1. Focusing on Fundamentals
The market is experiencing a reset, with investor priorities shifting away from hype and toward company fundamentals. This change has led to a stronger emphasis on sustainable growth, profitability (EBITDA), and operational efficiency. Investors are now more discerning, focusing on businesses that can demonstrate strong fundamentals and long-term viability. Margins have become critical, as companies without them risk burning through cash too quickly.
Growth-stage funding, particularly at the Series B and C stages, has become increasingly challenging, creating what has been coined the "missing middle." In this environment, investors are extending their fundraising timelines and building in downside protections. They are favoring businesses with proven economics over those relying on speculative growth. This heightened scrutiny reflects a broader shift in the market, where expectations for growth-stage climate companies are further in focus.
If climate businesses can generate strong returns for their investors, the use of marketing terminology such as “climate tech” or “energy transition” is irrelevant. Ultimately, to attract and maintain investor interest, the focus is on performance and profitability.
“Investors can remain rational much longer than startups can stay viable.”
2. Adapting to New Market Realities
In today’s challenging financing environment, founders must adopt a proactive approach to fundraising and runway management. Startups must secure at least 18 months of runway to navigate uncertainties and prepare for worst-case scenarios. This long-term perspective ensures that businesses are better positioned to navigate market fluctuations.
Founders should prioritize strengthening margins, securing contracts, optimizing supply chains, and improving operating leverage over pursuing speculative opportunities or rebranding efforts. By concentrating on these foundational elements, startups can build resilience and demonstrate stability, which are critical factors for attracting investors in today’s market. Expansion or chasing total addressable market (TAM) opportunities should only come after ensuring the business’s core is robust and scalable.
Current capital trends also reveal a nuanced landscape shaped by geographic preferences, funding stages, and innovative financing mechanisms. Some investors are expressing hesitancy toward the United States, influenced not only by climate rhetoric but mainly driven by factors such as tariffs, budget reconciliation, and broader market uncertainty. Startups must adapt to regional dynamics and adopt strategies to align with investor sentiment.
With challenges in growth-stage funding, early-stage investments and late-stage infrastructure deals continue to demonstrate resilience. Companies that can showcase traction (e.g., offtake agreements), strong unit economics, and proven technology feasibility remain attractive investment cases. This trend highlights the importance for climate tech companies to prioritize clear value propositions and tangible milestones to secure investor confidence in a competitive funding landscape.
Founders must take the time to evaluate their investors’ reserve strategies and follow-on logic to ensure their cap table includes partners who are willing and able to provide additional funding when needed. Establishing this clarity early on can be instrumental in securing the necessary capital to weather challenges and capitalize on growth opportunities. A well-aligned investor base not only strengthens financial stability but also fosters long-term collaboration and trust.
Additionally, blended finance is emerging as a critical tool for funding high-risk, first-of-a-kind projects. Family offices, philanthropic grant capital, and multilateral organizations are stepping in to support bold ventures with generational horizons, unburdened by the shorter timelines of traditional venture capital. These entities are willing to take audacious bets, providing an alternative pathway for projects that might otherwise struggle to secure funding.
“Founders are often scared to get to know investment banks, but we are here to help you and your investors."
3. Managing Relationships and Strategic Alternatives
Forging strong relationships is a critical aspect of long-term success for startups, particularly in today’s uncertain market environment. Founders often hesitate to engage with banks early, yet these institutions can offer valuable insights and strategic support. By forming connections with banks early and consistently, startups can gain a deeper understanding of market dynamics, explore financing options, and identify strategic opportunities such as mergers or acquisitions. These relationships can serve as a guiding force, helping founders navigate complex capital markets and position their businesses for future funding rounds or potential exit strategies.
In the current market reset, valuations are under greater scrutiny, and the focus should shift from maximizing short-term valuation to building long-term relationships with investors.
Industry networking is another essential component of relationship-building. As competitors increasingly become acquisition targets, founders should actively engage with peers to explore potential partnerships, talent acquisitions, or strategic exits. Founders should also remain open to alternative outcomes, such as tuck-in acquisitions or other financing options, which can provide a soft landing if traditional funding proves elusive.
By cultivating strong relationships with banks, investors, and industry peers, founders can create a robust support network that enhances their ability to adapt, grow, and succeed.
“Accessing debt markets can be a strategic way to extend runway while retaining ownership. With thoughtful planning and founder-friendly options available, debt can align with growth and long-term goals."
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