Are Climate tech founders ditching VC for debt finance?

Forget venture capital, climate tech founders are seemingly turning to debt to finance their ability to scale - particularly the companies delivering big infrastructure projects.

Remember the "cleantech bubble" of the early 2000s? A tsunami of VC money poured into the climate tech and cleantech sectors, but many start-ups fizzled out, failed or never managed to truly scale despite pulling in millions. This time, climate tech seems to be taking a different approach, opting for debt finance instead of Venture Capital.

So why the change of heart? For many founders, pitching to a VC and convincing them to fund an entire solar farm or EV hub development with equity is a big ask. It's a big upfront cost with a long-term payoff and unsurprisingly, not exactly VC's cup of tea. Debt financing, however, steps in perfectly. The way I see it, its like a big loan, just like the one you may fund to landscape your garden or build that wrap around extension. The bank sees a reliable asset (an EV hub, battery storage or a solar farm for example) and offers funding with a clear repayment plan whilst start-up founders can continue to run their business without surrendering control and without the added pressure of investors wanting an ROI yesterday.

In my role, we work with a lot of early stage growth companies who need help scaling and as such, most weeks, I spend a portion of my time scouting out the latest technologies, exciting businesses, latest deals and the companies that are pulling in big investments. What has struck me is the increasing popularity in debt finance. Companies are also getting creative, using special entities or asset-backed securities to obtain debt from banks as it keeps the debt off the company's books but enables them to finance their critical projects. Essentially a lower risk approach that enables founders to retain significant control of their business whilst bridging the gap between their project's potential and its biggest killer - cash flow. As we know cash is king.

And banks are on board, predicting a boom in debt financing for climate tech start-up and scale-ups. Could this be the fundraising approach that unlocks long-term success for climate tech start-ups? Only time will tell, but one thing's for sure, climate tech is changing its funding game, and it might just be the push we need for a greener, more sustainable future.

At Hyperion Executive Search, we work with start-up and scale-up founders and their investors to grow and build their senior leadership teams covering solar, storage, electric mobility, smart buildings and grid. If you are scaling your business and need help finding key talents - we can help. To arrange an initial introductory call, please drop me a note via stephen.robinson@hyperionsearch.com