Unlocking the Future of Climate Tech: Why Demand Signals are Essential According to Jim Adler
Jim Adler, the visionary founder and general partner at Toyota Ventures, is sounding the alarm on the future of climate technology investments. In a recent Climate Week NYC event, Adler expressed concerns that these crucial investments could languish in the "valley of death" without sufficient demand to sustain them.
Adler's worries are not unfounded, as climate tech investments in the first half of 2024 have seen a decline for the second year in a row. Investors are hesitant to fund capital-intensive, high-risk businesses without a clear path to market, leading to a decrease in both overall funds invested and deal count.
One solution Adler proposes to secure demand for climate tech is through forward offtake agreements, where customers commit to purchasing a specific amount of a product at a predetermined price and date. This assurance of future demand incentivizes investors to support early-stage ventures, knowing that there is a market waiting for their products.
Adler emphasizes the historical trend that disruptive technologies only achieve widespread adoption once they reach a tipping point of 10% to 20% market penetration. Without sufficient demand, even the most innovative technologies struggle to scale.
The decline in growth-stage deals within the climate tech sector underscores the need for clear demand signals to attract investment. Growth-stage investors are hesitant to commit without tangible customer interest, making forward offtake agreements crucial for securing funding.
Adler points to government mandates as a key lever for driving demand in the climate tech sector. Companies like Revel, transitioning from e-moped sharing to EV charging infrastructure, have benefited from state requirements for electric vehicle sales, providing a clear signal for investors.
Looking ahead, Adler sees potential in low carbon fuels like hydrogen to drive future demand. If hydrogen becomes cost-competitive at $2 per kilogram, it could accelerate adoption and attract investment from forward-thinking backers.
In conclusion, securing demand signals is essential for the growth and success of climate tech ventures. Without a clear path to market and customer interest, even the most promising technologies can struggle to gain traction. Investors, entrepreneurs, and policymakers must work together to create a supportive environment for innovation and sustainable growth in the climate tech sector.