The Problem in Cleantech Isn’t Innovation — It’s Scaling

At Startup Genome we believe entrepreneurial innovation is essential to winning the fight against climate change and that entrepreneurs must play a leadership role in confronting one of the most pressing challenges of our times. Yet, as of now, relatively few Cleantech startups are scaling up to become global category leaders of the net-zero economy. Why is that?

Some commenters cite an innovation gap. But the sector is not short of potentially game-changing technologies. The shortage isn’t of ideas and startup support organizations, nor of capital.

The problem is the Cleantech scaleup gap. If we could scale all of the Cleantech innovations we currently possess, we might be halfway or — who knows — all the way to a net-zero economy. Sadly though, Cleantech startups often run up against significant barriers when bringing their solutions to global markets. And while more capital than ever has been raised and invested recently by VCs, investors also poured money into Cleantech startups 15 years ago and saw very few results. More capital alone will not solve the scaleup gap.

Without the ability to scale, even the cleverest innovations cannot make a significant impact. To break the challenges of the Cleantech scaleup gap we have created the Entrepreneurship for Climate movement together with the Cleantech Group, NGIN, Cycle Momentum, and others.

Why Cleantech Startups Fail to Scale

Historically, many of the world’s most successful startups have been in the software business. There are good reasons for this. Software startups offer solutions that have an inherent and large cost advantage, replacing labor with high variable costs with software that has a near-zero marginal cost.

Cleantech companies, however, invest vast amounts of time, money, and technical skill to develop solutions that then start out with a big cost disadvantage, sometimes to the order of 100x. These solutions compete against traditional technologies with huge economies of scale, fully depreciated production assets, and decades of production experience. It’s no wonder Cleantech startups are far harder to scale than software-based businesses.

Cleantech startups face another, perhaps even larger, challenge as well. They sell into an exceptionally fragmented market. If you’re selling a software solution, you can go to San Francisco, New York, or London and find huge numbers of potential buyers for your product all in one place. It’s not so easy for Cleantech. Markets not only cut across multiple sectors as disparate as energy, agriculture, and new materials, but each of those sectors are fragmented across industries and geographies.

How to Overcome These Barriers

Barriers to scaling Cleantech companies are high, but they are not insurmountable. At Startup Genome we believe we can overcome these challenges by forming global networks that unite capital, expertise, and public policy.

We are calling together global and local leaders to join us in building the following four global networks solutions to the scaleup gap, starting on January 24, 2021, at the Cleantech Forum San Francisco.

• Creating demand-side policies;
• Mobilizing early-stage capital with global industry expertise and customer relationships;
• Bringing scaling skills and business experience to passionate Cleantech entrepreneurs;
• Combining venture investors with foundations and government funds to create larger and more patient capital.

The first piece of the puzzle is tackling the maze of differing laws and regulations that Cleantech startups must currently navigate if they want to scale. That means working with governments and innovation agency leaders around the world to align their demand-side policies and procurement laws across several countries and cities to enable deployment-led innovation across large interconnected markets. Before we can create bigger winners in the subsector, we need to create bigger markets.

A second piece is a global green angel network bringing deal flow to high-net-worth individuals across many countries — breaking the current hyperlocal nature of angel investing. This will, in turn, bring business and industry expertise as well as international customer introductions to Cleantech startups.  

Thirdly, while more capital than ever has been invested in Cleantech VC funds, what is needed is more patient capital across early and late stages. This could mean linking venture investors with climate-driven foundations and government funds that are looking for climate impact rather than financial return. While ensuring higher returns for pure financial investors, such hybrid funds are better aligned to the longer-time horizons of Cleantech innovation.

Finally, we must work together to connect tech executives with proven global scaling skills — abundant in the software and life sciences sectors in top ecosystems — to passionate Cleantech entrepreneurs and their teams.

Join Us in Tackling Climate Change

Scaling up Cleantech startups means much more than big valuations and impressive exits. It means scaling up their impact and quite literally saving the planet. If that’s a goal that’s important to you, I invite you to read and sign our manifesto.