Climate Tech Investment: A Growing Concern

Jim Adler, the founder and general partner at Toyota Ventures, expressed concern that climate technology gains could fall into the "valley of death" if companies fail to generate enough demand to survive.

• Climate tech investments in the first half of 2024 dipped for the second consecutive year, both in terms of overall funds invested and deal count.
• Investors are wary of funding capital-intensive, high-risk businesses without a clear path to market.

Securing Demand Through Forward Offtake Agreements

Adler suggests forward offtake agreements as a solution to secure demand. These agreements ensure a customer's commitment to purchase a specified amount of a product at a predetermined price by a specific date.

• Forward offtake agreements incentivize investors to invest, knowing that a guaranteed market exists.
• Early-stage investors like Toyota Ventures are more likely to invest when a customer is already secured.

The Importance of Adoption Rates for Climate Tech Investment

Adler emphasizes the critical role of adoption rates in driving climate tech investment. Historical examples show that disruptive technologies like railways, oil pipelines, and electric power scaled only after reaching 10% to 20% adoption rates.

• Even with sufficient supply and innovation, the dynamics of capitalism do not kick in without significant adoption rates.
• Lack of demand leads to the failure of technologies, as investors hesitate to invest without clear market signals.

The Decline of Growth-Stage Deals in Climate Tech

The article highlights the decline in growth-stage deals in climate tech, a trend that hinders the growth of companies that have proven their technology on a smaller scale and need additional funds to expand.

• Growth-stage investors are reluctant to invest without clear demand signals from customers, such as forward offtake agreements.
• This trend underscores the need for strategies to stimulate customer demand and attract investment.

Government Mandates as a Catalyst for Climate Tech Investment

The article cites Revel, a startup that transitioned from e-moped sharing to EV charging infrastructure, as an example of how government mandates can drive customer demand and attract investment.

• Mandates in states like California and New York requiring all new car sales to be electric by 2035 provide investors with a crucial demand signal.
• Revel's success in securing funding from investors like BlackRock is attributed in part to the government mandates that ensure a growing market for EV charging services.

The Role of Hydrogen in Climate Tech Investment

Adler expresses hope for low-carbon fuels like hydrogen, emphasizing their potential to secure future demand and attract investment.

• If hydrogen can achieve a price of $2 per kilogram in bulk, it could significantly boost adoption rates and incentivize investors.
• The availability of hydrogen at a competitive price would offer a clear demand signal, encouraging investors to support hydrogen-based technologies.

The Urgency of Securing Demand for Climate Tech Investment

Adler emphasizes the importance of securing demand for climate tech investment, warning that without clear market signals, the field could face a significant setback.

• Investors are more likely to invest when they are confident that a customer base exists for the technology.
• The lack of demand could hinder the growth and scaling of critical climate technologies, potentially impacting the fight against climate change.

Summary of Key Takeaways

This article highlights the need to address the demand challenge in climate tech investment to avoid the "valley of death" scenario. Forward offtake agreements and government mandates are crucial tools for driving customer demand and attracting investment.

• Toyota Ventures emphasizes the importance of securing demand signals from customers, like forward offtake agreements, to drive climate tech investment.
• Government mandates, such as those requiring all new car sales to be electric by 2035, can provide crucial demand signals and attract investors.
• The adoption of low-carbon fuels like hydrogen at a competitive price could significantly boost demand and encourage investment in hydrogen technologies.

Key Stakeholders:

• Investors
• Startups
• Customers
• Governments

Key Concerns:

• Lack of demand
• Limited adoption rates
• Investment hesitancy

Key Solutions:

• Forward offtake agreements
• Government mandates
• Price competitiveness of low-carbon fuels

Call to Action:

All stakeholders in the climate tech ecosystem need to work together to ensure that demand for climate technologies is met, paving the way for further innovation and investment in the fight against climate change.