Climactic, an early-stage venture firm, has launched a hybrid fund called Material Scale to help climate tech startups overcome the 'valley of death' by providing a guaranteed customer and funding to scale up production.
Climactic co-founder and managing partner Josh Felser noticed that materials startups face a unique challenge in scaling up production due to market skepticism, unlike software companies that can quickly add capacity from cloud service providers.
Material Scale will initially focus on climate tech startups in the apparel industry, providing a hybrid debt-equity investment vehicle to give them a boost. Ralph Lauren is joining the platform as a buyer, and Investor Structure Climate is joining Climactic as a general partner.
The Funding Model
Material Scale will fund the difference between the cost of materials at market price and the purchase order amount through a combination of loans and warrants in the startup. Felser describes this model as 'minimally dilutive'.
The first investments will come out of a special purpose vehicle totaling about $11 million. Felser hopes to eventually branch out into other markets like alternative fuels and grow the Material Scale concept to nine figures.
Market Context
Felser believes that this type of investment vehicle is necessary to support climate tech startups, saying 'we need more novel instruments like this to attack climate change'. He hopes other investors will adopt similar models to support these companies.
Material Scale hasn't executed any deals yet, but Felser has a long roster of startups and large apparel manufacturers interested in participating. The platform is expected to provide a much-needed boost to climate tech startups struggling to scale up production.
