Leveraging catalytic philanthropic capital for your first climate project

Philanthropic capital is designed to help high-risk early stage companies when other forms of market-rate capital fall short. By absorbing risk, it can unlock the commercial investment you need to get your project built. So, how can your climate startup access this catalytic capital? 

Lara Pierpoint is the Managing Director of Trellis Climate. We sat down with her to discuss the role philanthropic capital can play in your capital stack and tips for accessing this unique type of funding.

Why climate companies need philanthropic funding

Climate startups that are trying to get hugely expensive first projects built have traditionally turned to venture capital. However, this is becoming increasingly harder to come by, and can be very expensive, while the risk of these projects can be too high for investors to stomach. Another option is government grants, but these come with a lot of hoops to jump through, and likely will not be enough to get your project off the ground.

This is where philanthropic capital could  step in and effectively take the risks that traditional infrastructure investors won’t. Catalytic investors are few and far between, and have a range of approaches and mandates. In general, they are seeking to a) prioritize impact above returns, b) crowd in as much commercial finance as possible, and c) aim not to distort the market by being overly concessionary. It’s a mistake to think of philanthropy as exclusively providing grants! While some philanthropies will do that for for-profit businesses, here, we’ll talk about the world of catalytic (philanthropic) investors. 

What role philanthropic investment can play in these projects

1. Development capital
Before you can raise funding to build your project, there are certain boxes you need to tick – think engineering studies, site acquisition, and permitting. Philanthropic capital providers can supply the capital you need to cover these development costs and make your project commercially viable. 

For reference, Trellis’ report, Catalyzing Development of First-of-a-Kind Climate Projects,  describes the need and possible mechanisms for philanthropic intervention in this arena. So far, Trellis has supported companies by making equity investments to fund development work - check out their investments in Ample Carbon and Ebb Carbon.

2. Project finance
Because the risk-return profile of a huge project can scare investors off, securing financing to get it built can be incredibly difficult. Here, philanthropic dollars can come into play, potentially taking on some of the risk so that the project becomes more attractive to other investors. Successful FOAK project financing stacks often have government and/or catalytic funding in the mix. 

3. A layer of risk enhancement
In this case, philanthropic capital isn’t part of the official project finance stack, but will still play a role in addressing risks that might deter investors. For instance, you might finance a $100m plant with commercial investors, but need philanthropic money to act as a guarantee or insurance before they’re happy to come on board.

The actors who provide philanthropic investment 

1. Individual philanthropists
One option for securing this type of capital is going straight to the source. However, unless you have a direct line to high-net worth individuals, getting access won’t be easy. Even if the philanthropist does give you the time of day, they might not be persuaded by your company – their interests can be very niche. But if it is a good fit, the process can be relatively straightforward for a grant.

2. Family offices and foundations 
As with philanthropists, every philanthropic organization will have different definitions of impact, as well as specific locations and technologies that they focus on. Plus, not everyone will offer catalytic investing, with many organizations solely focused on grant making. 

For tips on connecting with these capital providers, check out our previous Insights on foundations and family offices. 

3. Catalytic intermediaries
Examples include Trellis, Breakthrough Energy Catalyst, and Elemental Impact. These organizations can navigate the landscape of philanthropic fundraising for you, saving you from having to learn the space yourself. While they can be easy to get in touch with, expect their process to be rigorous and long. The small number of organizations in this space means demand and competition is high. Treat them like you would traditional investors, and don’t go in expecting concessionary terms. Lead with your climate impact potential!

Tips for seeking philanthropic capital

1. Get stable first
Don’t try to get too creative in times of distress. Focus on getting venture (or other) funding first and making sure your company is in a stable place. Stable moments are great ones to get creative on your next steps. 

2. Explore all your options
Before you go to philanthropists, talk to investors and lenders so that you have a clear picture on what’s possible with market-rate funding. Sources of capital to think about – in addition to standard venture – include venture debt, equipment financing, and government grants. 

Build a realistic capital stack for your project rather than a hypothetical one, so you can show philanthropists exactly how big the gap is, and the impact their dollars will have. Whether they end up being first or last in the capital stack, coming to them with this roadmap is much more effective than asking for cash without demonstrating that you’ve explored every other avenue first.

3. Think in terms of networks
Never pass up a chance to meet high-net-worth individuals, even if your startup doesn’t seem like an obvious fit. Each philanthropist represents a gateway to their entire network, and these conversations can open all kinds of doors.  Some of these are quite formal, like Toniic, while others are completely informal. Check out our past piece on Impact Collectives like Toniic here.

Lara Pierpoint is the Managing Director of Trellis Climate, an impact-first catalytic capital program established at Prime Coalition dedicated to expediting the implementation of first-of-a-kind (FOAK) climate projects. In her role at Trellis Climate, she catalytically invests in companies and projects in order to speed the commercialization, deployment, and scale-up of climate change mitigation infrastructure. Before her current position, Lara was co-CEO and founding member of Actuate, Director of Technology Strategy at Exelon, and Director of the Office of Energy Supply Security in the U.S. DOE Office of Policy and Systems Analysis. Lara received her PhD in Engineering Systems from MIT, and holds masters degrees in nuclear engineering and technology and policy.