Welcome to the 73rd edition of Deep Tech Catalyst, the channel by The Scenarionist, where science meets venture!
If you’re working on decarbonizing heavy industry or pioneering new materials at scale, this episode is for you.
Deep tech founders tackling sectors like green steel face a unique challenge: capital intensity. Long cycles, high upfront costs, and the need to prove unit economics before the product is mature can be overwhelming. But the upside? Game-changing impact and billion-dollar markets—if you can scale smart.
To unpack this journey, we’re joined by Leonardo Banchik, Investment Director at Voyager Ventures!
In this episode, we explore:
Why green steel matters—and where the biggest carbon reduction opportunities lie
The technologies competing to decarbonize ironmaking, from hydrogen to lasers
How early-stage deep tech startups should structure agreements to validate demand
What TRLs, milestones, and unit economics investors actually want to see
When to bring in project finance, and how to avoid over-dilution on the path to scale
If you're building for impact and grappling with the hard truths of industrial scale-up—don’t miss this one.
Let’s dive in. ⚙️
✨ For more, see Membership | Deep Tech Briefing | Insights | VC Guides
BEYOND THE CONVERSATION — REFLECTIONS & STRATEGIC INSIGHTS FROM THE EPISODE
Why Green Steel—and Why Now?
To understand the urgency around green steel today, we need to take a step back and look at the massive role steel plays in global carbon emissions. Steelmaking is responsible for approximately 8% of global CO₂ emissions, placing it on par with cement and transportation in terms of climate impact. Given that total global greenhouse gas emissions are estimated at around 50 gigatons CO₂ equivalent per year, the steel industry’s share is substantial.
Most of these emissions—70% to 80%—come from the ironmaking stage, which makes it the central focus for innovation in decarbonization.
How Steel Is Made—and Where Emissions Come From
Steel production begins with ironmaking, a highly energy-intensive process. Iron ore (primarily Fe₂O₃) is combined with coke (a carbon-rich fuel derived from coal) and limestone in a blast furnace. The furnace reaches temperatures above 1700°C, where hot air is blown in to facilitate the chemical reduction of iron ore into pig iron, a molten form of reduced iron.
This process emits significant amounts of carbon dioxide for two reasons: coke is used as both a heat source and a chemical agent to remove oxygen from the ore.
After this reduction, the pig iron is processed in basic oxygen furnaces (BOF) or electric arc furnaces (EAF). The EAF route is generally cleaner, especially when powered by renewable electricity. Nonetheless, the ironmaking step remains the industry’s largest emissions source, which is why most climate-tech startups in this space are tackling that phase head-on.
The Carbon-Heavy Traditional Route
The conventional coke-based method remains widespread and economically entrenched, but it is also the dirtiest. It relies on coal-derived coke to reduce iron ore, releasing CO₂ in the process. Although this method is mature and cost-effective today, it is incompatible with long-term decarbonization goals.
Reinventing Ironmaking
Since most of steel’s emissions come from the ironmaking step, this phase has become the central focus for technological change. A new wave of companies is developing processes that move away from the conventional blast furnace, aiming for lower emissions and greater energy efficiency. Each approach tackles the challenge of separating oxygen from iron ore in a distinct way, with specific operational and economic implications. Below are the leading methods currently being developed.
Option 1: Hydrogen-based Direct Reduced Iron (H₂ DRI)
A promising alternative is hydrogen-based direct reduced iron (H₂ DRI). This method replaces coke with hydrogen gas as the reducing agent. Instead of carbon dioxide, the chemical reaction produces only water vapor. Firms like H2 Green Steel are pursuing this path.
Option 2: Lasers
A more experimental yet compelling method involves the thermal decomposition of iron ore without any chemical reducing agents. One startup, Limelight, has pioneered a process that uses infrared lasers to heat iron ore and trigger a direct decomposition reaction through intermediate mineral phases—from hematite to magnetite—until pure iron is extracted.
Option 3: Electrifying Iron with Electrochemistry
Yet another path to green iron lies in electrochemical methods, essentially using electrolysis to reduce iron ore. Companies such as Boston Metal and Electra are pursuing this model.
Demand Pull: Why the Market Wants Green Steel
The Environmental Mandate Is Clear
The steel sector is considered "hard to abate" because the core production process is carbon-intensive at a chemical level. With the climate crisis accelerating, governments and regulatory bodies around the world—from Europe to the United States and across Asia—are implementing policy mandates and incentives to clean up this sector. These come in the form of emissions caps, carbon taxes, subsidies for clean tech, and more.
Buyers Are Stepping Up
On the customer side, the push for green steel is coming from the bottom up. Global manufacturers—especially in automotive and aerospace—are committing to sustainable sourcing. Consumers increasingly expect products with lower environmental footprints, which is putting pressure on OEMs to integrate greener materials like low-emission steel into their supply chains.
A $200 Billion Market and Rising
From an economic perspective, the green steel opportunity is enormous. The combined direct reduced and pig iron markets are already worth over $90 billion and projected to exceed $200 billion by 2030. According to McKinsey, producers may command green premiums of:
$200–$350 per ton by 2025
Rising to $300–$500 per ton between 2025 and 2030
These premiums create powerful incentives for companies that can deliver low-carbon steel at competitive prices.
Building a Scalable Green Steel Startup: Lessons from the Front Lines
Why Scaling Matters—and Why It’s So Hard
Green steel technologies often fall into the category of capital-intensive businesses, which makes them especially difficult to scale, particularly at the early stage. While the sustainability case may be compelling, the unit economics and business model need to be equally strong to attract serious investment.
For founders, this presents a major challenge: how do you structure a business that not only advances the technology, but also lays out a clear, scalable roadmap to commercialization?
Investors need to see viable economics and a realistic timeline to market.
From the perspective of a VC investor, there are a few non-negotiables when evaluating an early-stage startup in the green steel space:
Market size: First, the market must be large enough to support meaningful returns. Green steel checks this box easily, with a global market that is already massive and growing fast.
Exit horizon: VCs typically operate within a 10-year fund cycle. That means they need to see a pathway to commercial success or acquisition within a decade. Technologies that require 15 or 20 years to mature—or that are still in the fundamental science stage—don’t fit within this model.
Technology readiness: VCs look for a Technology Readiness Level (TRL) of at least 3 or 4. That means the technology must be past the concept stage and demonstrated in a lab setting. They want to avoid “science projects” where it's unclear whether the process even works outside of theory. From that point on, the focus should be on engineering and scale-up, not proof of concept.
"At the time of our investment in our green steel company, they had demonstrated full thermal decomposition of iron ore—full thermal decomposition to free iron from iron ore. And that met our TRL level."
What Stage Is "Investable"? Understanding Technology Readiness in Green Steel
When evaluating green steel startups, understanding Technology Readiness Levels (TRLs) is key to gauging investability.
For a pre-seed to Series A fund, the ideal entry point lies somewhere between TRL 3 and TRL 4. That means the core technology should be validated in a lab environment, ideally progressing into a more controlled but larger setting (e.g., bench-scale or warehouse-scale), but not yet at full industrial pilot.
In other words, this is beyond the university research stage but not yet at industrial deployment. The technology must be demonstrated at a scale larger than a fume hood, showing clear signs that it can operate outside of academic conditions.
Stages of Technical Maturity: An Overview
Lab scale → small-scale experiments, often still academic
Bench scale → prototype systems with measurable outputs, likely in controlled environments
Pilot scale → small, functional plant with real-world operating conditions
First-of-a-kind → first commercial deployment, often bespoke
Growth/commercial stage → repeatable facilities with proven economics
Series A rounds may coincide with early pilot plant construction. Later-stage investors generally step in after first-of-a-kind demonstration, when the main risk is execution and not feasibility.
The Roadmap from Tech Validation to Market Entry
For green steel startups—and deep tech ventures more broadly—scaling is never linear. It requires deliberate milestones across technology, partnerships, and project finance. Below is a general roadmap for building toward full commercialization:
Proof of Concept
Demonstrate that the core technology works in a controlled setting. This is where most pre-seed or seed funding is used: building bench-scale prototypes, running key experiments, and proving feasibility.Pilot Plant
Construct and operate a small-scale plant, typically producing in the 100 to 2,000 tons/year range. The goal is to validate the system’s scalability, operability, and process consistency.Partner with Major Industry Players
Begin to engage with large incumbents—steel producers or industrial conglomerates—who could:License the technology
Fund future deployments
Integrate the system into their own operations
These partnerships should include material testing agreements, which allow producers to verify that the startup’s reduced iron meets rigorous ASTM standards (for strength, durability, temperature resistance, etc.). Demonstrating this end-to-end—from ore to certified steel—is a key inflection point.
Secure Offtake Agreements
Once performance is validated, startups can begin signing early offtake agreements, either with steelmakers or OEMs who want access to green steel. For example, an automaker might partner with a startup and a steel producer in a joint venture to procure 10,000 tons of green steel per year.
From Prototype to Market: How Deep Tech Startups Build Credibility
Agreement by Agreement
One of the most important transitions for a deep tech startup—especially in sectors like green steel—is moving from a technology-first approach to a commercially viable business model.
There’s no rigid playbook, but the path to commercial maturity typically follows a progressive chain of agreements that help validate both technical performance and market interest.
It starts with letters of intent (LOIs)—early signals of demand from potential customers. As pilot facilities come online, startups enter material testing partnerships, shipping samples and running industry-standard certifications.
With positive results, companies progress to minimum batch trials to meet customer thresholds and technical benchmarks. Next, co-location agreements with steel producers help integrate processes—often near Electric Arc Furnaces—to reduce costs and streamline operations.
Finally, offtake agreements represent the first formal financial commitments. These contracts define pricing, volume, and delivery terms, allowing startups to model credible unit economics and prepare for project-level financing.
This step-by-step roadmap transforms early traction into real commercial validation.mes attractive not just to venture capitalists, but also to project finance lenders.
There's No Checklist—Only Smart Navigation
As emphasized by the investor, there’s no rigid checklist or guaranteed playbook. Success at this stage depends on:
Understanding the customer’s priorities and constraints
Proactively testing and adjusting based on real feedback
Working collaboratively with potential partners to co-design a commercially viable ecosystem
In green steel and other heavy industries, your go-to-market strategy must be flexible, technical, and relationship-driven. Each agreement in the chain—from the first LOI to the final offtake deal—builds a stronger foundation for what will eventually become a scalable, financially sound industrial business.
5 Strategies to Unlock Growth in Deep Tech
1. Start with the Customer—But Understand Their Real Needs
At the root of every scalable business is a deep understanding of the customer. In green steel, that means knowing the exact requirements of steel producers and downstream OEMs:
What is the minimum viable volume they need to begin testing?
What certifications and performance metrics must be met?
What are their internal cost constraints and energy needs?
While sustainability is a strong driver, customers are also looking for solutions that help them cut costs—especially in areas like electricity, raw material inputs, and process efficiency.
Example: Some emerging green steel technologies offer the added benefit of using lower-grade iron ore, which can help customers reduce input costs and expand their sourcing options. That’s a compelling differentiator if communicated effectively.
2. Build Strategic Relationships Early
To overcome the scale trap, founders need more than just a good product—they need champions inside the customer organization. These relationships often begin through technical engagement, but they evolve into strategic partnerships and even joint ventures as mutual trust builds.
Whether led by a CEO, CTO, or a dedicated business development leader, the goal is to:
Get samples in the door
Secure written expressions of interest
Move toward pilot collaborations or co-development efforts
It’s not uncommon for steel producers to start with one pilot facility, where they can run their traditional system in parallel with a new green pathway—such as a laser-based or hydrogen-based reduction system. These batch processes offer an opportunity to test scalability through modular parallelization rather than full replacement from day one.
3. Plan Capital and Milestones with Surgical Precision
Scalability isn't just about technology—it's also about capital planning and execution discipline. Founders must be extremely clear on:
How much capital is being raised in the current round
What milestones that capital will unlock (e.g., pilot plant, certification, offtake)
What scale will be reached before the next raise
A common mistake is underestimating what it takes to interest major partners. If your pilot plant isn’t large enough—or doesn’t meet a key technical or cost target—you may burn capital without gaining real commercial traction.
Therefore, each round should be mapped tightly to:
Capacity thresholds
Customer engagement levels
Material performance validation
4. Model the Economics—Conservatively and Transparently
At every stage, founders must be able to present a clear economic case. That means building unit economics models that show:
Current and projected cost per ton
Assumptions around input pricing, energy mix, and labor
Scenarios for future cost reductions as scale increases
These models should be presented with conservatism. Investors and customers alike will trust you more if your assumptions are reasonable—even slightly pessimistic—than if you overpromise early margins that collapse under scrutiny.
In addition to unit economics, it's critical to show potential partners what payback periods and returns they might expect:
If they buy the CapEx, how long until ROI?
If they license the technology, what margin do they retain?
Are the project IRRs strong enough (>10–15%) to attract debt?
5. Scale Is a Team Sport: Don’t Go It Alone
Finally, founders should understand that scaling deep tech isn’t a solo effort. It requires a multi-stakeholder approach involving:
Equity investors
Strategic partners
Project finance lenders
Government and regulatory allies
Even established players like H2 Green Steel have scaled by combining equity, project debt, and commercial partnerships. The model works—but only if it’s built on methodical planning, realistic economics, and strong stakeholder alignment from day one.
Financing the Climb: It’s Not All Equity
The Role of Project Finance and Non-Dilutive Capital
A common misconception among founders is that scaling a hardware-intensive business requires raising only equity all the way through. In reality, once a startup reaches a certain level of technical and commercial maturity, a portion of the capital can come from non-dilutive sources—especially project finance debt.
The key ingredients that unlock this kind of financing usually include:
A technically validated process (demonstrated at pilot or first-of-a-kind level)
Signed offtake agreements with creditworthy counterparties
A strong business case showing positive project economics
Lenders and infrastructure investors often assess this through an unlevered Internal Rate of Return (IRR). While the threshold can vary, IRRs above 10–15% are typically needed to excite commercial lenders and attract non-dilutive capital.
This hybrid financing model—starting with equity and transitioning into debt—helps avoid excessive dilution for early investors, especially when total capital requirements for scale can reach tens or even hundreds of millions of dollars.
Is There a “Right Stage” to Introduce Project Finance?
Sometimes this happens at the first-of-a-kind (FOAK) facility. In other cases—especially when traditional lenders are involved—it may not occur until the second or third-of-a-kind, once the technology has been further de-risked in the field.
However, what’s emerging now is a new generation of flexible capital providers willing to back earlier-stage infrastructure with a hybrid model: part equity, part project finance.
Hybrid Capital Models
Several funds have started to blur the lines between venture and infrastructure finance. They’ll:
Take equity positions in the topco (the parent company),
While simultaneously financing a portion of the CapEx needed for the facility via project debt.
This dual-structure model provides founders with more capital flexibility and investors with diversified exposure. These funds can underwrite both the commercial diligence needed for equity and the technical and operational diligence required for debt—making them powerful partners for scaling.
The Case of Solar: A Precedent for What’s Coming in Green Steel
To understand where green steel may be heading, it's useful to look at how solar energy evolved:
In the early days of solar, IRRs (Internal Rates of Return) were high—well into the double digits—because the technology had just reached the tipping point of being bankable but not yet mainstream.
As more developers and lenders gained confidence, the capital poured in, and unit costs dropped dramatically.
Over time, those IRRs compressed, but the market exploded in scale, creating a massive return for early movers.
A similar pattern is emerging for green steel and other next-gen clean infrastructure technologies. The next 1 to 3 years will see the construction of many first- and second-of-a-kind facilities, unlocking:
Lower production costs
Improved unit economics
More attractive IRRs for early project debt investors
This is where early institutional debt providers can take advantage of the risk-reward tradeoff—by entering at the inflection point where technologies are just becoming commercially viable but haven’t yet reached mainstream saturation.
A Final Word: Early Risk, Early Reward
There is no single roadmap for when to shift from equity to debt, but the most promising opportunities exist where the risk is decreasing and cost curves are beginning to bend. Early-stage project finance is not without challenges, but for investors willing to take on a bit more uncertainty, the returns can be significant.
For founders, the takeaway is clear: Understand where your technology sits on the risk curve—and be ready to engage hybrid capital partners as soon as the fundamentals align.
The Silent Gold Rush of AI-Powered Lab Automation
Five startups, one rumor: the lab is going fully autonomous.
