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Venture capital is a temporary bridge for climate tech and the UK government must do more to introduce different funding options, according to founders on a panel at London Tech Week.
In an era of AI dominance, startups staying private for longer, and persistent funding gaps for once hot-ticket items, founders building climate and deep tech tell Tech Funding News on stage at the flagship conference that the current funding landscape still treats them like software companies, even though their capital needs, timelines, and risk profiles are fundamentally different
Investors often try to benchmark business models across software, hardware and infrastructure. This can lead to unrealistic expectations on speed and capital efficiency, and a tendency to mis‑price or overlook capital‑intensive but system‑critical technologies. Capital expenditure — and efficiency — looks fundamentally different for climate and deeptech, however.
Fred White, the co-founder and CEO of materials recovery and recycling startup DEScycle, is clear that venture capital is necessary but not where he wants to stay.
“Our mission is actually to get off venture capital as quickly as we can. It’s really important capital, but a very expensive form of capital,” he says. Venture capital is considered expensive because founders dilute their share and autonomy when raising it; over time, they may no longer hold the largest portion of the company.
Instead, he has blended VC with grants and other non-dilutive funding, and is working with partners on pilots. These tactics are also a way to scale capital-intensive projects without giving away too much ownership. DEScylcle raised a £10.2 million Series A venture capital round in late 2024, and around £8.5 million in grants in the past 10 months alone.
The capital stack is evolving — slowly. As companies stay private for longer, it has resulted in a more layered mix of venture, grants, secondary transactions, project finance and strategic corporate capital to scale European startups.
White charting DEScycle’s path from early VC into growth and ultimately into infrastructure and project finance, once his technology is proven and ready to be deployed at scale.
Grants and project-based finance are unavoidable. At a different conference earlier this year, investors told TFN that founders should opt for paid pilots where possible.
Paid pilots are where customers share the risk by paying for at least part of the build, validation, and integration work. That’s instead of founders footing the bill for their own proof‑of‑concepts with expensive equity financing. Otherwise, they burn their runway delivering free pilots that do little to de‑risk the business for future investors. However, White says that with very large industrial and infrastructure partners, fully paid pilots are often not an option due to the risk that carries for them.
Catalina Valentino, group CEO of ELIXR, says that climate tech often can’t avoid pilots, and sometimes those pilots are free or heavily grant‑funded. Free pilots are often the only option, she says, especially when selling into local authorities. Echoing White, she adds that the liability if something goes wrong often lies with the partner and that is too risky for them.
As such, the founders note that it is particularly important to make the call on pilots depending on their target customers, too.
Funding figures for Elixir, which has a handful of companies under its umbrella working on making cities more sustainable, are undisclosed according to PitchBook.
There is an important form of “free” capital that’s often overlooked, according to White: brand and marketing from strategic partners. In his case, securing pilots and joint work with major industrial names have created outsized value in PR, credibility, and opened up international expansion early.
Anyone who searches DEScyle online, for instance, will see that the startup has a partnership with Mitsubishi; GAP Group, one of the UK’s largest e-waste recyclers; relationship with the University of Leicester where its technology was first discovered.
The pair also stressed the importance of putting together a board that mixes financial investors with independent non‑executives who have actually scaled similar companies in the past — those who believe in the mission and have the experience to help it succeed, rather than chasing dollar signs.
The prevalence of grants means that climate and deep tech companies may have to constantly spin up new proposals, pitch decks and business plans, which can take founders away from their main goals, investors previously told TFN.
White sees this in his geographical pull. International strategic investors, for example, “want you to go to their home market,” which is a great opportunity for companies looking to scale but less so for British politicians who want them to do so from home turf.
Geography is also a capital efficiency question — and there’s a reason why founders look to other countries. White reckons British companies are at a structural disadvantage for first‑of‑a‑kind plants.
If DEScycle wanted to build its first plant here, it’s likely it would have to do so with 100% equity funding, whereas in a European country like France, it could likely attract 25% grant funding and 25% debt funding, he says. That would give the startup a more blended funding stack, which then reduces the amount of equity it needs to raise, making it presumably easier. It also makes the rounds less dilutive for shareholders, thus making the terms more attractive.
Government and corporate announcements at London Tech Week were dominated by AI. London Climate Action Week, the city’s flagship climate conference, takes place at the end of June, so perhaps policymakers and business leaders are holding tight on news to later capitalise on the moment.
Valentino’s closing ask to policymakers and investors is to make it easier to go from pilot to deployment to adoption, especially for AI and data‑driven climate technologies.
Capital, of course, is a crucial component of that. White’s call to action for the UK is, on the surface, a simple one: level the playing field, especially when it comes to that gap of funding for first-of-a-kind plants.
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