Funding the FOAK Valley of Death — and the Bad Ways to Do It

The “Double Valley of Death” diagram below has become something of a classic in innovation policy circles. The first valley, between research and product development, is where most startups fail due to a lack of proof or a prototype. The second valley — between demonstration and commercial scale — is where climate hardware dies.

Source: The EU Startup and Scaleup Strategy

That’s the FOAK stage. First-of-a-kind plant. First commercial line. First scaled system. And this valley is deep.

When government grants fade, angels reach their limits, and venture capital is still wary of industrial risk, there’s almost no one left to bridge the gap. Banks and capital markets only step in once you’ve already made it to the other side.

So yes — “we need more capital” to bridge this stage.

But what’s starting to bother me is how some people now propose to fill that gap.

The first “solution”: Crowdfunding like a VC

I first came across this idea through Yoann Berno, who’s building one such platform. The pitch sounds seductive: crowd VC democratizes startup investing, lets retail investors put small tickets into early-stage climate companies, and they too can be part of the next big success story.

The problem is that “investing like a VC” isn’t the same as being one.

A venture capitalist’s portfolio might include anywhere from five to a hundred startups. Ninety-nine per cent will fail. But because the VC is playing with size and probability — and often with other people’s money — a couple of big wins can make up for all the losses.

For an ordinary person with a few thousand euros of savings, that math simply doesn’t work. They might invest in one, two, or three companies, and the odds are brutally against them.

History isn’t kind here. I can’t recall a financial innovation that allowed retail investors to access high-risk assets safely. From South Sea bubbles to ICOs, from FX trading to the housing bubble of 2008, the outcome has always been the same — professionals win, amateurs lose.

Maybe with one exception: gold. But don’t take my investment advice here)

Crowdfunding may have a place — as a community-building tool or a form of donation with emotional return. But presenting it as a way for ordinary people to play the venture game is misleading, even predatory.

The second “solution”: Pension funds

This idea is even more worrying. I am now reading a report titled “Venture & Growth Capital in Europe – Mapping Pension Funds’ Attitudes”. The argument is that Europe’s pension funds should allocate more of their capital to growth equity — including climate tech and, in some cases, FOAK projects.

At first glance, that might sound reasonable: we need long-term investors to fill long-term gaps.

But think about it. Pension funds are not supposed to chase outsized returns. Their job is to preserve and compound the savings of millions of people who have no other safety net. Their fiduciary duty is prudence, not heroism.

When a venture fund loses half its portfolio, that’s the business. When a pension fund loses it, that’s a social tragedy.

Putting pension money into FOAK projects — where even experienced investors struggle to quantify risk — feels like handing matches to a toddler and hoping for warmth instead of fire.

And yet, this is precisely the shortcut that policymakers might be tempted to take when they realise how much capital the climate transition actually needs.

What we really need to bridge the Valley of Death

We are short of capital to fund the first commercial scale of clean technologies.

But let’s be honest about what kind of capital is missing, and it’s certainly not “democratised” retail money or pensioners’ savings. What’s missing is patient, risk-tolerant, strategic capital — the kind that sits between public grants and commercial loans.

This can only come from a deliberate architecture of instruments:

• Public guarantees to reduce risk for private lenders.

• Dedicated FOAK funds co-financed by governments and industry.

• Outcome-based contracts that pay for real-world deployment and performance, not promises.

• And off-takes with generous upfront payments, where buyers help bring new tech to market by committing early volumes.

That’s hard, slow, and unglamorous work — but it’s what built every great industrial revolution before. We need more bridges across the valley. But we don’t build them by gambling with the savings of those who can least afford to lose.

If we do that, the valley won’t just stay — it will deepen.