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SAN FRANCISCO, Calif. — On April 15, 2026, Climactic, the early‑stage venture firm known for backing climate‑focused material innovators, announced the launch of a $150 million hybrid fund named Material Scale. The fund is designed to provide both equity and low‑cost debt to climate‑tech startups in the apparel sector that have proven prototypes but lack the capital to scale production. By combining financing with hands‑on manufacturing support, Climactic aims to close the “valley of death” that traps many physical‑goods ventures after initial validation.
“We see a systemic financing gap for material‑intensive companies,” said Josh Felser, co‑founder and managing partner of Climactic, in an interview with TechCrunch. “Software startups can burn cash while they iterate, but materials companies need real‑world production capacity and guaranteed customers before investors will commit.” The hybrid structure of Material Scale is intended to give startups the runway and credibility they need to secure larger commercial contracts.
Material Scale will begin accepting applications on May 1, 2026, with the first cohort expected to be announced by July 15, 2026. The fund’s initial focus will be on startups developing low‑carbon fibers, recycled polyester alternatives, and bio‑based dyes for the global apparel market, which accounts for roughly 10% of worldwide greenhouse‑gas emissions, according to the Ellen MacArthur Foundation.
Key Details
The fund’s $150 million capital pool is split evenly between equity investments (up to 30% ownership per company) and convertible‑note debt with interest rates tied to the startup’s revenue milestones. Climactic has partnered with three manufacturing consortia—TexCo Labs in North Carolina, GreenFiber Asia in Vietnam, and the European Sustainable Textiles Alliance (ESTA)—to provide pilot‑line access, quality‑control expertise, and supply‑chain risk mitigation.
Startups selected for the inaugural cohort will receive:
- Up to $5 million in equity financing.
- Convertible notes ranging from $1 million to $3 million, with repayment terms linked to revenue thresholds.
- Technical assistance from Climactic’s in‑house material scientists and partner factories.
- Strategic introductions to major apparel brands such as Patagonia, Levi Strauss & Co., and H&M Group.
“The hybrid model lets us de‑risk the capital for both parties,” explained Felser. “If a company can hit its production milestones, the debt converts to equity at a pre‑negotiated discount, aligning incentives for rapid scale‑up.”
Application criteria include: a validated prototype that reduces carbon intensity by at least 30% compared with conventional materials; a clear path to commercial manufacturing; and a committed anchor customer willing to place a pilot order of at least 10,000 units.
Background
The “valley of death” refers to the financing chasm that separates early‑stage research and prototype validation from full‑scale commercial production. For material‑focused startups, this gap is especially pronounced because scaling requires capital‑intensive equipment, compliance testing, and long lead times for raw‑material sourcing.
According to a 2024 report by the International Energy Agency (IEA), the apparel industry contributes approximately 2.1 gigatons of CO₂ equivalent annually, making it the second‑largest emitter among consumer goods sectors. Yet, venture capital investment in climate‑tech apparel has lagged behind software and renewable‑energy ventures, with only 5% of total climate‑tech VC dollars allocated to material innovation in 2023.
Historically, material startups have relied on grant funding from government agencies such as the U.S. Department of Energy’s Advanced Manufacturing Office, or on strategic corporate R&D budgets. However, these sources often lack the flexibility and speed required to respond to market demand, leaving many promising technologies stranded after prototype.
“The financing model for physical goods is fundamentally different,” noted Dr. Maya Patel, professor of Sustainable Materials at Stanford University. “Unlike SaaS firms that can scale on cloud infrastructure, material firms must invest in factories, supply‑chain logistics, and compliance certifications before they can generate revenue.” Dr. Patel’s research indicates that the average time from prototype to commercial launch for textile innovations is 3.5 years, compared with 1.2 years for software products.
Expert Analysis
Industry analysts view Climactic’s hybrid fund as a potential catalyst for accelerating low‑carbon material adoption. “If the fund can prove that hybrid financing reduces time‑to‑market by even six months, it could reshape venture capital strategies for physical‑goods climate tech,” said Laura Chen, senior analyst at GreenTech Capital.
Chen highlighted two recent case studies: (1) a bio‑based nylon startup that secured a $2 million grant but failed to attract follow‑on equity due to perceived scaling risk; (2) a recycled‑cotton venture that leveraged a convertible‑note structure to bridge its pilot‑line phase, ultimately raising a $12 million Series A round.
“Both examples underscore the need for capital that is flexible yet disciplined,” Chen added. “Climactic’s model aligns with that need by offering debt that converts only after measurable production milestones are met.”
In addition, the European Sustainable Textiles Alliance (ESTA) has pledged to match up to $20 million of the fund’s equity commitments for European‑based startups, signaling strong transatlantic interest.
Impact & Implications
If successful, Material Scale could accelerate the deployment of low‑carbon fabrics, potentially reducing the apparel sector’s emissions by up to 0.8 gigatons CO₂e by 2030, according to a scenario analysis by the Climate Impact Institute. The fund’s focus on scalable manufacturing also promises to create jobs in regions transitioning from traditional petro‑based textile production to greener alternatives.
Beyond environmental benefits, the hybrid financing approach may influence broader venture capital practices. By demonstrating that convertible‑note debt can be tied to production metrics, Climactic could inspire other funds to adopt similar structures for hardware, biotech, and clean‑energy hardware startups.
However, critics caution that the fund’s success hinges on the willingness of large apparel brands to place early orders. “Without anchor customers, even the best‑financed material can’t achieve economies of scale,” warned James O’Leary, partner at apparel‑focused VC firm ThreadVentures.
Climactic has already secured letters of intent from three major brands, each committing to pilot purchases worth $500,000 to $1 million, contingent on meeting defined performance standards.
What’s Next
The application portal for Material Scale will open on May 1, 2026, with a rolling review process. Startups are encouraged to submit a concise pitch deck, a technical whitepaper demonstrating carbon‑reduction metrics, and a letter of intent from an anchor customer.
Climactic will host a virtual “Scale‑Up” workshop on June 10, 2026, featuring panelists from the partner manufacturing consortia, brand buyers, and climate‑tech investors. The workshop aims to guide applicants through the fund’s evaluation criteria and provide networking opportunities.
Following the selection of the first cohort in July, the fund will allocate capital in two tranches: an initial seed‑stage investment to secure pilot‑line capacity, followed by a scale‑up tranche once the startup achieves its first commercial order.
Stakeholders are advised to monitor Climactic’s official newsroom and the Material Scale microsite for updates on application deadlines, webinar schedules, and detailed term sheets.
FAQ
What types of startups are eligible for Material Scale?
Eligibility is limited to climate‑tech startups developing novel materials for apparel that can demonstrate at least a 30% reduction in carbon intensity compared with conventional fabrics, have a validated prototype, and possess a committed anchor customer for a pilot order of 10,000 units or more.
How does the hybrid financing structure work?
The fund provides up to $5 million in equity and convertible‑note debt ranging from $1 million to $3 million. The debt converts to equity at a pre‑negotiated discount once the startup reaches defined revenue or production milestones, aligning investor and founder incentives.
What support beyond capital does Material Scale offer?
Selected startups receive access to partner manufacturing facilities for pilot production, technical assistance from Climactic’s material scientists, and introductions to major apparel brands for potential commercial contracts.
When will the first cohort be announced?
The inaugural cohort is slated for public announcement on July 15, 2026, after a review period that concludes on June 30, 2026.
Can international startups apply?
Yes. While the fund is headquartered in the United States, it welcomes applications from startups worldwide, provided they can meet the manufacturing and anchor‑customer criteria. European startups may benefit from additional matching equity from the European Sustainable Textiles Alliance.
Summary
Climactic’s $150 million hybrid fund, Material Scale, targets a critical financing gap for climate‑tech apparel startups stuck in the “valley of death.” By blending equity with performance‑based debt and offering manufacturing partnerships, the fund aims to accelerate low‑carbon material adoption, reduce emissions, and reshape venture‑capital approaches to physical‑goods innovation. Applications open May 1, 2026, with the first cohort expected in July.
Related Developments
- “Ellen MacArthur Foundation releases new roadmap for circular apparel by 2030” – April 10, 2026.
- “Patagonia announces $30 million fund for regenerative textile research” – March 22, 2026.
- “GreenTech Capital predicts a 12% rise in climate‑tech hardware VC funding in 2026” – February 28, 2026.
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