How to Scale Your Climate Tech Hardware Startup | 7 Top Tips

Hardware solutions are critical to solving the climate crisis. Read our seven top tips for scaling your climate hardware startup. 

By Sammy Fry, Head of Climate, and Pippa Gawley, Founding Partner at Zero Carbon Capital

The urgency of hardware solutions has never been more apparent. In 2023, global warming exceeded the 1.5°C threshold across an entire year, a chilling reminder of the accelerating climate crisis. While software plays a role, climate change is a physical problem, requiring physical solutions to fix the heavy emitting areas. 

Despite promises of increased funding for high-growth, R&D intensive firms, private and public initiatives have not supported the sector enough to protect its growth.

We’ve witnessed highly-regarded companies suffering, from electric vehicle maker, Arrival, entering administration; to the collapse of Britishvolt’s battery factory; to agritech startup, Small Robot Company, shutting down. Tech Nation was particularly close to the Small Robot Company, which was part of multiple growth programmes and was named one of TIME’s best inventions, which makes its closure an even more bitter pill to swallow. 

Scaling climate hardware is paved with numerous challenges: the carbon funding gap between software and hardware, the overall investment landscape, the difficult balance in founder equity, the slower iteration cycle for hardware, the lonely journey of a founder, and the difficulty of finding quality talent. Plus, the survival rate for hardware startups is about 10% lower than for software firms.

There are, however, ways that founders and investors can make life easier. Tech Nation and Zero Carbon Capital recently co-hosted an intimate session with startups in the Climate Programme to discuss some of the key challenges for hardware startups and how to overcome them.

Here’s seven top tips for founders scaling hardware for climate solutions:

1. Understand VC appetite for hardware

Venture capitalists traditionally favour software, but a growing number do recognise the importance of hardware in tackling major challenges. They are gradually acquiring skills to evaluate deeptech, but remember:

Don’t expect an immediate shift. If a VC hasn’t invested in hardware before, securing funding might be a long and difficult process.

Clarity is key. Be upfront by asking: ‘Is this the type of company you see yourself investing in?’ If not, seek specific feedback (and don’t get defensive). If yes, inquire about leading the round, their decision-making process, timelines, and what you can do to help the process

2. Be transparent in a tough economic climate

Be upfront about investor limitations. Many investors currently lack readily available capital. Ask: ‘Are you currently making investments? Where are you in your fund cycle? What’s your typical check size? Do you have any timing/round size constraints?’

Prioritise your ideal investors. Research and create a realistic dream lead investor list. Start early to build relationships and socialise your ideas. Once you secure your lead, the rest typically follows.

3. Think: Traction, traction, traction

Investors prioritise evidence of customer demand, and the bar is even higher in this tough market.

Sharpen your customer focus. Clearly define your customer, positioning, and sales narrative.

Seek evidence of product-market fit. Letters of intent are good, but signed contracts with actual money are better.

Don’t lose sight of your core. Avoid distractions like consultancy projects or grants that don’t directly de-risk your product or accelerate revenue generation.

4. Be ready to extend runway

Fundraising rounds are taking longer. Get creative with capital expenditure (capex) and personnel to buy more time:

Explore cost-saving strategies. Consider sharing, borrowing, hiring, or deferring expenses. Research bridge loans or financing options if needed. 

5. Plan ahead for scaling

Think early about your go-to-market production strategy:

First-of-a-Kind (FOAK) financing. Everyone’s talking about First of a Kind financing at the moment, and there are many possible solutions, depending on what’s right for your business. Explore possibilities like joint ventures, contract manufacturing, or eventually licensing. Alternatively, you could build your own facility using venture debt, blended finance, grants, loans, or project finance. Advance Market Commitments (future orders or off-takes) with advance payment or deposits might also provide funding or collateral.

Prioritise control and value creation. Maintain control of your core IP and learnings. Seek non-dilutive funding and maximise value retention.

Ben Scott-Robinson
Co-Founder & CEO
Small Robot Company

“Developing robust, reliable hardware is a less understood challenge than developing software, especially amongst VCs. Having a clear narrative on how you can get to commercially viable hardware is key. 

“This narrative works along two axes of evolution. Firstly, the reliability axis, where you need to iterate around improving the capability of your hardware until it can survive with minimal care for the length of the payback period. The second axis is around productionisation, where you need to iterate around removing cost and complexity, while making the processes of build maintenance simpler. 

“The point of scaling is when you can make a cheap, robust, effective and easy to maintain unit, and the clear instructions on how that unit can be built in large numbers. If an investor doesn’t understand that, then they are not the right investor.”

6. Approach corporate investors with caution

Corporate investors can be valuable partners, but also come with potential roadblocks:

Understand their motives. Their reasons for investing will impact your relationship and ability to engage with competitors or customers.

Define expectations. Will they be a passive minority investor or actively involved with a board seat? Are they interested in learning, acquiring you, becoming a customer, or an operational partner?

Assess reputational risks. Carefully consider the potential drawbacks of partnering with them.

Craft your narrative. Develop a clear story justifying your decision and mitigate risks. Maintain a balanced power dynamic. Consider having multiple corporate investors to signal openness to collaboration.

7. Explore alternatives to VC funding

Not every company needs VC funding. Some have different risk-reward profiles:

Lower-risk, lower-growth companies. Consider EIS funds, impact investors, regional investors, strategic investors, family offices, and other sources.

Explore government resources. The British Business Bank finance hub offers valuable information on diverse financing options for small businesses. 

The hardware journey arguably requires the highest form of resilience among entrepreneurs, coupled with strategic navigation. While recent setbacks highlight the challenges, the increasing urgency of climate action underscores the critical need for these solutions. 

By understanding the funding landscape, its challenges, and alternative paths, founders will increase their chances of success and most importantly, have an outsized positive impact.

Are you scaling a climate tech startup? Click here to discover more about our Climate Programme.