Climate capital stack

Learn about alternative sources of capital for startups.

The Capital Stack

Non-dilutive funding (NDF) is financing that startups can leverage to receive money without giving equity in return, making this an attractive tool for risky or hardware-based solutions. For climate tech startups, this usually takes the form of grants or debt (often concessional), but also includes incentives or private contributions.

I connected with Joel Armin-Hoiland, CEO and Founder of Climate Finance Solutions, to dive deeper into NDF, when startups should consider NDF, and what startups should think about when looking at NDF.

When should startups consider NDF?

NDF will be appropriate for most climate tech startups. However, before pursuing NDF sources, startups should create an integrated funding strategy that will enable them to understand how to most effectively leverage both equity and non-dilutive funding. 

In order to develop the NDF portion of an integrated funding strategy, startups need to:

  • Understand the funding needs and priorities implicated in their technology roadmap and commercialization plan.
  • Map the non-dilutive funding ecosystem by
    • (1) understanding all of the different funding buckets from which they can secure funding;
    • (2) doing a comprehensive survey of the NDF ecosystem;
    • (3) assessing the highest priority opportunities; and
    • (4) downselecting opportunities based on fit with technology and commercialization funding priorities.
  • Compare the available non-dilutive funding opportunities to their roadmap and assess where there is available NDF and where equity investment may be needed, and use that to create an integrated funding strategy and comprehensive business plan.

Startups may look towards NDF for a variety of reasons:

  • NDF provides patient, risk-tolerant capital. In many cases, NDF may be a better fit for climate tech hardware companies’ timelines than equity.
  • NDF assists startups that are equity fundraising, helping startups attract investors, securing better terms, and decreasing the amount of equity financing needed. On the investor side, NDF provides key technical validation and risk mitigation.
  • Higher risk technologies can leverage non-dilutive funding to support R&D.
  • NDF can help startups bridge climate tech’s four valleys of death where equity investment may not be available.
  • Startups are more likely to succeed when they secure NDF.


Who is eligible?

Most climate startups are eligible for non-dilutive funding. Different opportunities and funders have varying eligibility requirements, from the type of entity that can apply, the technology or sector focus, stage of technology development or commercialization, and geographic region. This wide range of requirements one of the reasons that it is so important to take a comprehensive view of the NDF ecosystem before pursuing funding.

Generally speaking, public funding (i.e., government funding) is more accessible to startups and private sector companies. It is also by far the largest source of funding. The biggest trend in NDF for climate in the past few years has been the dramatic increase in the availability of public funding for climate startups and climate solutions. Philanthropic funding has historically been directed more toward nonprofit and academic entities, but is starting to become more available to startups, particularly at early stages.

What are the different types or stages of NDF?

There are different types and sources of NDF that are available at various stages of a company’s or technology’s development. Below is an overview of the different types of grants available at each stage, what they are used for, and some examples of funders that offer those types of grants: 

  • Basic or foundational research
    • Key sources: Federal grants, philanthropy
  • Early company creation/spinouts
    • Key sources: Federal and state grants, philanthropy, nonprofits like Breakthrough Energy Fellows
  • Applied R&D, stages of proving technical feasibility
    • Key sources: State grants (e.g., California Energy Commission) and federal grants (e.g., US Dept of Energy, National Science Foundation, ARPA-E, USDA, and others – including SBIR programs)
  • Technology demonstration and deployment (early pilots)
    • Key sources: State grants and (to a lesser, but growing, degree) federal grants
  • Commercialization funding
    • Key sources: State programs (e.g., CEC BRIDGE), Federal grants (e.g., ARPA-E SCALEUP), public loan guarantees (e.g., DOE Loan Programs Office), blended finance (e.g., Breakthrough Energy Catalyst) 


What should startups think about when pursuing NDF?

NDF can be an incredibly valuable source of funding for climate tech startups. However, pursuing NDF, specifically grant funding, can be complex and time consuming. It’s easy to get disqualified and it takes some experience to really understand exactly what the funders are looking for. All of the context that you need to submit the best application not not always be in the RFP or solicitation. It’s also difficult to simply navigate the NDF ecosystem, understand what’s out there, and identify the right opportunities. Post-award management can also be complicated. Carefully budgeting and scoping out the work can make post-award management and reporting easier. With all of this complexity, it  can be helpful to secure knowledgeable support in developing strategy, identifying opportunities, and pursuing funding.

If a startup develops a NDF ecosystem map and an integrated funding strategy, ensures that the funding opportunities that it applies to are well-aligned with its technology roadmap and commercialization plan, it can both give itself the best chance of securing funding and ensure that its implementation of the project will be successful. 



For more info on Climate Finance Solutions.


Other Resources

Supercharging Climate Tech by Unifying Equity Investment and Non-Dilutive Funding

Should My Climate Tech Company Apply for a SBIR?

Revenue Based Financing (RBF) is a corporate finance product (as opposed to project finance) used to assist business growth. RBF provides debt capital to a business in exchange for a share of revenue for either a fixed term or until a cap is met. Borrowers often make monthly payments based on a proportion of gross cash receipts.

I connected with Dimitry Gershenson, CEO and Co-Founder of Enduring Planet, to dive deeper into RBF, when startups should consider RBF, and what startups should consider when looking at RBF.

When should startups consider RBF?

A startup might look at RBF in 3 scenarios:

  • If actively raising a venture round and trying to minimize dilution.
  • In between rounds, as a means of increasing growth and thus getting a higher valuation later.
  • Outside of the VC dynamic, for funding to support demand/growth.

Generally, RBF is used to directly impact near-term revenue (sales, marketing, BD, etc.) but can be used by early-stage companies to purchase inventory, invest in new equipment, etc.

What are the benefits of RBF?

RBF, compared to other financing, is:

  • Entirely Non-Dilutive: Typically RBF loans do NOT include any dilutive provisions (warrants, etc.)
  • (Typically) Unsecured: RBF loans generally do not require collateral or personal guarantees, and don’t include other complex forms of security or complex covenants (like traditional collateralized loans).
  • Faster: With Enduring Planet, founders can receive term sheets within a week and investment in as little as 30 days.  These timelines vary by lender but are generally much faster than other forms of business debt/credit.
  • Streamlined: The legal documents and the underwriting process are simpler, making it easier on founders (less time spent in diligence) and reducing the overall cost of raising (lower legal fees).
  • Flexible: Payments are directly related to topline revenue, meaning that a company pays less during a bad month.


Who is eligible?

Eligibility varies depending on the lender, but common criteria lenders pay attention to include:

  • Consistent + growing revenue
  • Strong gross margins
  • Runway

RBF is generally limited to post-revenue companies with healthy gross margins (> 30%).

What is the process for a startup to apply for RBF?

The process varies depending on the lender, but generally lenders will ask for financial documentation and access to banking (and sometimes accounting/commerce platforms as well) before receiving a term sheet, if eligible. If the financier uses automation in their underwriting, the whole process should take a few weeks. Otherwise, it can take up to 2 months – and in this case, businesses should be mindful of how much time this can take compared to the amount of runway they will receive.

When talking to RBF providers, what should a startup pay attention to?

The question every startup should be trying to figure out is: how is the lender projecting future revenue and how does that compare to internal projections? To answer this question, there is nothing to lose, but everything to gain by asking the lender for their model, such that one can understand the lender’s assumptions, business performance expectations, and IRR.

Other than assessing a lender’s model, below are questions businesses should ask of their prospective lender:

  • How long does the process take to receive a term sheet?
  • What other value is provided, outside of capital (network, operations support, etc.)?
  • Is there mission/vision alignment?
  • Are there easy buy-out provisions or refinancing provisions?
  • Is there a cap on repayments or a term on the RBF, or both?
  • What is the fee structure (origination, legal, etc.)? Is the fee structure transparent?
  • What is the effective cost of capital? What is this based on?
  • Is there downside protection for lender?

Who else is providing RBF?

In addition to Enduring Planet, some other RBF lenders include Lighter Capital, Decathlon Capital, and Calm Capital Fund.

One thing to note is that while Pipe looks similar to RBF, Pipe is actually a different product, Factoring. Unlike RBF, which provides debt against revenue, Factoring entails pre-buying contracts. The risk involved in this is that if a contract is cancelled, the borrower is expected to replace it with another contract (or multiple contracts) of equal value.

For more info on RBF with Enduring Planet.

Launching a first-of-its-kind green loan program to help scale early-stage cleantech firms and speed up equitable climate action, the Los Angeles Cleantech Incubator (LACI) debuted their scaled debt fund earlier in 2022. For startups that require funding to support their first client orders or working capital to scale their operations, the debt fund will offer loans as a non-dilutive substitute for venture capital. The LACI Cleantech Debt Fund will not need founders’ personal collateral or their personal credit scores for underwriting, in contrast to most conventional bank loans.

I connected with Hyder Shuja, Senior Manager of the LACI Cleantech Debt Fund, to dive deeper into eligibility, when this capital should be leveraged, offerings, and considerations to think about.

Who is eligible?

HS: Startups who are alumni (or have completed six months of curriculum) of LACI’s Incubator or Market Access Programs are eligible through LACI. Additionally, portfolio companies of partner incubators (Greentown, Evergreen, and New Energy Nexus), as well as CalSeed or CalTestBed participants will also be eligible. However, anyone coming from a partner incubator must be nominated by their respective incubators first.

What is the use of this capital?

HS: We have two products that we’re offering. 1) Our First Customer Financing loan is designed for startups with an executed pilot or project agreement for which they need bridge financing. This is for startups that are pre-revenue or find themselves in gap periods between grant programs or their first round of customers. 2) Our Working Capital loan is for startups that are a little further along in their development, making $100,000/year or averaging $10K/month revenue, or at least showing strong signs of traction towards those milestones. The Working Capital loan can cover payroll, inventory, supplies, and a wide variety of business expenses.

When should startups come to you, and why?

HS: Startups should come to us if they’re participating (or have participated) in our Incubation or Market access programs; or if they’ve been nominated by one of our incubator partners. We are looking for businesses involved in these programs because they tend to be de-risked through a wide variety of support services and resources.

What is the process like?

HS: Applicants will start by contacting their respective incubator points of contact (Hyder Shuja with LACI, Jackie Firsty with Greentown Labs, Ian Adams with Evergreen Climate Innovations, and Christina Borsum with New Energy Nexus). They will then undergo an initial screening to determine if they align with our impact goals and are financially ready to pay back a loan in the projected time period. If there is a potential fit, they will begin the application process and be introduced to our lending partner. The due diligence process can go as quickly or slowly as the applicant chooses. If there is a well-established data room, we can move much faster to secure the loan. The process takes 4-6 weeks from the beginning to a final decision. Once due diligence is completed, we’ll collect closing documentation and move to fund.

What is the fee structure like? What is the cost of capital? How should startups think about pricing? What are the additional terms that are noteworthy?

HS: The interest rate of both loans is 9%, and there is a 1.5% closing cost for the loan. It’s essential to recognize that debt sits on the balance sheet and is a more concrete payback structure than equity. However, loans are non-dilutive and allow founders to maintain more ownership of their companies. Most startups cannot access cheaper bank capital, so compared to other products out there, this tends to be more affordable.

What are the pros/cons?


  • No founder dilution
  • No prepayment penalty
  • No credit requirements/minimum credit score
  • No personal guarantee requirements
  • Allows project-based financing without taking on large raise cycles


  • It sits on the balance sheet as a liability
  • Will be liquidated before equity if the business files for bankruptcy
  • Smaller check sizes compared to equity raises

For more info on LACI.


Asset Backed Lending (ABL) provides capital backed by revenue-creating assets, such as hardware or receivables. Unlike traditional venture debt, asset-backed lending is differentiated by the nature of its security. Since the assets that back the lending can be sold or transferred should a business be unable to pay its obligations, ABL can provide more capital than traditional venture debt, in some cases. And, of course, like all forms of debt, ABL requires only warrants for equity in most cases – far less than is ever required in traditional equity financing.

I connected with Mark Paris, Managing Partner of Third Spheres credit platform, to dive deeper into ABL, when startups should consider ABL, and what startups should consider when looking at ABL.

When should startups consider ABL, and what can ABL be used for?

MP: ABL is typically used to help solve cash flow problems. That said, ABL can be used for a variety of things:

  • Acquiring assets
  • Inventory or equipment finance
  • Manufacturing
  • Solving supply chain problems
  • Stand-alone financing for specific uses – such as project finance


What are the benefits of ABL?

MP: ABL, when compared to other debt, is:

  • Cheaper: Cost of capital is cheaper when compared to equity (which was the only game in town for early-stage startups for decades) when looking at the implied return rate (10%-20%) and is adjusted according to the risk of the actual investment.
  • Flexible: Loans can be used for a variety of things.
  • Structure: Loans can range from six months to five years, typically and there are many different ways to reduce stress on a startup’s liquidity – from delaying initial payments for a period of time (known as PIK), to creating aligned structures where the lender takes risk for upside benefit, incentivizing refinancings for a lower cost of capital, etc

Since ABL is tied to assets as much as anything, as assets grow (or are expected to grow) the ABL facility can grow with the startup – thereby increasing the amount of capital available and saving time and trouble of doing a new search for capital. 

ABL can often be used to unlock specific types of growth, like Buy Now, Pay Later (BNPL). When it comes to climate action, ABL can help startup customers to avoid technology or cash flow risks by getting access to emerging climate solutions now, while sharing risk with lenders and/or the startup. 

Who is eligible?

MP: Eligibility varies depending on the lender, but common criteria lenders pay attention to include:

  • Revenue (consistency and growth)
  • Contracts (pipeline and length)
  • Balance Sheet (financial history and organization)
  • Asset Type (and how liquid is it)
  • Customer/counterparty quality of revenue source


What has your experience been like working with startups in ABL?

MP: One of the primary advantages of working with Third Sphere is that we are early-stage investors, first and foremost, and that ethos informs us, as lenders. As such, all of us have spent at least a decade (and much more) in venture capital and credit capital. We provide financing for early-stage startups because early access provides the highest probability of catalyzing positive movement for the startup and returns for our investors.

We have seen it all in regards to the startup interface when it comes to lending. Many startups are not sophisticated in capital markets, and many founders are intimidated by lenders. Our job is to do everything we can to reduce anxiety about the process.

When we started, founders and their boards were suspicious of what might happen if things go wrong. It’s quite common for founders to believe that lenders will do everything to take control of their companies while believing that VCs are much better aligned. We find that we’re able to work with founders on initial terms, but also as they encounter surprises which are the only predictable part of early-stage startups. 

What is the process for a startup to apply for ABL?

MP: Although there are several steps to finalizing an ABL transaction – including structuring of the transaction, term sheet, due diligence, and documentation – the process is quite deliberate and clear. We start with a conversation and questions, followed by discussing terms and structure for a transaction, if appropriate.  This is not to say you won’t need a lawyer before you close a transaction, but our job is to make this easy, not painful.

Because of the potential for financial surprises during a startup’s journey, it is good to build relationships early – so both the lender and the borrower can conduct early due diligence.

When talking to ABL providers, what should a startup pay attention to?

MP: Startups should pay attention to the terms a lender is providing. One of the early mistakes startups make is that they don’t read the fine print and they agree to terms that are strict and inflexible. 

A few terms to specifically look for are:

  • Guarantees – Which party is responsible to pay back the lender. NOTE: Some lenders require personal guarantees – just make sure that requirement is “market” relative to the risk.
  • Payment in Kind (PIK) Period – A way of delaying the payment of interest until later. NOTE: The cash flows that would have happened and the interest that would have been paid during PIK Period is embedded in the loan on the backend
  • Interest Rates – The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage of the outstanding loan.
  • Time Frame – How long the loan is for and when it needs to be paid back.
  • Upfront Fee – Paid at the start of the contract
  • Exit Fee – Should the transaction be prepaid or not, the lender usually seeks to have a minimum rate of return and this is where the Exit Fee may come into play, if applicable.
  • Multiple on Invested Capital (MOIC) – The measure of the current value compared to the amount of money invested. MOIC is simply a measure of total net benefit to the lender divided by the original loan.
  • Internal Rate of Return (IRR) – An estimate of the rate of return that an investment is expected to provide. IRR captures some of the time value of money – the longer it takes the lender to get paid, all things being equal, the lower the IRR.
  • Amortization – How the loan decreases over time.

Other than scrutinizing the terms, when looking at different lenders, below are questions businesses should ask about the lender:

  • Is there mission/vision alignment? 
    • Are there terms that grant the lender warrants for equity?
    • Can the lender grow with your business (as you grow)?
  • What have been other business’ experiences (reference checks)?
  • What happens when things go wrong? 
    • Do lenders more to take control or do they work with teams to get to adjust terms? 
    • Do lenders scrutinize legal terms or focus on the bigger picture path to getting the best result, which often requires some uncertainty and patience which is not a hallmark of most lending

The takeaway is to look beyond what the loan amount and the interest is, as lender flexibility is more important, especially when things go badly.

What happens when a startup can’t repay debt?

MP: Ideally, you don’t get to this stage. However, if a payment is missed, this will trigger the cure period, which is the time between when a payment is missed versus when you are actually in default and lose control of your options.

Depending on the lender, at this point, debt can be restructured. Often, this will be in the form of extending the payback time. This is where the rubber meets the road – reputable lenders should not only do all they can to protect their investors but also figure out how they can preserve the startup. 

If a business defaults and can’t pay back the loan, lenders can take possession of the collateral to recover their capital. As a result, one thing you will notice is that the borrowing base (the value of the collateral) will always be more than the loan amount. Just like a home mortgage, where the primary mortgage is never more than 80-90% loan-to-value, ABL adheres to a similar ratio, depending on the type of collateral and structure.


About Third Sphere

Third Sphere is, first and foremost, an investor in very early-stage startups providing climate-focused solutions. For first investments, 70% of teams have no revenue and main their interaction with customers is to understand their needs. Third Sphere invests in software and hardware-based companies that can deliver climate impact in the next decade. While VC investments focus on pre-seed and seed, asset-backed lending is for Seed+, Series A, and Series B startups. Third Sphere also serves a community of over 12,000 startup founders, investors, end-users, and influencers, so that great companies can have access to an open and transparent network to solve various problems unique to climate-focused startups. Today, we are going to discuss the less understood world of asset-backed lending for early-stage companies.

There are many more things about ABL to discuss that I would be happy to share should people have questions. is the best way to reach me. 

For more info on ABL with Third Sphere.

Project Expansion Capital, Catalytic Equity for First-of-A-Kind Commercial Projects

FullCycle Climate Partners (FullCycle) provides a unique flavor of “expansion capital” needed for financing first-of-a-kind (“FOAK”) infrastructure-scale deployments of new climate technologies. FullCycle provides equity capital to businesses and business projects. When financing developments with project equity, each development is treated as a distinct project financeable entity (separate P&L/off-balance-sheet and non-dilutive). As a result, investors in the independent subsidiary generate returns principally via the project cashflows.

I connected with Kyle Adkins, Partner at FullCycle, to dive deeper into project expansion capital, when startups should consider project expansion capital, and what startups should consider when their potential options for financing expansion.

What type of company is FullCycle?

FullCycle is purpose-built to provide critically needed expansion capital to accelerate the deployment of the next gigaton-scale climate technology solutions. They are targeting opportunities with proven technical and economic viability that are ready for large-scale commercialization but need a better-tailored solution for crossing the deployment gap between venture capital and infrastructure private equity. FullCycle’s model uniquely combines project capital for building out the pipelines of emerging sustainable infrastructure assets with the necessary minority growth capital to support the companies driving the development and deployment of these solutions towards widespread market adoption across the circular economy, industrial decarbonization, agriculture, and the energy transition.

When should startups consider expansion capital?

At a certain point, venture capital is no longer the best option for scaling capital-intensive businesses.

Project equity is used for facility construction and commissioning. For projects to be funded off-balance sheet, the technologies being built typically have to have been proven and validated at a smaller sub-commercial scale.

What are the benefits of project expansion capital?

Project expansion capital, when compared to other approaches for financing FOAK projects, is:

  • Non-Dilutive: Other than the initial investment, capital for funding projects usually is non-dilutive to the technology company.
  • Repeatable: The SPV structure sets the groundwork for creating a repeatable model for building more projects faster at the end of the day.
  • Easily Accessible: Project expansion capital can help startups become attractive bankable targets faster. As more projects are financed, the loan-to-value ratio increases with the successful completion of tasks (the balance between the debt and the asset value).
  • Cheaper: Because the risk profile is different (de-risked), the cost of capital is cheaper than raising additional equity capital onto the corporate balance sheet.
  • Flexible: The amount of capital provided is based on the company’s need for working capital.

Who is eligible?

Eligibility varies depending on the capital provider, but standard criteria lenders pay attention to include:

  • Offtake (customers and demand)
  • Feedstock (access to inputs)
  • Site (locations scoped out, location relative to supply chain)
  • Technology/manufacturing readiness
  • Supply chain established
  • Regulatory compliance (zoning, permits, etc.)

What should a startup pay attention to when talking to project capital providers?

The universe of project finance is large. There are many capital providers. However, finding sources that will finance first-of-a-kind projects will vary widely, where each provider has a different structure/model. As such, it is always helpful to clarify the terms and conditions of the contract.

A few terms startups should specifically look for are:

  • Technology licensing arrangement/fees: Business model arrangement, including royalties
  • Right of First Refusal: The capital provider has the option to invest in future opportunities with the business before others can.
  • Performance Guarantees: What happens when the project finishes construction, but the technology doesn’t perform to certain specifications – typically either the parent company or the EPC partner depending on the contract.
  • Warranties: What warranties (if any) are available for commercial-off-the-shelf equipment procured from their manufacturers and would equipment’s deployment into this project invalidate the warranty.

Some questions the contract should address include:

  • What role will the capital provider play? What does the relationship look like?
  • Who is the developer?
  • Who operates the facility?
  • What if it doesn’t work? Who is responsible?

Other than scrutinizing the terms, when looking at different sources of capital, below are questions businesses should ask about the lender:

  • Is there mission/vision alignment?
  • Can the capital provider grow with your business (as you grow)?

For more info on FullCycle.

About the Author

Daniel Kriozere

Climate Investor & Writer by Night

I live and breathe the “give first” mentality in the climate sector. This started by volunteering, as a way to explore the climate sector. Over time, this turned into a mission that has taken over my life – helping startups succeed and create climate impact.

Over the years, I realized the importance of capital for a startup’s survival. This was the beginning of my fascination with how to help startups access more capital, especially because fundraising is challenging.

Many startups pursue equity funding (venture capital) relentlessly, but there are more sources of capital available now than ever. The intent behind this series is to uncover these other sources of capital.