Open Letter for the Tech Reporters Community: Let's cover grants and catalytic funding as if they were venture capital deals

We all know the shiny articles about startups closing their funding rounds with VCs on TechCrunch , Sifted and other tech news websites. "AI language translation startup DeepL nabs $300M on a $2B valuation to focus on B2B growth" or " EvolutionaryScale , backed by Amazon and Nvidia, raises $142M for protein-generating AI" are some of the examples we are used to and dream of every day. Another type of shiny titles are funds that are closing funding and now ready to deploy capital to help startups grow. We see new funds emerging every day, although very similar to startups, new fund managers are struggling to raise capital from Limited Partners.

Just recently Clean Energy Ventures raised their fund and it was amazing to see the news of "How Clean Energy Ventures avoided the pandemic bubble and raised a $305M fund" on TechCrunch.

There is a direct correlation between the shiny roles of venture capitalists and the lucrative VC careers, and also why many mistakenly believe that startups that raise capital are successful, where in reality, their job is just starting and the clock starts ticking to deliver returns when they close a funding round. I have a good friend who raised his series D round a year ago, and he told me "Illai, people think everything is going well where in fact every time we close another growth rounds pressure is going up."

Tech News companies and tech reporters have chosen to celebrate and highlight those startup and fund life funding events for a good reason. It makes total sense as those are clear, tangible milestones where reporters can add a clear numbers that the human reader can relate to and also benchmark across the industry. Tech people and also finance people love numbers, it makes us happy and clear.

We all know the tier-1 venture funds like Sequoia Capital , Andreessen Horowitz and Index Ventures both because of their amazing work in the ecosystem and investments in superb companies, but tech media has had a significant part to why every founder and every investor knows them. There is nothing wrong in the tech media celebrating venture funds and venture capital rounds. On the contrary, in this Open Letter, I want to reach out to tech reporters for them to replicate the same type of coverage for another asset class - Catalytic Funding.

During my work with climate tech and AI startup founders and VC funds, I found that the new reality of founders is much more complex than in the past. They need to build a funding strategy that goes beyond the venture capital asset class. What I urge founders to do from day one is to plan their funding strategy along the entire capital stack. The climate capital stack, represents all the capital resources founders and entrepreneurs have to fund their startups along their growth journey. I wrote about a great overview of the Climate Capital Stack by Shaun Abrahamson from Third Sphere (see below) which is a climate venture fund where he covered the different building blocks of the stack that represent the different asset classes:

Grants, Venture Capital, Customers, Partners, Lenders, and off-balance sheet. Each represents a different type of capital source, with different challenges, networks and terms. Another great resource about the capital stack comes from Sightline Climate (CTVC) ( Sophie Purdom and Kim Zou ) in this article "The Climate Capital Stack" .

One of the most underrepresented yet critical sources of capital for startups especially in deep tech, climate tech, AI and other areas such as defense and healthcare are grants, and other sources of dilutive or catalytic funding.

Non-dilutive funding could come in different shapes, ticket sizes and timelines. For example, the European Innovation Council and SMEs Executive Agency (EISMEA) provide different programs and funding and grant options. Their EIC Pathfinder program , supports deep tech companies in TRL (Technology Readiness Level) 1-4. Founders can get grants of up to EUR 3 million in the Pathfinder open program or EUR 4 million in the Pathfinder Challenges program. The EIC also provides coaching & mentoring and access to potential customers and investors for follow up rounds.

Another great example is Azolla Ventures by Prime Coalition which is a non-profit with the mission to unlock catalytic capital and change the future of climate finance. Azolla has a hybrid fund structure where they combine catalytic funding from philanthropic investors and the follow up capital is an impact-aligned capital, from LP structure like any other financial venture fund. In June 2023, Azolla conducted its final close at $239MM, comprised of 1/3 catalytic capital and 2/3 impact-aligned investment capital.

Some of the greatest entrepreneurs out there start their journey with a fellowship. Ashoka is the leading social entrepreneurship program and active for more than 40 years providing capital, network and support for social entrepreneurs to solve big challenges across the globe. There are over 4000 Ashoka fellows from 95 countries building ventures in climate, fintech, healthcare and more. The Ashoka fellows receive philanthropic capital that allows them work full time on their venture for 3 years, they get support and mentoring and opportunities to accelerate their venture growth. I'm happy to be a member of the Entrepreneur-to-Entrepreneur Network and work with Ashoka and the fellows to create more environmental and social impact.

Finally, catalytic funding includes also prizes and competition. The recent XPRIZE $100 Million carbon removal prize got a lot of attention in the tech media mainly because of the high profile of XPRIZE as an organization but mainly because that Elon Musk is behind that philanthropic initiative.

This Open Letter to the Tech Media ecosystem and Tech Reporters is calling for more attention to catalytic capital, even if there is no Jeff Bezos or Elon Musk behind it. Why? From my work with founders there is a critical gap in knowledge about philanthropic organizations, lack of understanding of how catalytic capital can help founders scale and get off the ground and for some they don't even consider it as part of their funding journey and strategy - Non-dilutive capital just sits there without the best founders (and investors) know about it and leverage it to solve some of the most challenging problems in the world.

This Open Letter to the Tech Media ecosystem and Tech Reporters is calling for more attention to catalytic capital, even if there is no Jeff Bezos or Elon Musk behind it.

TechCrunch , Sifted , The Verge , VentureBeat and others proactive approach to making philanthropic and catalytic capital trendy and hyped, celebrating grants, organizations and prizes could significantly accelerate the energy transition, healthcare advancements, AGI and other amazing innovation founders work on these days. It could also push the institutions who are providing grants and philanthropic capital to make it easier, more accessible and speedier process to get the funding - it could drive this industry to new levels and speed.

If you agree with this Open Letter and want to help founders connect with catalytic funding faster and better, please share this letter and tag influencers, investors, founders and others that could help make Catalytic Funding visible and actionable to solve the greatest challenges of our times.

Amy Duffuor , Matthew Nordan , Johanna Wolfson , Anita Krohn , Manuel Mendigutía , Jesus Lozano Lopez , Kat Borlongan , Peter H. Diamandis , Whitney Pitkanen, JD , Elaine (Fischer) Hungenberg , Anousheh Ansari , Angelika Roth , Menno Moffitt de Block , Njideka U. Harry , Katie Roof , Amy Lewin , Amy Harder , Ben Bergman , Kevin Roose , Julia Pyper , Nicholas Thompson , Adam Lashinsky , Brian Sozzi , Jessica Sibley , Emily Chang , Julia Boorstin , Nicholas Carlson , Andrew Ross Sorkin , Heather Clancy , Eric Schurenberg , Jena McGregor , Randi Zuckerberg , Arianna Huffington Freya Pratty , Mark Bergen Peter Havers Mary Ann Azevedo

Thank you for reading this open letter.

Illai Gescheit .