It’s a challenge every startup faces: They’ve made a prototype and proven the thing works, but now have to sell the product and produce enough to get past the “valley of death” that kills so many companies.
“They are chicken and egg stuck,” Josh Felser, co-founder and managing partner of early-stage venture firm Climactic, told TechCrunch.
The hurdle is particularly high for companies making physical goods. Felser noticed it was a common occurrence among startups producing novel materials. Felser, who previously founded and invested in software startups, said the problem they faced seemed a bit unfair.
“Software companies sell at a negative margin all the time in the beginning, you know, Uber, Lyft, you can look at lots of different examples,” he said. “But for materials companies, they’re not allowed to do that. One of the questions I had is, ‘Why is that?’”
Felser found that unlike software companies, which can quickly add more capacity from cloud service providers, materials startups face a market skeptical of their ability to scale up production without a guaranteed customer.
Felser decided to give them one.
He doesn’t run a company with a big budget for clever materials, but he knows a few. And as a climate tech investor, he knows more than a few startups that could benefit from a well-known customer.
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Felser has been quietly working on a new project, called Material Scale, that brings the two sides together using a hybrid debt-equity investment vehicle to give materials startups a boost, TechCrunch has learned. Material Scale will initially focus on climate tech startups in the apparel industry.
Material Scale is betting on startups with commercial-ready products that are ready to scale if a customer can purchase in bulk. Buyers will commit enough funds to cover the cost of the material at market price. Material Scale will fund the difference through a combination of loans and warrants in the startup.
“It’s really minimally dilutive,” Felser said.
Ralph Lauren is joining the platform as a buyer for the initial launch of Material Scale. Investor Structure Climate is joining Climactic as a general partner.
Money from purchase orders flows from the buyer through Material Scale to the startup. “In effect, we buy it and then simultaneously sell it,” Felser said.
The deals between Material Scale and the buyer and between Material Scale and the startup will be inked essentially at the same time.
“Once they sign the deals, this’ll be interesting because the value of the company has significantly changed because they’ve now got a buyer and they’ve got funding to achieve scale,” he said.
Material Scale hasn’t executed any deals yet; Felser said he has large apparel manufacturers interested in participating and a long roster of startups that could use the funding. “The startups all want it,” he said. “We have a big list of companies that are candidates that we’re talking with.”
The first investments will come out of a special purpose vehicle totaling about $11 million. Felser hopes to eventually branch out into other, similar markets like alternative fuels, eventually growing the Material Scale concept to nine figures.
He hopes other investors will steal his idea.
“We need more novel instruments like this to attack climate change,” he said. “We want to be nimble and be able to take advantage of opportunities when we see them and not just be doing the same old thing.”
Facts Only
Josh Felser is co-founder and managing partner of Climactic, an early-stage venture firm.
Felser identified a scaling challenge for startups producing physical goods, particularly in climate tech.
Software companies can operate at negative margins early on, but materials startups face skepticism about scaling.
Felser launched Material Scale, a hybrid debt-equity investment vehicle.
Material Scale connects materials startups with buyers, initially focusing on the apparel industry.
Ralph Lauren is the first buyer on the Material Scale platform.
Investor Structure Climate is joining Climactic as a general partner.
Material Scale funds the difference between production costs and buyer commitments via loans and warrants.
The first investments will come from an $11 million special purpose vehicle.
Felser aims to expand Material Scale into other sectors like alternative fuels.
No deals have been executed yet, but Felser reports interest from apparel manufacturers and startups.
The model is designed to be minimally dilutive for startups.
Executive Summary
Josh Felser, co-founder of early-stage venture firm Climactic, has identified a critical challenge for startups producing physical goods, particularly in climate tech: the difficulty of scaling production without guaranteed customers. Unlike software companies, which can operate at negative margins early on, materials startups face skepticism about their ability to scale. To address this, Felser launched Material Scale, a hybrid debt-equity investment vehicle that connects startups with buyers like Ralph Lauren. The platform provides funding to cover production costs while buyers commit to purchasing materials at market price. Material Scale’s initial focus is on climate tech startups in the apparel industry, with plans to expand into other sectors like alternative fuels. The first investments will come from an $11 million special purpose vehicle, with the goal of eventually scaling to nine figures. Felser emphasizes the need for innovative financial instruments to support climate tech and hopes others will adopt similar models.
The initiative highlights a broader issue in climate tech: the "valley of death" between prototype and mass production. Material Scale aims to bridge this gap by de-risking production for startups while ensuring buyers have access to innovative materials. The model relies on simultaneous agreements between buyers, Material Scale, and startups, with funding structured to minimize dilution for founders. While no deals have been executed yet, Felser reports strong interest from both startups and manufacturers. The project reflects a growing recognition that traditional venture capital models may not suffice for hardware and materials innovation, particularly in climate-critical industries.
Full Take
The strongest version of this narrative is that Material Scale represents a much-needed innovation in climate tech financing. Traditional venture capital often fails hardware and materials startups because it prioritizes rapid scaling and software-like margins, which don’t apply to physical production. Felser’s model addresses this by creating a market-making mechanism that de-risks production for startups while giving buyers access to cutting-edge materials. The hybrid debt-equity structure is particularly clever, as it aligns incentives without over-diluting founders. If successful, this could become a template for funding other hard-tech sectors where scaling is the primary bottleneck.
However, the narrative also reflects a broader pattern of market failure in climate tech. The fact that such a mechanism is necessary underscores how poorly existing financial systems serve physical innovation. The "valley of death" isn’t just a funding gap—it’s a structural issue where capital markets favor digital over material solutions, even when the latter are critical for decarbonization. Felser’s hope that others will "steal" his idea is telling: it suggests that the problem is systemic, not just a lack of creativity. The model’s success will hinge on whether buyers like Ralph Lauren are willing to commit to long-term contracts, which may require cultural shifts in procurement practices.
Root cause: The paradigm here is the mismatch between financial markets optimized for software and the realities of physical production. The unstated assumption is that climate tech can be "disrupted" like software, but materials science requires patience, capital intensity, and risk tolerance that VCs typically lack. This echoes historical patterns where breakthroughs in physical industries (e.g., semiconductors, renewable energy) required patient capital or government intervention before private markets caught up.
Implications: If Material Scale works, it could unlock a wave of innovation in climate-critical materials, from textiles to fuels. But if buyers hesitate or startups fail to deliver, it could reinforce skepticism about hard-tech investing. The model also raises questions about who bears the risk: startups still face execution risk, while buyers get guaranteed supply. The second-order consequence is that this could accelerate the commodification of climate tech, where innovation is reduced to a supply chain input rather than a transformative force.
Bridge questions: What other sectors beyond apparel and fuels could benefit from this model? How might this change if material costs fluctuate dramatically? Would this work without anchor buyers like Ralph Lauren, or is it dependent on a few large players?
Counterstrike scan: A bad actor pushing this narrative might frame it as a silver-bullet solution to climate tech funding, downplaying the risks of buyer commitment or startup execution. They might also exaggerate the scalability of the model to attract more capital without sufficient due diligence. However, the actual content does not match this pattern—it acknowledges uncertainties and presents the initiative as an experiment rather than a guaranteed fix. The tone is pragmatic, not hyperbolic.
Patterns detected: none