[Edaily Marketin Soyoung Park Reporter] Observers are pointing out that domestic energy and climate tech companies need support measures to help them weather the “Death Valley” phase if they are to grow into unicorns. This is because there have been repeated instances where promising startups have been unable to overcome funding barriers when moving from the research and development (R&D) and proof of concept (PoC) stages to commercialization.

To address this issue, the public sector is stepping in to fill the support gap. However, the industry points out that while connecting with investors is important, there is a greater need for a full-cycle support system tailored to each stage of a company’s growth—from the early stages through open innovation and PoC to commercialization.

According to the investment banking (IB) industry on the 21st, startups in the energy and climate tech sectors are increasingly facing difficulties in raising large-scale capital as they enter the commercialization stage.

Innovate UK, an agency under the UK Research and Innovation (UKRI), has identified a significant funding gap that arises when climate-tech companies build their first commercial-scale facilities. This is largely because the required investment often exceeds the scale that venture capital (VC) firms can commit. For example, building a manufacturing facility typically requires funding ranging from 25 million pounds (approximately 46.1 billion won) to over 100 million pounds (approximately 184.4 billion won).

Furthermore, when building commercial facilities for the first time, it is difficult to secure loans from traditional financial institutions due to concerns about the risks associated with the technology or commercialization. Given this situation, global startups in the energy and climate-tech sectors are seeking to utilize various capital-raising structures in addition to financial investors (FIs). Examples include policy-based financing, strategic investors (SIs), project financing (PF), and infrastructure funding.

The situation appears even more challenging for energy and climate-tech companies based on hardware or infrastructure facilities. This is due to the nature of these ventures, which require large-scale capital investment and take a long time to recoup that investment. As a result, investors tend to wait until they can verify actual cash flow before investing, rather than relying solely on the technology itself.

An official from a domestic venture capital firm described the current climate, stating, “Reaching the proof-of-concept (PoC) stage does not automatically lead to follow-on investment,” and added, “There is a trend toward meticulously scrutinizing factors such as whether actual revenue is being generated, if there is a customer base, whether orders are coming in consistently, and whether the company has the funds and capabilities to complete the project.”

The number of energy and climate tech startups is growing in Korea as well. However, there is a consensus that the investment ecosystem needed to commercialize the technologies they develop or scale them up has not yet matured. The energy industry is closely intertwined with the public sector—including large-scale demonstration infrastructure, permits and licenses, and the power grid. This means it is difficult to cross the threshold of commercialization with private capital alone.

The “Valley of Death” is another challenge. Companies that have completed R&D and demonstration phases require large-scale capital when moving to their first project or mass production stage. The reality faced by domestic companies at this point is not much different from that of global firms. Since they do not yet have stable revenue or cash flow, it is difficult for them to secure support from private investors or traditional financial institutions.

This is why the public sector’s role in the domestic market is growing. The government, along with Korea Electric Power Corporation (KEPCO) and the Korea Institute of Energy Technology Evaluation and Planning (KETEP), is expanding its support system beyond early-stage technology development to include demonstration, commercialization, and follow-up investment.

For example, last April, KEPCO recruited participating companies for this year’s “KEPCO Energy Startup” program. This initiative provides commercialization funding to companies in new energy industries that have been in operation for seven years or less. It also offers linked services such as accelerator investments, investor relations (IR) sessions, and demo days. Similarly, KETEP announced earlier this year that it would provide climate value assessments and related consulting services through the “Dynamic Innovation and Performance Startup (DIPS)” project.

An official in the energy industry noted, “Countless early-stage energy startups have disappeared without making it past the ‘valley of death,’” adding, “This is due to various reasons, such as their inability to secure investment or establish initial sales channels.” The official continued, “While public institutions are collaborating with domestic venture capital firms and investment organizations, there are limitations,” and advised, “To revitalize the energy and climate tech market, we need measures that can propel early-stage companies through to the growth stage.”