Rondo Energy's Funding Reveals a New Path Beyond the Climate Startup "Valley of Death"

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Outside of AI, few startups have drawn venture investments like climate tech. Climate tech startups, especially those building hardware, face a particular challenge when trying to move beyond the prototype or pilot phase and start selling finished products to customers.

A new deal involving Rondo Energy, which makes thermal energy batteries, suggests a new way forward: Philanthropic grants. The company's thermal energy batteries can store searing heat for up to 18 hours.

Image Credits: Rondo Energy

Climate tech startups like Rondo face a particular challenge when trying to move beyond the prototype or pilot phase and start selling finished products to customers. This has been dubbed the "commercial valley of death" or the "first-of-a-kind" problem. Venture investors hesitate to commit at this stage because a lot of the technical risk has already been sorted, meaning returns won’t be as high. On the other hand, infrastructure investors, who would normally underwrite projects of that scale, aren’t forthcoming because first-of-a-kind plants are considered too risky.

The folks at Breakthrough Energy Ventures aren’t immune, either. In addition to its venture arm, the organization also has a growth-stage platform, Catalyst, which helps promising venture-funded companies cross the valley of death. This week, it announced a deal that could serve as a template for others.

Along with the European Investment Bank, Catalyst announced that it would provide €75 million in project finance to install three of Rondo’s thermal batteries. One goal of the financing is to prove that the startup’s product can replace fossil fuels in a range of industries. But it’s the nature of the transaction that may ultimately have a broader impact.

While the European Investment Bank’s portion of the financing is a loan, Catalyst’s is a grant. Now, grants aren’t atypical in climate tech, but they’re usually made earlier when the core science or technology has yet to be proven. Here, Catalyst is hoping to use its grant to help Rondo tackle a later-stage concern: Customer adoption.

This is a commercial-scale application and deployment. There are no tests here. It’s just the fact that has never been done before," Mario Fernandez, head of Breakthrough Energy Catalyst, said.

The three customers involved in the deal, a chemical plant, a combined heat and power plant, and a food and beverage factory, were willing to bear the risk of adding a new technology to their operations, but they weren’t necessarily interested in paying for the privilege to do so. Infrastructure investors didn’t want to front them the money, either — at least not yet.

Catalyst’s hope here is that Rondo’s three installations will prove to infrastructure investors that projects like these are sound investments and the risks surrounding them are sufficiently characterized. Ideally, the new projects won’t just unlock financing for future Rondo installations, but provide a roadmap for other investors and startups working with similar technologies.