!

A reminder of the widely established definition, this time from Investopedia;

"A startup company's Death Valley curve is the span of time from the moment it receives its initial capital contribution until it finally begins generating revenue. During this window, it can be difficult for firms to raise additional financing since their business model has not yet been proven. As its name implies, the Death Valley curve is a challenging period for startup companies marked by a heightened risk of failure.

Nothing new here, there are a whole host of reasons why and when this occurs. Is it a function of timing and transition between the available non-dilutive to equity-based investment vehicles? Or is it a lack of planning, strategy and timing of startups? Well, as ever, it's likely a bit of both.

SaaS startups

With a SaaS startup, there is only one perceived valley - as the startup tests and develops the Minimum Viable Product to find product-market fit; once they hit the sweet spot, they can be up and away on the J-curve growth track.

If well planned and managed, monthly cash burn can be relatively light. The MVP and initial market user base can quickly provide feedback for product iteration and adaption. Fail fast and learn quickly is the order of the day. Get the mixture of early traction and revenue models right, and you're in for the win. 🙌

This is why software startups are nearly always more compelling investments for VCs looking for quick growth and returns. 🏖️🍹

Popularised by Howard Love in his book, 'The Start-up J Curve, ' the six phases of a venture in principle.

Some background reading on that from Regions' Alliances for Interconnected Startup Ecosystems, RAISE

Hardtech + Deeptech startups

This is where it gets more complex and the key challenges in climate tech lie. Software and Hardware are inexorably linked like Romeo+Juliet in today's digital world - they simply can't survive without each other, and in climate tech terms, we can't do it all with software. Hands need to get dirty.

We aren't going to dive into the complexity of each stakeholder element in this post, perhaps another time. But as you can see from the nice infographic below from the Maryland Energy Innovation Accelerator, complex hardware innovation potentially offers two valley of death hurdles;

1. Valley #1 - The transition point at Proof of Concept [PoC] and prototype stage where non-dillutive funding from Government may run out. Startups hope that angel investors might be willing to dip in, and possibly some early-stage and patient VC. But if VC can't see a path to profibility, or there are doubts about the technology, market-fit, regulation, founders etc. then this may be a bridge to far.
2. Valley #2 - Just when you think you might be home and dry and commercialisation is on the table, you hit the big one. You need capital to create and scale the operation, materials, facilities, supply chain, team, and the list goes on. You may have off-take agreements, partnerships or other potential market traction and revenue tangibles, but unless you have patient capital to bridge the gap in the interim... 🏳️

Two Valleys of Death then?

Possibly, or possibly more - the question is, just how many Valley's of Death are there?

I came across an article from Wang & Yee on Third Derivative which suggested there maybe FOUR Valleys of Death when it comes to the complexity of climate tech. ☠️

I know, as if it wasn't hard enough already. No wonder the world is strewn with the wreckage of climate tech startups. 💥

Disappointingly, they chose not to colour their infographic - the climate tech journey is anything but greyscale - let's dive on in!

You're off to a great start, no bother 😄

Halfway then, no one said it was going to be easy 😅

Almost there, aren't you? 😓

You made it! Or did you? 😭

90% + of climate tech startups don't. The reasons and exact percentages for failure are variable by technology, sector, investment stage plus a host of other factors.

What is clear, it is incredibly hard to scale a startup to full commercialisation.

Bridging solutions

Well thats a work in progress for climate tech. There are a lot of people, organisations, institutions, Gov. agencies, NFP and investors all trying to build those bridges as quickly and as strongly as possible.

What are some of the mechanisms currently in play? A mixed bag cobbled together with the best intent. But we need a more cohesive and holistic approach.

This is where key climate tech sector stakeholders need to enhance collaboration and knowledge to drive change, as we move into a crucial period on our decarbonisation journey;

• More accessible non-dillutive grant and debt financing
• Strong market advance purchase and offtake agreements
• Strategic partnerships in markets, supply chain and corporate venture
• Investment share upside to incentivise early market adopters
• New and innovative business models
• New ecosystem and stakeholder owner/operator/support structures

How many Valleys then!?

You might have reached your own conclusions by now - is it the traditional 1, 2, 4, or perhaps even more?

Are they really Valleys, or has the definition and scope been extended beyond its original intent? Are they just the encumbent complex challenges of climate tech startups?

Me, I think at least 4, probably 5, is the right number. 🤔

Kane 🌱