By Jack Fox-Male  Reading time: 10-minute read

“Not today, thank you”, I responded to the make-up artist at the start of Day 2 of the 2025 Hello Tomorrow Summit.

The panel ‘The Future of Climate Tech’ had just begun and, while in charge of the Main stage, I was running around chaotically calmly reflecting backstage with a cup of tea.

‘The Future of Climate Tech’. That’s the million dollar question. Or the billion dollar question, really.

3.7 billion dollar question, you could say.

That’s the amount of funding the US government cut from climate tech startups in May – 3.7 billion dollars.

And over summer we swayed in the other direction, as the One Big Beautiful Bill (OBBB) supercharged tax credits and breathed life back into some climate technologies like carbon capture and storage.

But as Laurie Menoud, Founding Partner of At One Ventures, reminded us in our Summit panel: “It doesn’t matter if it’s Trump, Bush, Biden or whoever… if it’s cheaper and if it’s better, it will win.”

So, in spite of these political acrobatics, are there any fundamentals of climate tech scaling and investing that we can rely on? Our superstar panel thinks so.

Founders, investors, corporates: listen up. We’ll take you through the latest thinking for growing and investing in climate tech startups, from some of the best in the game.

#1: Get your unit economics right from Day 1

“The cost economics need to make sense”. The unit economics of a climate technology must be the focus from Day 1. That’s the first piece of advice from Rajesh Swaminathan, Partner at Khosla Ventures, who has spent over 25 years investing in climate tech. If the unit economics are merely an afterthought, it will lead to problems further down the road.

Let’s take Direct Air Capture (DAC) as an example. DAC involves chemical or physical processes to extract carbon dioxide directly from the air. While DAC has shown promise in the last decade, it has struggled to scale to globally-meaningful gigaton-per-year proportions.

Why is that? Because air contains only about 0.04% CO₂, meaning DAC systems must process massive volumes of air to extract relatively small amounts of carbon while using up a huge amount of energy and expensive equipment.

Scale this to meaningful levels and the costs are not viable.

And we’ve seen it before. Remember how the electric vehicle battery manufacturer Northvolt, once hailed as Europe’s next unicorn, filed for bankruptcy in 2024. Their problem? Amongst other things, it was an inability to scale their manufacturing process in a cost-effective way; an inability to get their unit economics right.

As Laurie Menoud reaffirmed in the panel: “The number one responsibility of a business is to make profit. Period. Best solution, with the best performance, and it’s cheaper. The BONUS is it’s fully decarbonising an industry”.

It’s hard to disagree with Laurie. People don’t care about climate, they care about returns. If startups only target those willing to pay for a green premium, then they’re only targeting 5% of their audience. This is not sustainable.

So, how can climate tech startups actually achieve clear unit economics from the start?

#2: Use different options to get strong unit economics

The right approach to unit economics for a climate tech startup is of course dependent on the technology, but there’s a few different approaches to consider:

Be asset-light and outsource manufacturing as much as possible

– Can you contract manufacturers rather than building your own factory too early?

– Can you limit other CapEx-heavy assets, such as logistics, land use, and electricity equipment? Hardware is not necessarily expensive, if you use your money wisely

Being asset-light in this way brings healthier cash flow and investor confidence.

Start by targeting high-added-value products that will lead to higher returns

– This will give you a chance to solidify your manufacturing processes before scaling too big, too fast

– Paul Graham, a famous co-founder of Y Combinator, often says “Build something 100 people love, not something 1 million people kind of like”. In the deep tech world, that translates as: start with a low volume/high value market. 

Take advantage of appropriate government subsidies

If you’re a clean tech startup, in most geographies the chances are you have multiple options to choose from:

– Tax credits reduce a company’s tax liability in exchange for clean energy investment or production. These could cover a percentage of upfront capital costs, or provide payments for per-kWh of energy produced or per tonne of CO2 captured. They’ve been used to good effect previously in the US

– Tariffs/carbon contracts for difference see the government pay the difference in price between the actual carbon price, and the strike price needed to make the project viable. It reduces the impact that carbon market volatility can have on startups, helping them navigate uncertainty. It’s worked well before in the EU

– Non-dilutive funding, including direct funding/grants, involves either one-off or a series of planned funding rounds from a government to a startup. These could be combined with tax credits, loans or private capital for blended financing. Examples include Horizon Europe, the EU Innovation Fund, or funding from the Department of Energy (DOE) in the US

While these are great in theory, some of our panelists weren’t convinced and went as far as to say…

#3: Never rely solely on government subsidies for climate tech

In fact, this was the big take-home message from our panel: If your unit economics only work when fuelled by subsidies, then they don’t work.

These subsidies can be essential in helping a startup grow, but they can also be taken away in a matter of weeks.

‘Deep Tech Decoded: A Strategic Investor’s Guide’ is a joint report by Hello Tomorrow and Deepbright Ventures that uncovers the secrets to Deep Tech investing, from more than 10 years of leading the ecosystem.

As we mentioned earlier, in May 2025 the US DOE cut $3.7 billion in funding from 24 clean energy projects, across multiple sectors including low-carbon cement, carbon capture, hydrogen, clean fuels and electrified heat.

Then a couple of months later, we had the OBBB, the 904-page package rolled out by President Trump spanning not only energy, but taxes, healthcare, immigration, and defence too.

The OBBB was a mixed bag for climate tech: winners include fossil fuels and clean-firm power, while losers include solar and wind. But above all, it was another reminder of the volatility of government support in today’s climate tech world.

This was likely to happen, as predicted by Pae Wu, General Partner at SOSV, as part of our report ‘Deep Tech Decoded’: “With recent geopolitical shifts, ESG and other impact metrics are likely to take a backseat. However, I believe we’ll still see strong investment in companies that are solving real problems and proving their economics actually work.”

So, you need to be able to show that a government subsidy can get you off the ground, but that you can continue to grow if those subsidies are taken away. This is even more so the case in hard-to-abate industries, like cement, concrete and maritime, where there is no clear line of sight on price parity.

Clearly, the only companies that will make it are those that can thrive in all geopolitical climates. The key element of this? De-risking your technology.

As outlined in ‘Deep Tech Decoded’, startups that reduce the technological risk by reaching new industrialisation milestones, such as proving viability outside lab conditions and then industrial scale, create substantial value for investors, even pre-revenue. This is because they bring the company closer to entering an attractive market with the added protection of intellectual property.

So, how can you scale your climate tech startup without relying on government subsidies? This is where VC, corporate and even philanthropic funding come in.

#4: Build capital stack creativity

Liza Rubinstein, Co-Founder at Carbon Equity, offered her thoughts on this during our panel. “What’s great is initiatives trying to be creative in their financing, combining some philanthropic and catalytic capital with private capital and other sources, and I think that’s made a huge difference”.

Liza Rubinstein, Co-Founder and Chief Strategy & Climate Impact at Carbon Equity; and Yair Reem, Partner at Extantia Capital.

Varied capital stack is indeed one of the keys to achieving balance as a climate tech startup grows (as we explored in a previous article on the Valley of Death in deep tech). This involves having several funding types, such as private venture capital, corporate capital, and project finance, as well as appropriate government subsidies. This reduces your reliance on one funding source, so if it is taken away (often the government subsidy), you’re better equipped to deal with it.

Form Energy is a great example. They combine investments from leading funds such as Breakthrough Energy and Energy Impact Partners with grants from the US DOE and the California Energy Commission. The long-duration energy storage scale-up saw their Series F round in 2024 bring their total funding to $1.6B.

But the question remains, given the long development cycles in climate tech, how can startups attract investors in the first place?

#5: Consider alternative applications for your climate technology

Climate tech is a complex playing field. There’s often a long time between early investment rounds and any potential payout, but as reminded by Rajesh Swaminathan: “You can’t just be passionate, you must also be patient”.

Take nuclear fusion, for example. While investments have increased in the last decade, including from Big Tech players like Google, Microsoft and AWS, it’s likely to be at least another 10-15 years before the first fusion plant is getting electrons on the grid. And that’s before we’ve even considered unit economics (which we now know is important!).

So, if the long-term returns of a climate technology are far away, how can climate tech startups attract and maintain investor interest?

One way is to monetise the technology along the way. This involves using one or multiple components of the technology for an alternative solution to the long-term one; typically one where there is existing infrastructure and support in place. While the returns may be smaller, they are nearer and more realistic.

To see how this could work, let’s go back to the example of nuclear fusion. Fusion requires extreme conditions to overcome the repulsive force between atomic nuclei; namely, very hot, very dense, and suspended in mid air for a sufficient amount of time to allow nuclear fusion to occur. One approach to this is using superconducting magnets. But, as is being shown by Commonwealth Fusion Systems, these magnets could also have potential applications in electric grid upgrades, wind turbines, MRI machines, high-speed transport, aerospace and more.

In this way, investing in the technology, rather than necessarily the final, long-term application, represents one way to grow investment and stabilise the scaling journey of a climate tech startup.

Can we get it right this time?

Climate tech is a volatile, fast-changing world that failed at its first attempt. To solve some of the world’s biggest challenges, climate tech startups must learn some lessons from the past. As our experts summarised:

#1: Get your unit economics right from Day 1

#2: Use different options to get strong unit economics

#3: Never rely solely on government subsidies for climate tech

#4: Build capital stack creativity 

#5: Consider alternative applications for your climate technology

To scale effectively in climate tech, you have to be at the forefront of trends and find the best partnerships to help you along the way. Hello Tomorrow Consulting offers several services to leading startups, including market understanding, soft-landing programs, integration & scaling, investment facilitation and commercial bridging. Interested in working with us? Get in touch.

Startups can also join us at the Hello Tomorrow Summit, our landmark annual event uniting the world’s deep tech ecosystem, to meet directly with high-profile investors, corporates, fellow founders and more. Plus, startups can apply for the Hello Tomorrow Challenge, the world’s longest-running deep tech competition. Learn more here.

This article was inspired by the 2025 Hello Tomorrow Summit panel: “The Future of Climate Tech”, moderated by Yair Reem (Extantia Capital) with speakers Rajesh Swaminathan (Khosla Ventures), Liza Rubinstein (Carbon Equity), and Laurie Menoud (At One Ventures). Watch the full panel discussion here.