Australian Climate tech startups face significant challenges to scale, particularly at the commercialisation and scale-up stages.
Drawing on global frameworks and Australia research, the Scaling Australian Climate tech industry report, authored by Made For Scale, University Technology Sydney and Greenhouse tech-hub identifies not one but five key stages— referred to as "valleys of death"— where Australian climate tech startups struggle to scale.
Vulnerabilities described in the five valleys of death may be addressed through the strategies outlined in this groundbreaking research.
The research is based on analysis of 82 Australian Climate tech companies and 23 in-depth interviews with Founders and CEOs of Climate tech scale-ups.
The Hard Thing About Climate Tech
Climate tech companies, especially those focusing on hardware or material science often face;
longer times to scale,
higher capital requirements, and
greater market risk compared to their software counterparts.
The consequences of 'snail scaling' innovative solutions to urgent climate problems such as carbonisation and global warming, has larger, negative implications beyond economic returns.
Hard-tech solutions are essential as software alone will not achieve climate goals. Yet most climate tech companies (CTCs) founded since 2000 are software firms. Their numbers rising exponentially outstripping hardware 4:1 in key tech hubs globally (Endeavour Report, 2023).
In Australia only one-third of all Climate tech companies at commercialisation or scale up stage are hard-tech or science based. 50% of these are based in NSW and Victoria. (HolonIQ database, 2024)
Mind the Funding Gap
Australian Climate tech startups raised AUD$553 million in funding in 2023 according to Climate Salad's Annual survey, representing only 0.3% of Australia's GDP, well under the 1% of GDP invested in globally. The gap is even wider versus what is required in annual financing of Climate tech. Financing Climate tech globally must increase 6x to USD$8T per year every year until 2030 (IPCC 2023 report) to not exceed +1.5 degrees increase in global temperatures leading to irreversible damages.
While 70% of Australian Climate tech companies participating in the research had received some form of Government financial support in the form of grants or tax credits, only 12.5% had secured debt funding and 29% equity funding, largely from specialist climate or deep-tech funds. At scale-up stage, most growth-stage funding rounds had been led by international strategic investors, such as corporate venture capital.
Wait..What? There are 5 Valleys of Death in Climate tech!
Scaling climate tech is constrained by four ‘valleys of death’, according to Wang & Ye (2020) of Third Derivative, a climate tech accelerator and investor.
The Scaling Australian Climate tech industry report compares Wang & Ye’s framework to the journey and ‘near-death’ experiences of Australian founders to understand the constraints from an Australian perspective. This led us to build on the four valleys and propose a fifth valley of death applicable to Australian climate tech startups.
Scaling Australian Climate tech Industry 2.0
The challenges facing the ecosystem are unlikely to dissipate anytime soon. The quantum of Australian Climate tech companies approaching commercialisation and scale is set to increase three to four fold in the next few years.
To build thriving climate hard-tech businesses, addressing the five valleys of death is not the responsibility of founders alone. The report contains 7 industry level recommendations for and many further recommendations specific to four groups influential to accelerating scale including;
Founders
Investors
Policy makers & Government
Ecosystem supporters
Conclusion
The report concludes the Australian climate tech ecosystem is still emerging. As such, funding, expertise, policy and support programs “as is” are likely to be insufficient in the short-term to reach Australia's climate change commitments and goals without a significant refresh and reboot.
The full report "Scaling Australian Climate Tech: Accelerating commercialisation, internationalisation and scale." is available to download for free from the UTS website.
To request a Quick Snapshot Presentation on the report or for more information, please contact Claire Mula claire@madeforscale.net
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