How Venture Surety Can Help Climate Startups Preserve Capital

How Venture Surety Can Help Climate Startups Preserve Capital

For climate startups, raising capital is only part of the challenge. Once that capital is secured, companies need to put it to work—commercializing technology, developing projects, hiring teams and moving toward scale.

But along the way, project agreements can require companies to tie up significant amounts of cash in deposits, collateral or letters of credit. For an emerging company, that can mean capital raised for growth is suddenly unavailable for the work it was intended to support.

These challenges were the focus of a recent joint webinar featuring GreenieRE, United Casualty & Surety Insurance Company (UCS), Trellis Climate and CAC Specialty, which brought together perspectives from across the climate, catalytic capital and surety markets.

The discussion featured Jeff McAulay, Co-Founder and CEO of GreenieRE; Rebecca Glaser, underwriter for the Vensurety program at GreenieRE; Lara Pierpoint, Managing Director of Trellis Climate; Michelle Wilson, Head of Commercial Surety at UCS; and Nathan Wonder, a surety specialist focused on power and renewable energy. Together, they explored how venture surety and other innovative risk solutions may help climate startups meet financial assurance requirements while preserving more of their capital for growth and project development.

The conversation also drew on lessons learned during the first year of the Vensurety program, including the challenges emerging climate companies encounter with traditional surety, where bonds may provide an alternative to cash or letters of credit, and when companies should begin considering surety as part of their project strategy.

The Problem: Capital That Can't Be Put to Work

Climate companies often face financial assurance requirements as they move projects forward.

A utility may require an interconnection deposit. A municipality may require financial assurance for future decommissioning. A supplier, customer or other project partner may require a deposit, performance guarantee or letter of credit.

Traditionally, companies may satisfy these requirements with cash or a bank letter of credit. Both can have an important consequence for a startup: capital becomes tied up rather than available to support the business.

Surety may provide another option.

Rather than posting the full amount of cash required by an obligation, a company may be able to purchase a surety bond for a premium. The bond supports a defined contractual obligation while allowing the company to preserve more of its available capital.

For venture-backed climate companies, that can make surety much more than a compliance requirement. It can become a tool for capital efficiency.

Where Can Surety Help?

Surety bonds are designed to support specific contractual obligations. They are not general financial guarantees, which makes identifying the underlying obligation an important first step.

During the webinar, the panel discussed several areas where climate companies may encounter opportunities to use surety, including:

• Interconnection deposits: Some utilities allow a bond to satisfy deposits required during the interconnection process.
• Performance obligations: A bond may support an agreement requiring a company or contractor to meet defined performance requirements.
• Payment obligations: In certain situations, a bond may be used instead of a cash deposit to guarantee a required payment.
• Supply agreements: Bonds may help address obligations related to the delivery of equipment or other project components.
• Decommissioning requirements: Projects may be required to demonstrate that funds will be available for eventual site removal or restoration.
• Letters of credit: In some cases, surety-backed letter-of-credit structures may provide an alternative when a counterparty requires an LC.

The common thread is financial assurance tied to a clearly defined obligation.

Not every requirement can be bonded. But identifying deposits, collateral and letters of credit early in a project's development can reveal opportunities worth exploring.

Why Climate Startups Can Be Difficult to Underwrite Traditionally

Traditional surety underwriting generally considers three core areas: character, capacity and capital.

For an established company, that may include years of financial history, a demonstrated record of completing similar work and a balance sheet that fits familiar underwriting models.

First-of-a-kind climate companies often look very different.

A startup may be commercializing a technology that has never been deployed at scale. It may have raised significant venture or catalytic capital but have limited operating history. Its financial statements may reflect rapid growth, ongoing fundraising and heavy investment in technology rather than the characteristics traditionally associated with an established surety account.

None of those factors necessarily means the project cannot succeed. They do, however, make the risk harder to evaluate through a traditional lens.

That is one of the gaps venture surety is designed to address.

Looking Beyond the Balance Sheet

The approach discussed during the webinar brings together traditional surety underwriting with additional technical, climate and capital expertise.

Financial strength still matters. So do character and the company's ability to meet its obligations.

But the underwriting process can also consider the broader story behind the project: the technology, the management team, capital-raising plans, project economics and the company's pathway toward successful commercialization.

Technical expertise is particularly important when evaluating first-of-a-kind technologies. Rather than relying solely on a company's historical financial performance, underwriters can work with specialists who understand the technology and the market in which it is being deployed.

Catalytic capital can also play a role. In the venture surety structure discussed during the webinar, philanthropic capital is used to absorb certain layers of risk, helping create a structure in which traditional insurance participants can support emerging companies and technologies that may otherwise fall outside conventional underwriting parameters.

The goal is not to eliminate underwriting discipline. It is to create a more informed way to evaluate risks that do not fit neatly into traditional models.

Don't Wait Until the Contract Is Signed

One of the most practical takeaways from the discussion was also one of the simplest: start thinking about surety early.

Companies sometimes begin exploring surety only after a contract has been finalized and a cash deposit or letter of credit is already required.

At that point, using a bond may require renegotiating the agreement with the counterparty.

A better time to explore surety is during project development, while contracts are still being negotiated.

If a project is likely to involve deposits, collateral or other financial assurance, companies can ask whether a surety bond will be accepted as an alternative. That keeps more options available as the project moves forward.

Early conversations also give brokers and underwriters time to understand the obligation, determine whether it is bondable and identify an appropriate structure.

Understanding Where Surety Doesn't Fit

Surety can be a powerful tool, but it has boundaries.

During the webinar, the panel highlighted several areas where surety generally cannot provide the solution. A surety bond is not intended to guarantee a company's debt repayment or investment performance.

It also cannot guarantee external conditions that are outside a company's control. For example, a bond may support an obligation requiring a solar installation to be completed correctly and on schedule, but it cannot guarantee how much sunlight the finished project will receive.

That distinction matters.

Surety works best when the risk can be tied to a specific contractual obligation that the company or another party is responsible for performing.

When the underlying concern is something else, another insurance or risk-management solution may be more appropriate.

A Growing Tool for Climate Project Development

Commercializing climate technology requires companies to bring together many forms of capital and risk protection. Venture capital, debt, catalytic capital, insurance and surety may all play different roles as a project moves from concept to commercialization.

Venture surety adds another tool to that mix.

For climate startups that are being asked to commit cash, collateral or letters of credit, exploring whether those obligations can be bonded may help preserve capital for the work that moves the company forward.

And companies do not need to determine on their own whether an obligation qualifies.

The most important first step is often simply identifying where capital is being tied up and starting the conversation early. A broker and surety team can then help determine what is bondable, what is not and where another solution may make more sense.

For emerging climate companies, preserving capital can make a meaningful difference. Venture surety offers one more way to help keep that capital working toward commercialization, project development and growth.