Climactic Starts Hybrid Fund for Climate Startups in Apparel

Climactic, a venture firm focused on climate tech, has launched Material Scale, a hybrid fund to help startups move from prototypes to full production. The fund targets companies in the apparel industry facing the 'valley of death,' the risky time when early money runs out but big sales have not started. Josh Felser, co-founder and managing partner of Climactic, announced the project this week. It starts with about $11 million from a special vehicle and plans to grow much larger.

Background

Many startups struggle to grow. They build a working product, but turning that into steady sales takes time and cash. This gap, known as the valley of death, ends many companies before they can succeed. Climate tech firms face extra hurdles. They make physical products like new fabrics or materials, which cost a lot to produce in bulk. Unlike software firms that can scale fast with cloud servers, these companies need factories and supply chains.

Josh Felser saw this problem often in his work. He invested in software before, where companies like Uber lost money at first but grew quickly. Materials startups do not get that chance. Buyers want proof of large-scale production, but startups lack funds without sales. Felser decided to fix this by linking startups with ready buyers and providing the cash to bridge the gap.

The apparel world needs this help. Clothing production creates 10% of global carbon emissions. It uses huge amounts of water—93 billion cubic meters a year for textiles alone. Big brands like Patagonia and Nike want greener materials, such as lab-grown leather or plant fibers. But startups with good tech often stall before reaching them.

Funding for climate tech fell 40% in 2025. Investors shy away from the long wait and high costs of hard tech like new materials. Traditional venture capital wants quick wins, and corporate arms avoid risks without revenue.

Key Details

Material Scale works as a go-between. It uses a mix of debt and equity—loans and ownership stakes—to fund startups with little dilution. Buyers, like brands needing materials, commit to purchase at market price. The fund covers the rest until production ramps up. Money from orders flows through Material Scale to the startup. Deals with buyers and startups sign at the same time.

Ralph Lauren joins as the first buyer. Investor Structure Climate comes on as a general partner. No deals have closed yet, but Felser says large apparel makers show interest. A long list of startups wants in.

"They are chicken and egg stuck," Josh Felser said. "Software companies sell at a negative margin all the time in the beginning… But for materials companies, they're not allowed to do that."

The fund bets on startups with ready products needing a scale-up push. First investments come from the $11 million vehicle. Felser aims to expand to areas like alternative fuels and reach hundreds of millions.

How the Funding Flows

A buyer agrees to buy materials. They pay enough to cover costs. Material Scale adds loans and warrants—the option to buy shares later. This setup lets startups produce without giving up too much ownership early. Once sales start, the startup repays or grows with the backing.

Felser hopes others copy the model. He wants more tools to fight climate change beyond standard investments.

What This Means

This fund could change how climate startups grow. By matching buyers and makers, it cuts the chicken-and-egg problem. Startups get cash and credibility, speeding their path to market. Brands access green materials faster, helping meet emission goals.

Apparel firms stand to gain most at first. With Ralph Lauren in, others may follow. This could lower fashion's carbon footprint through better textiles. Over time, success here might draw more money to climate tech, easing the funding drop.

Startups benefit from flexible terms. Less dilution means founders keep control. The hybrid model suits physical goods, where costs hit before revenue. If Material Scale grows to nine figures, it could fund dozens of companies.

Broader effects touch investors too. New structures like this show ways around tight markets. More hybrid funds might appear, blending debt and equity for hard tech. This fits a push for catalytic capital—money okay with lower returns to back climate projects.

For the industry, timing matters. With 2025's funding slump, tools like this keep promising tech alive. Startups that survive could cut emissions in key areas. Felser's push encourages nimble action on opportunities.

Climactic plans to watch early deals closely. Interest from startups and buyers suggests quick starts. As production scales, real tests come—can materials meet brand needs at cost? Early signs point yes, with candidates lined up.