This critical funding gap, known as the "valley of death," poses a significant threat to startups just as they transition from prototypes to market-ready solutions. This funding shortfall not only hampers individual businesses but also affects industries striving for decarbonisation and national economies that miss out on job creation and revenue generation.

Early-stage funding is relatively abundant when startups have minimal overheads and promising ideas. However, as risks increase and the costly process of mass production begins, capital becomes scarce.

Europe faces a unique challenge: keeping pace with the US while reducing dependency on Chinese manufacturing. This task is especially urgent in light of the USA’s Inflation Reduction Act (IRA), which has directed nearly $369 billion into climate technology through direct investments and tax credits. Recent data indicates that EU-based companies received only half the investment that their US counterparts did between 2019 and 2021. European policymakers must address this disparity to foster innovation and maintain competitive advantage.

Christian Hernandez-Gallado, partner and co-founder at climate-tech focused vc 2150, comments: “Climate technologies face a triple-edged sword; they’re absolutely vital for tackling climate change, they need to be made as affordable as possible to encourage industries and governments to adopt them; and they are particularly expensive and CAPEX-intensive to take from the FOAK (first-of-a-kind) stage to a commercial solution.

“If governments are serious about meeting decarbonisation targets, then they need to give more support to late-stage startups. Accelerators, tax breaks, cash grants, and other meaningful incentives are all vital levers for steadying investor nerves and encouraging capital to flow to new tech that’s essential to mitigating and adapting to climate change”.

Nicholas Chadwick, co-founder and CEO of UK-based Direct Air Capture (DAC) startup, Mission Zero, comments: “We’re in a challenging economic environment; capital is less plentiful and more expensive than it was five or ten years ago, and sufficient later-stage investment particularly is harder to find.

“This is a major threat to startups just when they need support the most, particularly those with larger, expensive deployments. As long as these founders are presenting financially viable solutions, governments cannot expect to let these businesses fail and have a chance of meeting meaningful decarbonisation and resilience targets.”