By Eliza Beckerman-Lee

Climate change is a defining challenge of our time, and addressing it requires action from policymakers, business leaders, and individuals worldwide. Scientists and engineers are developing technologies to reduce emissions, improve energy efficiency, and decarbonize entire sectors, but building a climate-tech startup is uniquely difficult.

Many climate-tech innovations come from national labs and research universities, and require years of research and development (R&D) before they are ready for real-world deployment. Deep-tech and hardware startups often struggle to fund the growth from the lab to pilots to wider adoption since early production costs are so high. Additionally, customers are increasingly unwilling to pay “green premiums,” meaning the successful clean-tech companies are those that can deliver a better, faster, and cheaper product that also happens to be more sustainable. As a result, climate-tech founders face long development timelines, high capital costs, and significant commercial risks to deliver a product that is both effective and affordable at scale.

Breakthroughs in energy storage, critical materials, and other industrial technologies depend heavily on hardware innovation, which is neither easy nor cheap. However, innovations in these sectors are essential to meeting energy and infrastructure needs without worsening climate change. Too often, we lose potentially transformative climate solutions because of funding, policy, and market failures, not technological failures. Without better commercialization pathways, scientific breakthroughs will stall, startups will fail prematurely, and critical solutions will not scale fast enough to meet urgent climate goals.

Current Commercialization Pathways

Innovation and Incubation

Climate-tech innovations often start with scientists and engineers, but turning a technological invention into a business requires commercialization expertise. Technology transfer offices help license intellectual property (IP), identify potential markets, and structure contracts between professors, universities, and private investors. The Polsky Center for Entrepreneurship and Innovation at the University of Chicago has a tech transfer team doing this work.

Public Sector Funding

It may be surprising to learn that a lot of energy innovation and clean-tech entrepreneurship is seeded by government-funded programs. The Advanced Research Projects Agency–Energy (ARPA-E) within the US Department of Energy funds R&D for energy technologies with the goal of improving “economic prosperity, national security, and environmental well being.” ARPA-E funds topic-specific programs such as COOLERCHIPS (Cooling Operations Optimized for Leaps in Energy, Reliability, and Carbon Hyperefficiency for Information Processing Systems) which seeks to develop efficient and reliable cooling technology for data centers that “reduce total cooling energy expenditure to less than 5% of a typical data center’s IT load.” In 2024, ARPA-E also announced $50 million in funding for commercial scale-up of disruptive energy technologies to accelerate market adoption.

Startups also get support from state agencies including the New York State Energy Research & Development Authority, Massachusetts Clean Energy Center, and the California Energy Commission, which provide funding and commercialization resources for early-stage technologies. Government grants are often non-dilutive, meaning founders get funding without giving up equity. This funding is essential before startups have a viable business model and can attract private investors.

However, a major gap remains between early public-sector R&D funding and later-stage private investment. This is the period where technical risk remains high, revenue is uncertain, and venture capital (VC) timelines don’t align with climate-tech realities. This “valley of death” is where many companies stall.

Private Sector Funding

As startups see early traction and market interest, they often turn to private capital. Most startups raise multiple rounds before being acquired or going public, and funding can come from several sources.

Key categories in the climate-tech “capital stack”

• Angel Investors: High-net-worth individuals who write early checks to help startups reach proof-of-concept and product/market fit
• Venture Capital: Investors who back high-growth companies in exchange for an ownership stake and expect outsized returns
  • Pre-Seed / Seed: The earliest VC rounds funding the first team, prototype/MVP, and initial customer validation
  • Series A: The scale-up round typically used to grow revenue, build the go-to-market strategy, and expand the team
  • Series B+: Growth rounds to expand into new markets, increase production capacity, and drive commercialization
• Growth/Private Equity: Funds that invest in later-stage companies or acquire controlling stakes
• Corporate/Strategic Partners: Large corporations that can help finance projects or plants relevant to their own operations
• Project Finance: Structured financing that funds specific projects based on a project or asset’s cash flows

Venture Challenges for Climate-Tech

The VC model is built for companies that can scale rapidly, achieve exponential growth (10x the original investment), and exit within 10 years. This works well for innovative asset-light businesses, which is why VC has been so successful for software companies. However, it is far harder for hardware companies that have long development, manufacturing, and payback periods. Climate-tech often requires large capital expenditure, complex technical validation, and longer commercialization timelines than VC is designed to support. Even when a technology works in the lab, it may be too expensive or difficult to work reliably at scale. This creates a persistent mismatch between startup needs, investor appetite, and available capital.

Investors want evidence of customers and recurring revenue, but many climate-tech startups face a Catch-22: corporate buyers may not commit to an off-take agreement until a technology is proven at scale, yet startups cannot prove scale without the funding that off-takers would provide. Similarly, startups often need a First-of-a-Kind (FOAK) demonstration showing the product works to unlock new investment, but FOAK projects are notoriously difficult and expensive to finance. To bridge this gap, startups seek Letters of Intent (LOIs) or Memorandums of Understanding (MOUs) from potential customers, which signal interest but are often non-binding and provide limited financial security.

Some companies have commercialized successfully (e.g., Redwood Materials, Fervo Energy, Group14), but many more have not yet. Still, there are reasons for optimism. Some climate-tech investors that specialize in deep-tech climate solutions have adapted to account for longer fund horizons, hired technical staff, and run in-house labs or accelerators. In Chicago, Evergreen Climate Innovations, Earth Foundry, Energize Capital, and mHub offer a combination of VC funding and these resources. There are also funders like Breakthrough Energy and BuildersVision, which can provide catalytic and “patient capital” that tolerate longer time horizons because they are not bound by traditional fund timelines.

The reliance on VC to commercialize innovation presents a challenge for many early stage climate-tech companies. The lack of capital between initial R&D and the traction VCs want to see leaves many early stage climate-tech companies stranded. Deep-tech hardware startups need sustained funding for iterative testing, technological validation, and production runs, and as a result, many startups burn through VC funding on R&D rather than scaling their business. It also creates vulnerability when VC funding contracts and climate investors become more risk averse in the face of policy and economic uncertainty. In the first half of 2025, climate-tech funding dropped 19% compared to 2024, totalling $13.2B across venture and growth investment, with 11% fewer deals (653 total) than the first half of 2024.

What More Can Be Done?

While the climate-tech commercialization landscape is challenging, there are real opportunities even despite political and economic headwinds. A combination of diversified funding models, stronger demand signals, and public-private partnerships could help close the existential funding and commercialization gaps. In addition to funding and scaling support, building greater awareness among both investors and founders of R&D timelines and cost, and providing tools to navigate the complex funding landscape could help climate-tech companies overcome the “valley of death” and commercialize more successfully.

Below are examples of strategies that could ease the process and have already seen some success driving climate-tech commercialization.

• Advance market commitments: Government or philanthropy pledge funding upfront through binding contracts to incentivize private sector investment and drive demand for climate technologies before they are commercially available (example: Stripe, Alphabet, Shopify, Meta, and McKinsey led an AMC to buy an initial $1B carbon removal between 2022-2030)
• Milestone-based-procurements: Corporate partners pay startups and purchase more product as they meet technical or performance milestones during pilots
• Commercial partnerships: Corporations provide production space to reduce the costs of FOAK facilities, with potential licensing opportunities
• Patient capital: More investor education and capital structures aligned with science-based R&D timelines
• Funding database: A tool aggregating government grants, subsidies, accelerators, and other non-dilutive funding to reduce search costs and missed funding opportunities for startups

Startup consolidation is normal, but the climate crisis compresses timelines, and we cannot afford to lose critical innovations because funding structures do not match scientific and commercialization realities. Climate change is not slowing down, and neither can our investment in solutions.

Reader Question

What do you think is holding back climate tech innovation— market forces, public policy, the need for more scientific research, or a combination of all three?