The Ad Hoc Gist: Beware Climate Tech’s Pits of Despair

The Ad Hoc Gist: Beware Climate Tech’s Pits of Despair

May 2024

Artwork by Mina Lee

In this month’s Gist, my colleague Max Tuttman draws on his Ad Hoc and ARPA-E experience to explain how climate tech startups can avoid falling into some common traps, which he calls the “Pits of Despair.”

We have two senior associate job openings at AHG, one focused on tough tech and the other ideally based in Chicago. Cesar Diaz also joined our team as a senior associate. Welcome, Cesar!

And check out my blog on our new search/hiring offering and why we believe people, not tech, are often the best moat.

- Jim Kapsis, CEO
The Ad Hoc Group

Beware Climate Tech's Pits of Despair

Following a boom cycle in venture funding, we in the climate tech ecosystem find ourselves preoccupied with the Valley of Death, searching for capital to scale scrappy startups into transformational industrials.

As we journey through this treacherous landscape, we must, however, remain vigilant to avoid the less-discussed, but just as fatal, tripping points along the way. These Pits of Despair ultimately manifest in a company’s inability to secure funding, but are at their core strategic or operational issues, not financial ones.

Here are three of the most common pits I’ve seen throughout my years in climate tech, along with innovative ways companies have avoided them.

Mistaking system economics for customer value

At ARPA-E I advised a program supporting a cohort of long-duration energy storage (LDES) technologies. One common problem among this group was that while they could make a compelling case for how their system could support a decarbonized grid, they were unable to find anyone to pay for it.

The underlying challenge, which became my mantra, was that the grid is not a customer. The grid is a system, not a check-writing entity.

This challenge is not unique to LDES. Many climate tech startups are trying to solve a broader need – whether it’s grid decarbonization, wildfire management, or atmospheric emissions reductions. Successful companies are able to translate a general economic value proposition to a specific customer one.

Take Natron Energy, which was awarded an ARPA-E grant in 2012 to pursue a cutting-edge, sodium ion battery technology with the potential to revolutionize the grid. While most projects from their vintage have fallen by the wayside, Natron just opened a new manufacturing facility, made possible by identifying real, paying customers: data center operators. These customers turned to Natron to deliver a battery that could outperform both incumbent lead acid and emerging lithium ion batteries on lifetime, responsiveness, and safety – all critical for their reliability needs.

🍪Om, NOMS, NOMS, NOMS: The Not-On-My-System Monster

A particularly tricky pit to fall into involves having technology that poses not just a financial but an operational risk to early customers. This challenge is especially acute for products that touch highly tuned, high uptime infrastructure, like the transmission and distribution (T&D) system or a manufacturing facility. Given the risk, it’s easy for a customer, like a utility, to refuse to connect a new product to their system.

This is a NIMBY-type problem, which, in the spirit of my daughter’s favorite “Sesame Street” character, Cookie Monster, I will call “not on my system” or NOMS. Successful companies get around this pit through one of two routes: either they find a first market with less stringent reliability requirements, or they find a customer with no other good options.

Sila Nanotechnologies makes a groundbreaking material to enable silicone anodes in batteries, increasing energy density and lowering costs. The ultimate promise for this technology is in the automotive market, but automakers aren’t inclined to put an untested technology into millions of car batteries. Sila was able to pivot and find a customer willing to adopt their technology at a much smaller scale, launching their batteries in the Whoop fitness wristband. They are now breaking ground on an EV-scale production facility with Mercedes Benz as a customer.

On the other path, customers with no other good options, look no further than utilities facing existential wildfire threats. In this environment, where the unknown risks of any new technology are outweighed by the known risks of doing things the old-fashioned way, utilities are deploying an array of new solutions, from islanded microgrids to advanced grid monitoring sensors.

The myth of the “drop-in replacement”

Jevons Paradox aside, the LED light bulb is one of the greatest climate tech success stories of the past two decades, having grown from <1% market share in 2010 to 75% today. That’s largely because, at the end of the day, installing a lightbulb is installing a lightbulb, regardless of what’s inside.

For most technologies, it’s not that easy. As the head of an innovation program for commercial buildings told me, it’s one thing to have an inventor show up, install a device, and prove it works. It’s another thing entirely for a company to show that a supply chain can deliver their solution for them.

Because most technologies cannot drop into existing systems as seamlessly as the LED light bulb, companies must ensure their product and operations are conducive to vendors, installers, owners, and operators alike. AHG client Aeroseal, for example, has tapped into existing home contractor networks and equipped them with the tools and training they need to offer Aeroseal’s HVAC product. This focus on the value delivery chain is core to turning a project-based business into a venture-scalable climate solution.

While avoiding these Pits of Despair doesn't guarantee a startup’s success, failure to do so almost inevitably lands the company in climate tech’s Valley of Death.

I’d love to hear from our readers: What common pits do you see startups falling into? Have you seen companies take clever workarounds? Shoot me a line at

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