Implications of Changing Capital Markets for Climate Entrepreneurs

Lessons from Enduring Planet & Friends' Financing Series

There is more capital in the market than the headlines suggest. The hard part is that less of it is pointed at sectors outside of a few “hot” sectors.

At our latest Enduring Planet & Friends Financing Series session, "Implications of Changing Capital Markets for Climate Entrepreneurs," Dimitry Gershenson (CEO, Enduring Planet) and Hannah Friedman (Founder, Lupine Finance) sat down with Andrew Beebe (Managing Director, Obvious Ventures), one of the longest-tenured operators and investors in climate, for an honest read on where capital is actually flowing and what founders should do about it, not just for today but for the 6 and 12 month windows ahead.

The through-line: the equity, credit, and public support markets that founders used to treat as separate levers are now moving together. Reading them in isolation is how you get caught flat-footed. Reading them as one system is how you plan a raise that survives contact with a market that keeps shifting under you.

The Capital Is There, But It's More Concentrated

By the aggregate numbers, this is not a capital-starved market. Venture funding reached $512 billion in 2025 and $331 billion in the first quarter of 2026 alone. The money has not left, but it has clustered, into both a smaller number of deals and into mega-VC funds.

Capital is concentrating into a smaller number of perceived category leaders. Dollars are flowing toward data-center-adjacent climate and AI infrastructure, while categories like direct air capture face real headwinds. Investors are writing larger checks into fewer companies, chasing whoever looks like the winner in each category rather than spreading bets across a broader field. For founders, that means the middle of the pack is a harder place to raise from than it was 5 (even 10) years ago. Now, being clearly differentiated matters more than being early to a sector.

Private credit has grown, but it is often interdependent. Private credit is roughly tripling as an asset class, which sounds like relief for capital-hungry companies. For good reason, credit does not carry early-stage technology risk the way equity does, so for pre-commercial climate companies it complements a raise rather than replacing one. Lenders who count on an equity round coming in behind them get more cautious when that equity looks less certain, so available credit can contract without enough overall fundraising momentum. 

The outcome? Equity is tighter for most of the space, public support is less certain or nonexistent, and debt is increasingly tied to both. 

Plan your capital stack early, and use debt as a tool, not a bandage. Debt works best for financially sophisticated operators who understand the trade-offs and use it to accelerate what’s already working, not to paper over a broken business. The calculus around follow-on funding and debt structures needs to be understood before you take the first check (equity or debt), not improvised when your lead goes quiet. When one leg of the stool wobbles, the others feel it, which is a very different planning problem than optimizing any single source in isolation.

The IPO window matters less than the fundamentals. Whether the public window is cracking open is mostly noise for founders who are years away from it. Where exits came up, the preference was clear: traditional IPOs over SPACs, because the added scrutiny and rigor tend to produce healthier outcomes than a fast path to the public markets.

Underwrite Your Investor Before They Underwrite You

In a market where follow-on capital is not guaranteed, the diligence founders do on their investors matters as much as the diligence investors do on them.

Ask the questions that reveal follow-on capacity. How much do you hold in reserves? What is your follow-on strategy? Where are you in your fund's lifecycle? Raising Fund II and Fund III has gotten harder across the board, and a partner who cannot support your next round is a risk you want priced in before you sign, not discovered later.

Understand the LPs behind the fund. Some LPs actively co-invest alongside their managers, which can unlock additional capital flexibility down the line. Knowing which of your investors have that kind of LP base is part of understanding how much dry powder actually stands behind your cap table.

Pick the person, not the logo, and lean into specialist VC early. The individual partner you work with matters far more than the brand on the door: an engaged specialist from a smaller fund often beats a distracted partner at a marquee generalist firm. Specialists are especially valuable in the early stages, when the bet is on team and vision and sector-specific networks and judgment do the most work.

A lead sitting out is a yellow flag, not a death sentence. If a former lead passes on your next round, treat it as something to manage rather than hide. With a clear narrative for why they sat out (fund lifecycle, concentration limits, strategic fit), it is not necessarily a worse signal than a down round, and future investors can work with it when you get ahead of it.

Fit Beats Valuation, and Terms Haven't Broken for Real Businesses

The fear that terms have fallen off a cliff was met with a more precise picture: For companies showing real scale in big markets with strong leadership, terms and mechanisms have not radically shifted (even though valuations have certainly gone up).

Match your company to the right size of fund. Funds under $500 million tend to generate better returns, and different fund sizes are inherently underwriting different outcomes. The size of your exit potential needs to match the “return-the-fund” expectations of your investor’s AUM. Do this homework early, and have a frank conversation about it upfront as part of your discovery. 

Do not inflate your growth story to fit someone else's math. Stretching your targets to look like a mega-fund's ideal portfolio company sets you up to miss the numbers you just promised. True alignment between your real revenue trajectory and your investor's return model is worth more than a higher upfront valuation you ultimately cannot grow into.

Asset-heavy businesses face a higher bar, especially on M&A. VCs are generally underwriting 7 to 12 year holds, and in industrial categories like cement the bar for an M&A exit is steep because acquirers are conservative and returns are hard to reach through acquisition alone. That reality should shape which investors you target and how you frame the eventual outcome.

Plan for the Delay, Be Honest About AI, and Manage Your Board

Even if keeping up with the news feels like its own full time job, there are a handful of habits worth building now for founders to adapt to the coming 6-12 months.

Raise for the delay, not the plan. Detailed scenario planning is useful, but do not over-engineer it: keep a few scenarios in mind and size your raise to survive slippage by padding 1.5x to 2x. Fundraising almost always takes longer than expected, and conditions can move fast, so conservative runway is not pessimism, it is preparation. Generally, Andrew advises his companies to never cross the 6-months-of-runway-left mark without having a signed Term Sheet in hand. 

On AI, lead with honesty. Forced AI narratives backfire, because investors can tell when it is a buzzword rather than a real advantage. Say plainly where AI fits your business and where it does not. Remember: AI-driven efficiency is often temporary once competitors adopt the same tools, which is exactly why real hard-tech and deep-tech moats (novel materials, proprietary hardware, unique processes) hold up better than software anyone can replicate.

Manage the board like it is part of the job. Schedule 1-on-1s with board members outside the formal meeting so tensions get resolved before they escalate. Keep the metrics you report honest and stage-appropriate rather than one-size-fits-all, avoid fuzzy math entirely, and make time to recognize your team even in the weeks when firefighting wants all your attention.

Tactical Takeaways

The market is more connected and more concentrated than a year ago. A few moves to make now:

• Ask every prospective investor about reserves, follow-on strategy, fund lifecycle position, and whether their LPs co-invest.
• Plan your full capital stack (equity, debt, grants) before your first round, and treat credit as tied to your equity story, not separate from it.
• Pad your raise 1.5x to 2x to absorb delay, and keep a few scenarios ready rather than one rigid plan.
• Be authentic about where AI does and does not fit, and invest in the differentiation competitors cannot copy.
• Run board 1-on-1s outside formal meetings, report honest stage-appropriate metrics, and recognize your team through the hard stretches.

None of this assumes an easier market is coming. It assumes the founders who read equity, credit, and public support as one interdependent system, and who choose their investors as carefully as investors choose them, will be the ones still standing when the next window opens.

Thank you to Wilson Sonsini Goodrich & Rosati for sponsoring this series. Follow our Luma calendar to register for upcoming Enduring Planet & Friends Financing Series: luma.com/enduringplanet.