Insights
Intro to the Capital Stack for Pre-Seed to Seed Stage Climate Companies
Feb 12
Reading Time: 7 minutes
One topic founders wish they had understood more about before starting their ventures is the different funding options available. Grants, loans, and venture capital each have unique advantages and challenges, and choosing the right approach can shape a startup’s success.
“Fundraising isn’t just about getting more runway,” says Victoria Beasley, a Partner at Gigascale Capital. “It involves mapping out the milestones that will de-risk your technology, securing capital to hit those milestones, and building the right partnerships for growth,” she explains. When used effectively, fundraising isn’t a distraction from your day-to-day building. It’s a strategic way to move your company forward.
| Quick links: |
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| Understand the Different Types of Capital |
| How To Execute an Integrated Funding Strategy |
| Treat Funding as a Strategic Accelerator |
To help you secure the right funding at the right time, we’ve gathered insights from the Gigascale team and experts in our network.
Understand the Different Types of Capital
There’s no single, one-size-fits-all approach to fundraising. The best source of capital depends on your roadmap and path to commercialization.
Fundraising is often associated only with venture capital. However, non-dilutive funding sources, like grants and philanthropic funds, should not be overlooked. While the timelines for applying and receiving funds are long, they offer risk-tolerant capital without requiring founders to give up equity.
Often, the smartest way for companies to scale and drive meaningful climate impact is to tap into both dilutive and non-dilutive funding. Combining these two funding sources can balance the drawbacks and benefits of each.
Let’s look at dilutive and non-dilutive funding in more detail.
Non-Dilutive Capital
Non-dilutive capital enables founders to take funding while retaining ownership. Though grants are admin-heavy and have long timelines (from identifying a grant to receiving funds, the process can take 9 to 12 months), they’re a strong fit for activities like R&D, pilot projects, and feasibility studies.
“It’s not just about the money,” explains Joel Armin-Hoiland, CEO of Climate Finance Solutions, “There’s a halo effect from the validation grant agencies provide that signals to investors and institutions that your solution is worth funding.”
This type of funding has become increasingly available for climate tech startups thanks to historic investment in nearly every funder category. In recent years, new foundations and high-net-worth individuals have entered the space.
As of 2024, agency spending alone was at nearly $100 billion per year. While future agency funding is a bit uncertain, at the time of publishing, there are still opportunities to find non-dilutive capital across the company journey:
- CHIPS and Science Act, for early and lab-stage innovations and pilots
- Infrastructure Investment and Jobs Act (IIJA), for the commercialization of technologies
- Inflation Reduction Act (IRA) for accelerating demonstration and deployment
Finding and securing grants requires work. To make life easier, Joel recommends:
- Understand the full grant lifecycle. The process involves identifying and assessing grants, creating a funding strategy, getting funder engagement, developing a proposal, and then managing the grant post-award. “In my view, the identification and assessment stages, not the proposal stage, are the most important,” says Joel. “If you’re pursuing the wrong grant, then you’re really wasting your time.”
- Broaden your search. Avoid focusing too narrowly on your core technology. A hydrogen startup might also qualify for grants in energy storage, grid reliability, or industrial decarbonization. There’s no single aggregator for every funding opportunity, so look at a mix of federal, state-level, and private databases.
- Proactively plan post-grant financial reporting. Reporting will be simpler if a grant aligns with what you’re already doing. If it’s off roadmap, you may need to create new systems or documentation. Plan ahead to avoid a reporting scramble.
Dilutive Capital
Dilutive capital, such as venture funding, requires giving up some ownership in exchange for capital. It’s the go-to option for many early-stage startups and can provide the runway to navigate lag times between other funding sources.
There are various structures for this funding, and each comes with trade-offs. For example:
- Equity funding, while often fast and flexible, is the most expensive form of capital due to ownership dilution.
- Convertible debt and Simple Agreements for Future Equity (SAFEs) are commonly used in seed rounds because the structures defer valuation and conversion terms, making them simpler than a traditional equity round.
- Debt financing becomes relevant when a company has tangible assets or revenue streams to support repayment.
Among dilutive capital options, early-stage capital venture funds are valuable partners for founders needing more than just cash. They often bring sector expertise, networks, and a willingness to tackle big technical challenges.
How To Execute an Integrated Funding Strategy
Getting non-dilutive grants or venture capital might feel like completely different processes, but the core strategy is the same.
1. Map Your Milestones
Start by breaking down your roadmap into clear, measurable goals, like building a prototype, securing a pilot project, or achieving regulatory approval. Grants and philanthropic funds tend to support high-risk R&D or feasibility studies, while venture funding usually backs scaling and commercialization. Gigascale is often the first check into pre-seed to seed hardware and climate tech companies when there is a clear market opportunity and credible path to scale.
2. Determine How Much To Raise
Early-stage founders often ask how much capital is needed. Victoria from Gigascale Capital advises aiming for 12 to 18 months of runway based on the people you need to hire and the initial investments required. Seed valuations typically fall between $2 million and $10 million, though the focus shouldn’t be on securing the highest valuation. A high valuation doesn’t necessarily boost your chances of success. You want a valuation that’ll give you enough resources at acceptable dilution so you stay attractive to investors.
3. Do Your Homework
Whether you’re pursuing grants or pitching investors, start building relationships early. For non-dilutive sources, get to know who you’re writing the proposal for. “The framing and language can make the difference between winning and losing millions,” Joel explains. Research the agency’s mission, attend information sessions, and speak with program managers to learn about their priorities.
For dilutive funding, make a target investor list and keep a CRM-like system to track each funder, their sector focus, and intros. Warm introductions are always best. “If you do need to do cold outreach, be direct and specific,” recommends Mike Schroepfer, Founder of Gigascale Capital and former CTO of Meta. An email that says, “Hey, we’re closing X amount of our funding round, and we want to speak to you about it specifically because of XYZ thing you did,” is more effective than asking for a chat.
Sequence your outreach intentionally. Some founders meet with a few lower-priority investors to sharpen their pitch, then approach top-priority funds after collecting initial feedback. Others timebox their fundraising to create urgency.
4. Prioritize Quality Over Quantity
Avoid jumping at grants that “might” be a good fit. Prioritize high-value opportunities (think: multi-million dollar) that are likely to be awarded to you based on funding criteria and are well aligned with your technology.
The same principle applies to investors. “You need to understand what each fund offers, then decide if that’s what you need,” says Mike. Equally important are the individual partners within the fund. “People often focus on funds over partners, and I think that’s a huge mistake,” he explains. Your investor will be a key collaborator, so ensure they’re someone you can work well with and who can act as a strong thought partner for your team.
Treat Funding as a Strategic Accelerator
Fundraising is about more than short-term finances. It’s an opportunity to refine your roadmap and bring valuable partners on board. Treat it as an extension of building, not a distraction, and you’ll emerge with stronger momentum and a clearer path to impact.
Visit the Gigascale blog for more insights on building and scaling startups.
