The lines between climate tech and infrastructure startups are becoming increasingly blurred.
Many startups are aiming to decarbonize huge industrial processes and develop sustainable alternatives to cement, chemicals and fuels.
However, this typically requires the construction of large, capital-intensive facilities.
Most startups fail and fall victim to the “valley of death” around Series A when they can't secure additional funding. And when building a one-of-a-kind plant requires a lot of money, it usually doesn't work out. their favor.
Venture capital accounts for only a small portion of the money invested in infrastructure companies. It is well documented that software and hardware funding are largely separate, but hardware and deep technology have received more attention in recent years.
These startups are now pursuing modularity and could be on their way to winning.
Modularity means the company's technology is designed to be standardized, replicable, and mass-produced, allowing startups to scale up more affordably and in a way that makes sense. Increasing capacity simply means adding more units.
“In the past, when technology wasn't as advanced as it is today, it made sense to build large-scale infrastructure for energy, water, and manufacturing,” said Katie Hoffman, partner at climate technology fund Regeneration.VC. told Business Insider.
However, modularization is “the future.”
Investing in long-term infrastructure startups.
pitch book
Modularity is seen as a winner among VCs
Investors say the modular design allows for gradual changes and deployments, reducing capital costs and project delays. The idea comes from solar power, where identical panels can be mass-produced and scaled up to create giant solar parks or distributed across rooftops.
“Cost overruns typically occur in things like big transportation projects and buildings. If you look into it, solar, wind, and data centers are usually delivered pretty much on time and on budget. Most of them are very modular projects,” says Mike Schroepfer, former Facebook CTO who now runs his own VC fund, Gigascale Capital.
Winners will embrace this and “scale out rather than expand capacity,” Schropfer said, allowing startups to compete economically. He pointed to portfolio company Dixocycle, a Paris-based startup that uses this approach for ethylene production.
German chemical startup Ineratec and New York-based ammonia-as-a-fuel company Amogy are two other companies that are scaling up this way. The modular system takes up minimal space and can be installed in confined locations such as ships, Amogy CEO and co-founder Seonghoon Woo said in a 2023 interview with BI about the company's Series B. mentioned in. Ineractec's Tim Boeltken also previously pointed out that modular production has lower initial capital costs. It's easier to make money by starting small and growing over time.
A slide from Ineratec's Series B pitch deck: a modular reactor housed within a shipping container.
Inatec
Indeed, climate change fund Voyager Ventures is distancing itself from quasi-infrastructure projects, favoring instead a modular approach that reduces the risk of runways and discretion.
“Capital efficiency is what we're looking for in all business models, whether it's software or hardware, and then iteration, speed of iteration, speed of learning about product-market fit.” said co-founder partner Sierra Peterson.
“We need to make sure that companies have the ability to iterate toward product-market fit at low cost and quickly, which is why we are investing in seed and Series A. First production facilities. It's hard to do that if you want to get it up and running.'' You have hundreds of millions of dollars and it's going to take a long time to get there. ”
Permits remain a major hurdle for climate projects, and modularization could be one way to “get around some of those hurdles,” added Ben Wolcon, partner at MUUS Climate Partners.
Modular technology can also be distributed and containerized, with some startups hoping to deploy with on-site partners. In this case, the unit may require some customization to integrate with your existing infrastructure.
Scaling up with partners is a common endeavor, but the jury is still out on whether it will work because successful large-scale projects are often joint ventures, one investor said.
It's not just industrial startups that are becoming more modular and decentralized, but also carbon capture, water filtration, food systems and energy, Regeneration.VC's Hoffman said. This is being driven by demand from consumers, local authorities and landlords who find centralized systems weak and costly.
For example, relying on a large power grid can result in power outages during storms, leaving homes without electricity.
