Private Credit and Venture Debt Underwriters
Key Information & Criteria: Private credit funds and venture lenders provide debt to climate tech companies (as opposed to project-level finance). These underwriters evaluate a company’s creditworthiness and growth prospects, knowing these borrowers are often pre-profit and backed by venture equity. Important information includes:
Company Financials & Unit Economics: Detailed info on the startup’s burn rate, revenue (if any), customer pipeline, and gross margins. Lenders will underwrite to a forward-looking debt service ability, so they scrutinize the borrower’s cash runway and plans to reach profitability or raise more equity. A venture debt underwriter typically requires the company to have recently raised a substantial equity round (e.g. Series A/B) so that it has cash on hand. For climate tech ventures, which often have longer development cycles, lenders need to see a clear use of proceeds (e.g. to bridge to a milestone like a pilot plant or product launch) and a plan for follow-on funding.
Collateral or Security Package: Many early-stage climate tech firms have limited tangible assets, but underwriters will still look for any collateral to secure the loan – for example, intellectual property, equipment, or even expected receivables from future customer contracts. With the Inflation Reduction Act, some climate startups can generate tradable tax credits (Investment Tax Credits or Production Tax Credits); these can be monetized or pledged to lenders as collateral. Venture lenders view such transfers of tax credits as credit-enhancing, since a startup that can sell its tax credits has more liquidity. Underwriters will evaluate any security interest in project SPVs, tax credit proceeds, or other assets that can improve recovery in a downside scenario.
Investor Support & Warrants: Because cash flows are uncertain, private credit underwriters heavily weigh the quality of the equity investors/sponsors. Strong venture capital backers signal that the company can likely raise more funds if needed (reducing default risk). Lenders often require an equity kicker (warrants or convertible features) so they share in the upside if the company succeeds. Information on the cap table and investor commitments is needed to size these warrants and understand dilution. For instance, a climate tech startup backed by Breakthrough Energy Ventures or other reputable funds gives a lender confidence in both the technology and the likelihood of additional support.
Key Contracts and Market Traction: Underwriters will request any MOUs, pre-orders, or partnership agreements the company has secured. Even if early-stage, evidence of market demand (such as letters of intent from customers, JVs with industry players, or government grants) can significantly de-risk a climate tech loan. A venture lender will also consider the technology’s scalability and regulatory environment – e.g. if the startup relies on regulatory credits or future subsidies, how stable are those? They may factor in the company’s compliance with emerging standards (like UL certifications for a battery product, or EPA approvals).
Risk Profile: Venture debt and private credit to climate tech companies fall on the higher-risk end of the credit spectrum (often unrated, covenant-light loans). Lenders compensate by charging higher interest (often in the low-to-mid teens percent) plus obtaining warrants. The risk profile differs between early-stage vs. growth-stage ventures: Early-stage climate tech borrowers might have no revenue and high technical risk – loans to these are essentially bridge financingpredicated on hitting a technical milestone or the expectation of a next equity round. Growth-stage climate tech companies may have some revenues or pilot deployments, reducing technical risk but still facing scale-up risk. In both cases, underwriters assume the event risk that the company could fail or pivot if the tech doesn’t pan out. To manage this, they perform intensive due diligence on the technology’s viability and the team’s execution plan (akin to equity due diligence). They also set stricter conditions precedent (e.g. requiring that a prototype is proven before full drawdown). As a result, the information needs overlap with those of equity investors: venture lenders want to see third-party validationof the tech and a credible path to commercialization. In practice, many venture debt deals in climate tech are done in tandem with equity raises – underwriters rely on the fresh equity as a cushion and often structure the loan term to end before that equity would run out. Overall, private credit underwriters require enough information to believe the company can survive and thrive through the loan term. If the climate startup’s risk profile is too high (e.g. science experiment stage), debt may not be available at all without credit supports. As climate tech ventures mature, however, their risk starts to resemble that of other growth companies, and lenders can underwrite based on customer contracts and unit economics, not just the technology promise.
