How to finance the scaling of breakthrough climate technologies? Many climate tech startups and scaleups struggle to secure the necessary financing for first-of-a-kind (FOAK) facilities – even with existing offtake agreements.
Venture capital financing, the most common form of startup finance, is usually not sufficient to meet the investment needs of hardware startups. However, loans are usually not available to young companies due to their lack of collateral. These firms are usually not yet profitable and are growing faster than banks are used to. In addition, there are risk factors, such as the longer investment period, the technical readiness, as well as the prospects of selling the produced output.
In such cases, public credit guarantees can help make projects bankable. The guarantees can provide a large part of the collateral required by banks. This form of risk coverage allows lending institutions to make more investments in innovative technologies.
This impulse paper by the Tech for Net Zero Alliance proposes a solution at the European level. Specifically, it proposes that the European Investment Bank (EIB Group), supported by the European Commission, launches an improved and expanded loan guarantee instrument for climate tech startups. Concrete examples are given and best practices are highlighted.
