German politicians, foundations, startup founders, state development bank KfW Capital — and none other than American billionaire Bill Gates — met in Berlin yesterday morning to discuss a topic crucial to Germany’s future competitiveness: financing climate tech.
Gates spoke broadly about his experience funding capital intensive climate technologies in the US.
Elsewhere at the conference, there was an idea proposed about launching a fund — comprised of public and private capital — to help climate techs build first-of-a-kind facilities (or FOAKs).
Startups struggle to finance capital-intensive infrastructure projects — like direct air capture or energy storage systems — as they often don’t have enough revenue, or are deemed to be too risky, to get the backing of a generalist VC fund. Meanwhile, banks are reluctant to offer debt-financing without seeing tech proven at scale. It’s known as the “first-of-a-kind valley of death” — a moment in a climate tech’s journey when it faces an increased risk of failure.
The launch of a FOAK-specific fund — of which there are none yet in Europe — could be a significant move for Germany.
“It would be catalytic for the climate tech sector if the government, institutional investors and philanthropic organisations would join forces to lay the ground for a new type of infra-venture-fund,” says Tobias Lechtenfeld, executive director at Tech for Net Zero, a joint initiative by the German Energy Agency (dena), Bill Gates’ Breakthrough Energy and venture builder 1.5°Ventures.
“Solving the FOAK and NOAK (next-of-a-kind-facility) financing gap with a public-private fund — that would be an incredible win-win for Germany and Europe,” he adds.
Funding climate tech
Sifted understands that the meeting on Wednesday included conversations about how the government can support startups in their scaleup phase. The importance of public de-risking to stimulate private investment and the need for loan guarantees were mentioned.
Germany has already made moves to support climate tech ventures at the growth stage, unveiling a €1bn deep tech and climate tech fund (DTCF) last year — backed by the state’s €10bn ‘Future Fund’.
But ecosystem watchers in Germany have long said that more private capital is needed to get larger amounts of cash flowing into startups.
Unlike the US, many insurance companies and pension funds in Germany invest in bonds and tend to avoid venture capital. According to a 2023 analysis by the VC firm Redstone, US pension funds own 10% of Germany’s tech unicorns, compared with 0.2% for German pension funds.
There are signs, however, that things are changing. Last year, KfW launched a €1bn fund of funds, dubbed ‘Growth Fund Germany’ to invest in German and European VC funds — funded primarily by private investors.
Lessons from the US
The US is ahead of the game in terms of providing FOAK financing for startups. The US Department of Energy’s Office of Clean Energy Demonstrations (OCED), which was set up in 2021, has $25bn to provide non-dilutive funding to FOAK-stage ventures nationwide.
Microsoft founder Gates, who was invited to Berlin to share his knowledge of scaling climate ventures, has also invested significantly in hundreds of large demonstration projects and FOAKs via investment platform Breakthrough Energy Catalyst. Last year, it announced a partnership with the EU to mobilise up to €820m between 2023 and 2027 to invest in climate projects, including large scale FOAKS.
Gates’ organisation also has a VC firm, Breakthrough Energy Ventures, which closed a $555m fund in January this year and is increasingly investing in Europe. It’s backed 13 startups in Europe, according to Dealroom data, including hybrid electric airplane startup Heart Aerospace, carbon capture startup Mission Zero and methanol fuel cell manufacturer Blue World Technologies.
Correction: On Monday 13th May this piece was edited to remove details about a public-private fund, due to new information from sources.
