I am writing this on the train back from Malmö, Sweden still buzzing after two days at The Drop.
Now in its fifth year, the conference has become one of the best places in Europe to take the pulse of climate tech and impact investing.
It is also one of the few conferences where a sauna and a swim in the sea count as part of the programme, and the coffee is good, which helps.
This year's tagline was "Everything Changes From Here", with tracks on infrastructure, labour, nature, and geopolitics. Within that broad scope, one conversation that kept resurfacing was about the limits of venture capital itself. Specifically, whether the VC model that funded climate tech's first wave is the right tool for building what comes next.
'Frustrated founders are trying to scale climate tech in a capital environment not really designed for them'
At The Drop, panels are called Ripples, and stages are swapped for a circle of wooden pallets seating around 25 people. Three microphones get passed around, and everyone listens-in using silent-disco headphones.
Scan the list of Ripples and one theme is hard to miss. "Beyond the Pilot: Who Will Finance the Future?" "Don't Look Down: Surviving the FOAK Cliff." "Moat or Museum? Carving a Future for Hard Tech in Europe." Three different sessions hint at an underlying problem of capital scarcity. Across the week, I spoke to dozens of founders frustrated with scaling their climate tech companies in a capital environment not really designed for them.
I sat in on "Beyond the Pilot", co-hosted by Liliana Cruz, investment analyst at Cemex Ventures, the venture arm of the Mexican cement group, and Juan Nieto of Zacua Ventures, a construction tech fund.
"Founders, especially those building pilot plants or 'hard-tech,' need to be looking for alternative forms of capital alongside VC," Cruz told me after the event had finished. "Getting the capital stack right is so important."
That stack, as it was described in the panel, runs from public grants and EU programmes through venture debt and project finance to corporate off-take agreements and blended structures with development banks. The message to founders was clear: equity should be one layer among several.
Time was the other constraint. First-of-a-kind plants take years to build and years more to pay back, and several investors described the ten-year fund cycle as fundamentally mismatched to what they are asking founders to do.
There was also lot of talk about unlocking more patient capital, from family offices, pension funds and evergreen vehicles. There were fewer answers on how to actually unlock it.
Most of those conversations assumed VC still has a role, just a smaller one. Or rather that climate VC needs perhaps a bit less venture and a bit more patience. Some questioned its long-term viability altogether.
"The DPI of many climate tech VC funds simply hasn't been good, partly because they've been waiting for one or two gems in the portfolio to produce massive returns, but it hasn't worked out that way," a unicorn founder-turned-family office investor told me over lunch.
According to him, the industry needs to explore alternative models for financing early-stage climate tech companies. And he's not alone. Scores of impact investors I've spoken to, at The Drop, and elsewhere, are moving away from targeting 20x returns and unicorns. They're favouring a larger number of modest exits, over one big score.
This week, nobody I met said they were walking away from climate tech. But a lot of them were rethinking whether how to finance it, and the honest ones admitted they did not yet have the alternative.
So, is the answer a broader capital stack, more patient LPs, or something that does not look like venture capital at all? I'd love to hear from you.