Don't Look Down: Surviving the FOAK Cliff
In short
Founders and VCs push the first-plant problem down the road
At a Ripple run by Developer U and the Venture Climate Alliance, founders and investors traded lessons from the jump between venture-backed technology and a first commercial plant.
The local council had never seen a direct-air-capture plant, and neither had the county council it passed the application to. One of their questions was whether the plant would produce emissions. It removes them. The founder who told the story said all the explaining made permitting take twice as long. Surprises like that filled the Ripple on surviving the first-of-a-kind (FOAK) cliff, where Peter Hirsch of 2150 said the problem goes beyond money. Even with all the capital in the world, start-ups and their investors would still have to change how they work to get a first plant built.
Becoming an industrial company
The direct-air-capture founder said a start-up with a nice lab process has to turn into a chemical engineering company, and its credibility then rests on its health and safety record. It needs a spares strategy too. A pump may be under warranty, but if the replacement takes six weeks, the plant cannot run at all, so some spending on operability pays for itself. An investor in industrial start-ups said innovative culture has to meet industrial culture, which is about quality, safety, reliability and continuity. Founders should not be afraid to hire grey-haired people from industry. The most common mistake, which the investor admitted to making too, is misjudging how far along a company really is.
A founder building a car-sized aircraft said the company needs two products, the aircraft and a certified factory, because the first serial aircraft must be built with serial tooling to pass airworthiness testing. Investors do not always see why.
Scale brings its own surprises. A founder making protein by fermentation said contract manufacturers bring revenue but not the margins a company needs. Yet a plant of one to five kilotons equals a single industrial customer, so the first plant may need to be three times larger, a leap to double-digit millions in revenue that few investors grasp. A founder turning textile waste into insulation took the other route. Building its own plant would have killed the company before it reached the market, so it makes its product in five partner factories. The hard part now is being honest with investors. They ask when it will break even and what revenue it will make in three years, and the founder cannot know how the market will react.
It's about being not optimistic, pessimistic, but realistic.
Speaking the lender's language
A founder in chemical recycling said generalist VCs and banks expect different things. For a plant costing, say, $150m, lenders want a binding offtake of three years or more and a fully de-risked product, long before a start-up can show either. Michael Zöllner of DevCapita, a former banker who ran the Danish Green Investment Fund, said the word that matters is credibility. As a lender, Michael had heard countless times that a plant uses standard components and so carries no risk, or that a pipeline of customers looks promising though nobody has signed. "It's about being not optimistic, pessimistic, but realistic." Founders should state their real concerns and show how they have mitigated them.
A think-tank researcher studying bankability had heard the same from banks and pension funds. They say they cannot lend because the companies are not well advised. The money for the middle stage exists, the researcher said, but it goes to the projects with the lowest credit risk, and a bank's project-finance team of 50 or 60 people cannot prepare everyone.
The direct-air-capture founder had stopped trying to look like everything at once. Infrastructure already has defined roles, from technology providers to project developers. Start-ups that try to fill all of them do none well and look worse to infrastructure investors. The company instead formed a special-purpose vehicle with a carbon-capture developer that has financed large projects before.
Start at Series A
An operator who has raised money for first and second plants said the financing of both is "being shoved down the road by both parties alike" at seed and early Series A. Founders and investors assume project finance will somehow appear once the first plant works. VCs should help early, the operator said, as they already do when a company raises its Series A or B. Peter said 2150, whose first fund dates from 2021, had learned this alongside the industry. It now asks Series A companies how they will reach Series B without heavy dilution, what mix of non-dilutive money and equity they will use, and how to structure the parts that look like infrastructure.
Audiences differ, a seed and Series A investor warned. A detailed project-level model won one portfolio company a Series A from a large pension fund. Reused for a food and agriculture company, it baffled the VCs, who asked why it had so many tabs. Other ideas were practical. One founder suggested lenders could finance demo plants against their equipment, to be sold for parts once the technology is proven.
Michael had recently met the investor every founder in the room wanted, the CEO of a mid-sized European pension fund. The CEO had a large portfolio and no project-development capacity to support it. When the managers of those companies asked for a meeting, it was always to say that things were going well and they needed more money. Translating that into a language the fund understands, Michael said, is how you get across the cliff.
This Ripple was hosted by Peter Hirsch (2150), Michael Zöllner (DevCapita), Isabela Dobbs (Developer U) and Sara Simonds (Venture Climate Alliance) at The Drop 2026 on 16 September.