Even before the passage of the One Big Beautiful Bill (OBBA) sent seismic waves through the clean energy industry, 2025 wasn’t off to the best start for energy storage hardware companies.  

Recent high-profile bankruptcies from industry giants like Powin and Li-Cycle pulled back any remaining cloth covering just how much capital-intensive, hardware-heavy startups can struggle to stay afloat. For some investors, that can be enough of a push to alter their strategies.  

“We’re taking execution risks, not technology risks or product-market fit risks,” Bala Nagarajan, a managing director of the energy investment team at S2G Investments told ESS News. He explained that investors are re-evaluating risks around investing in more nascent technologies, as there are more variables outside of a company’s control.  

That’s especially the case right now, he said, given regulatory uncertainty and slowing of federal funding opportunities. But Nagarajan points out that “if you find a strong team with good underlying project economics…there are ways to deploy capital despite the uncertainty.”  

And, he’s seen storage startups be “exceptionally successful” in raising funds despite being capital-intensive.  

“There’s an incredible amount of dry powder waiting to be deployed across infrastructure,” he added. “There’s no dearth of capital.” 

Still, Nagarajan made it clear that venture capital can’t do everything, as the VC framework is set up to primarily back low CapEx companies that need to produce outsized returns to their investors to succeed. Some business models are just “straight out not suited for venture capital.” 

He also noted that having high CapEx means it takes longer for a battery company to go to market and successfully scale up production. In previous years, the government has filled some of that gap between venture and infrastructure capital by providing “first-of-a-kind” financing to novel technologies.  

The landscape is different now, he said: yes, it could be the government providing that initial boost, but it could also be philanthropic grantmakers, corporations or private investors.  

“Potentially, this needs to be some version of concessionary capital,” Nagarajan said, adding that while plenty of groups have looked at sponsoring projects in that way, underwriting the technology risk hasn’t always caught up.  

“What entrepreneurs are seeing is that they need to find the right pool of capital and the right investors for this stage of their growth,” he said. From his standpoint, that’s why software solutions like battery optimizing programs have succeeded: software has proven to be a winner outside (and inside) the climate space. 

“That’s not to say software is the only winning solution for investors,” Nagarajan explained, acknowledging that while hardware takes longer, the energy transition won’t take place without it. “But risk is a function of the price you pay, and we’ve seen plenty of investment flow into software.”