VC vs. Infrastructure Finance: Why Neither Are Ideal for First-of-a-Kind Financing in Cleantech

As cleantech start-ups around Europe aim to sell more heat pumps, solar systems and batteries, charging infrastructure and other cleantech assets in as-a-service transactions, the first-of-a-kind (FOAK) financing challenge often arises. Unfortunately, both Venture Capital (VC) and Infrastructure Finance fall short in offering the right solutions.

Here’s why:

🔍 VC Limits: VCs excel at backing early-stage ventures with a growth focus but struggle to finance FOAK asset rollouts. Unlike SaaS companies, it is much harder to achieve the same rapid growth rates if you need to sell and install capital-intensive, complex hardware assets such as heat pumps or battery storage. Moreover, banks willing to finance these assets tend to focus on risks, not opportunities, and the exit strategy for equity in assets remains unclear. The capital required for these rollouts often ranges from tens to hundreds of millions—amounts that far exceed allocation limits specifically for early-stage VCs or even total fund sizes of VC funds.

🔍 Infrastructure’s Need for Scale and Due Diligence: Start-ups seeking equity talk about growth, exits, and entrepreneurial potential, whereas infrastructure investors prioritize risk mitigation, downside protection, and long-term stability. The disparity is clear. Infrastructure investors require a strong track record and reliable data for their extensive due diligence processes—data that simply doesn’t exist in FOAK scenarios. When data is lacking, perceived risk skyrockets, becoming a critical barrier in FOAK financing. Moreover, infrastructure investors prefer large-scale investments, often in the billion-euro range, a figure far beyond the typical needs in a FOAK situation.

🔍 Evolving Processes and Diverging Interests: In asset rollouts, the allocation of risk between the developer (TopCo) and the asset (SPV) changes over time as experience grows—a natural adaptation process. However, balancing risks and returns between TopCo and SPV leads to friction, especially when financed by different investors. In a FOAK situation, getting this risk-return balance right is nearly impossible, complicating negotiations between all parties involved.

💡 An Effective Approach: From our experience, the key to overcoming these challenges is having a unified investor base for both TopCo and SPV. Although these represent different asset classes—venture-type investments at the TopCo level and infrastructure-like investments at the asset level—a single investor base reduces friction and increases flexibility. This alignment significantly boosts the chances of cleantech companies surviving the "valley of death" and succeeding in their FOAK and NOAK asset rollouts.

🔑 Why It Works: By enabling an evolution in risk allocation between TopCo and SPV, the asset development process becomes more streamlined, allowing the company to focus on speed, rollout, and process optimization—not stakeholder management. Investors, in turn, gain exposure to two distinct asset classes, generating superior returns on the asset side while capturing upside on the corporate investment. They also develop an early knowledge advantage in a potentially new asset class, which can be monetized in future transactions. Ultimately, this structure facilitates smoother growth and minimizes conflicts.

🌍 Positive Momentum: It’s encouraging to see that more and more investors—both infrastructure and VC—are recognizing this issue and are actively engaging in finding solutions. Awareness is the first step toward solving the FOAK financing challenge once and for all.

💼 Family Offices & Private Wealth: Destined for the Task: Some of the most proactive investors in these "hybrid investments" are entrepreneurial or private wealth investors—those with entrepreneurial experience, comfort with uncertainty and decision making processes without rigid investment protocols. FOAK may be an investment situation where entrepreneurial capital has a natural advantage.

🚀 Time to Step Out of the Comfort Zone: Solving the FOAK financing challenge requires all investor groups—whether VC, infrastructure, or private wealth—to step out of their comfort zones and embrace new ways of thinking. The task ahead is significant, but the potential rewards for all involved are immense. By pushing beyond traditional boundaries and collaborating in innovative ways, we can unlock the full potential of cleantech innovation. Overcoming the FOAK hurdle is not just a challenge; it’s an opportunity—one that’s well worth the effort.