Climactic launches Material Scale to fund materials startups

Venture firm Climactic has launched Material Scale, a new platform designed to help materials startups overcome the “valley of death.” In the startup sector, the valley of death refers to the challenging phase where companies have successfully developed prototypes but lack the necessary funds to scale up their production. To address this, the initiative is launching with an $11 million special purpose vehicle (SPV)—which is an investment entity—to fund its first investments. Material Scale will initially focus on climate tech startups operating within the apparel industry, utilizing a hybrid debt-equity investment vehicle to help them scale. This hybrid vehicle is a financial instrument that combines loans and warrants.

The platform’s model is designed to address the market skepticism that materials startups face when attempting to scale production without a guaranteed customer. To bridge this gap, Material Scale connects startups directly with bulk buyers. The process works by securing purchase orders from buyers, with apparel company Ralph Lauren joining the platform as a buyer for the initial launch. Material Scale then funds the production gap through a combination of loans and warrants in the startup, with the agreements between the parties signed at the same time. Josh Felser, the co-founder and managing partner of Climactic, described this hybrid funding mechanism as “minimally dilutive” for the participating startups. To help drive the initiative, investment firm Structure Climate is joining Climactic as a general partner.

While Material Scale has not yet executed any deals, Felser noted that the platform has a list of candidate startups and interest from apparel manufacturers. Looking to the future, Felser hopes to eventually branch out into other, similar markets, such as alternative fuels. He also hopes to eventually grow the Material Scale concept to nine figures. Emphasizing the necessity of new financial models to address climate change, Felser stated, “We need more novel instruments like this to attack climate change.”

Why it matters

Materials startups often fail because they lack the capital to scale production without guaranteed customers. This model de-risks the scaling process by linking startup funding directly to secured purchase orders from bulk buyers.