Climactic Launches Hybrid Fund to Bridge ‘Valley of Death’ for Climate Tech Startups

Recent York and San Francisco-based venture capital firm Climactic has launched a novel hybrid fund, Material Scale, designed to address a critical challenge facing climate tech startups – the difficult transition from prototype to mass production. The fund aims to overcome the “valley of death” that often prevents promising companies, particularly those dealing with physical goods and novel materials, from scaling their operations.

The “Chicken and Egg” Problem

According to Josh Felser, co-founder and managing partner of Climactic, many startups find themselves “chicken and egg stuck.” They’ve demonstrated their technology works, but struggle to secure the funding needed to produce enough product to meet potential demand and attract further investment. TechCrunch reports this hurdle is especially pronounced for companies developing new materials.

A Different Approach for Materials Companies

Felser highlights a disparity between software and materials startups. Software companies can readily scale capacity using cloud service providers, often selling at a negative margin initially (examples include Uber and Lyft). Materials companies, however, face market skepticism regarding their ability to scale production without guaranteed customer orders. AfriWallStreet notes Felser questioned why this difference exists.

Material Scale: A Hybrid Debt-Equity Solution

To address this, Climactic developed Material Scale, a hybrid debt-equity investment vehicle. The fund will initially focus on climate tech startups within the apparel industry. 24Brussels explains that Material Scale connects startups with buyers willing to commit funds to cover the cost of materials at market price. The fund then bridges the gap through a combination of loans and warrants in the startup, resulting in “minimally dilutive” funding.

Ralph Lauren and Investor Structure Join the Initiative

Ralph Lauren has signed on as an initial buyer for the platform. Investor Structure is joining Climactic as a general partner. The fund operates by facilitating a simultaneous purchase from the startup and sale to the buyer, effectively acting as an intermediary. TechCrunch reports that this structure significantly increases the value of the startup by securing both a customer and funding for scaling.

Initial Funding and Future Expansion

Material Scale is launching with a special purpose vehicle totaling approximately $11 million. Felser expressed hope that the concept will be widely adopted and expanded to other sectors, such as alternative fuels, eventually reaching nine figures in size. He actively encourages other investors to replicate the model, emphasizing the need for innovative instruments to combat climate change.

TechCrunch Founder Summit 2026

The launch of Material Scale coincides with the upcoming TechCrunch Founder Summit 2026, taking place on June 23 in Boston. The summit will bring together over 1,100 founders to focus on growth, execution, and scaling. TechCrunch