Uncle Sam Wants You to Launch a Climate Tech Unicorn

This paper does not represent the opinion of ARPA-E, Department of Energy, or the U.S. government.

Last month, I attended the world’s ultimate climate tech science fair: the ARPA-E Energy Innovation Summit. Hundreds of project teams, all funded by ARPA-E, the U.S. Department of Energy (DOE)’s climate tech moonshot factory, flew in from every corner of the U.S. to share their work. Everything from electric-propulsion airplane engines to wood planks treated to be stronger than steel was on display. The energy on the conference floor was undeniably electric.

For all the excitement in the room, most of the projects I saw would never make it to a splashy IPO. ARPA-E has funded over 1,500 projects in the last 13 years, and 1-2% have had the lion’s share of traditional success metrics. This is by design, of course: the agency invests in high-potential technologies that are too risky for private sector investment. Most innovators harbor ambitions to scale, though, and every government rep at the summit was there to support them. In the last few years since the IRA and CHIPS Acts were passed, DOE has increasingly shifted its vision beyond launching pre-seed stage spinouts, towards helping them scale and deploy.

There remains a big issue, however: information asymmetry, as an investor on one panel put it. There are so many options for support, and the growing government support structure is so vast, that startups don’t know where to start. While at the conference I jotted down a note every time I heard someone mention a government resource. The list got very long, very quickly. I break down the resources available into three crude categories: seed, scale, and deploy.

Seed

The innovation economy is where the United States traditionally shines. ARPA-E has long supported energy and climate-tech founders at the earliest stages. Historically it has opened funding opportunities for specific swim lanes but has recently introduced the “open topic” application to widen the funnel even further.

DOE’s Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs call themselves “America’s Seed Funds,” providing cash and advisory support to startups with missions that hew closely to DOE goals. SBIR has recently focused on reducing friction for applicants and shrinking the timeline from application to funding to help projects move nimbly. The Foundation for Energy Security and Innovation (FESI) is a brand-new organization, introduced through the CHIPS Act, that will invest and incubate early-stage startups, build public-private partnerships, and provide direct assistance to underrepresented demographics and regions to widen the scope of DOE impact.

The Department of Defense, Air Force, and Army each present different opportunities, providing shots of capital to mission-aligned projects that are close to commercialization. For example, Twelve, an ARPA-E funded project working to convert CO2 into chemicals including jet fuel, partnered with the Air Force to test its fuel. In highly regulated industries like aviation, such proof-of-concept support can be invaluable.

Scale

Over the last two decades, the US startup ecosystem has gotten really good at helping software businesses scale. That said, mission-critical hard-tech projects for the energy transition provide different challenges. They tend to require more up-front investment, in the form of first-of-their-kind factories, procurement agreements, supply chain development, and more. Several DOE programs now encourage these builders.

ARPA-E’s SCALEUP program should be high on any founder’s list. Now in its third cohort, SCALEUP provides $20-50M each to select past ARPA-E recipients to help them rapidly scale on their path to development. DOE has other options available too, including the Office of Clean Energy Demonstrations (OCED). This agency was stood up three years ago under the Bipartisan Infrastructure Law and is managing $25B+ to encourage the development of clean energy projects.

The Office of Energy Efficiency and Renewable Energy (EERE), another DOE agency, operates across the startup size spectrum but notably supports startups at the demonstrations stage. DOE’s Office of Manufacturing and Energy Supply Chains has provided funding for projects from everything to the seed to scale level, such as a $300M+ grant for a first-of-its-kind factory for Ascend Element, a battery startup.

Deploy

Many involved in the clean energy transition have taken up the motto: “deploy, deploy, deploy!” Various technologies critical for energy independence and sustainability are already ready for commercialization. The Loans Program Office (LPO) is one of the most prominent agencies working to help implement such technologies. It uses an array of financial instruments involving debt financing to spin up industries at the cusp of large-scale deployment, such as hydrogen.

The Office of Technology Transition (OTT) is another major force for deployment support. They operate across startup size and interface with many DOE agencies to support the energy transition.

Outside of DOE, EPA’s Greenhouse Gas Reduction Fund, launched through the Inflation Reduction Act, has been granted $27B to deploy with a particular focus on helping decarbonize traditionally hard-to-abate sectors and underserved communities. Investments could include everything from $1-10M loans for entrepreneurs installing residential solar to significant tax breaks for energy efficiency home retrofits.

Conclusion

DOE provides the deepest support at the earliest and latest stages of climate tech business development. In the “missing middle,” startups face a smaller pool of potential private investors because their projects have not yet completely derisked but still feature a lower expected return profile than an earlier-stage investment would. With that in mind, keep an eye on the DOE’s  “scale”-stage support structures, as well as local and state-level investment vehicles, as they attempt to bridge that gap in the next few years.

Mack Radin

MBA, Wharton

Mack Radin is a Wharton MBA candidate majoring in BEES. Prior to Wharton, he worked in management consulting, supporting clients in industries including clean energy and carbon accounting. At Wharton, he has interned at ARPA-E and Kodama Systems and launched a sustainable CPG brand.