Venture capital has helped battery start-ups prove new chemistries and move to scale. But as Morrow Batteries’ recent collapse demonstrates, it is a high-stake transition. The industry faces what might be called the “factory cliff”: the dangerous point at which a company moves from laboratory to factory, writes James Snodgrass.
Venture capital has become an important force in the global battery and energy storage industry. It funds technologies that are too early, too uncertain or too unfamiliar for banks: chemistry validation, cell prototypes, pilot lines, software platforms, recycling systems, power electronics and business models that would otherwise struggle to reach the market.
But batteries are an awkward fit for the classic venture model. When a software company scales, it requires more people, more servers and more space. Software companies don’t have to buy critical minerals or evaluate manufacturing equipment. Battery companies have to navigate uncertain supply chains, implement quality systems (quality control in manufacturing isn’t just debugging), obtain certifications, manage working capital and ensure customer qualification. While venture capital can accelerate a battery company’s growth, it is rarely enough to take them past the cliff.
Recent stories on the BEST website show the breadth of investment in the sector: TaiSan receiving £4.65 million for its sodium-ion technology; Basquevolt’s backing from Axon Partners Group and CDTI; TUAL’s £1.5 million charging round; R3 Robotics’ €20 million funding for EV disassembly systems; Quino Energy’s $16 million (up to) for organic flow batteries; EnerVenue’s $300 million Series B extension; and Lydian Energy’s $233 million in project financing for three Texas BESS projects.
For early-stage battery companies, the hardest task is proving that a material system can be manufactured safely, repeatedly and cheaply enough to matter.
From chemistry to factory
“A battery company ceases to be a pure technology play when its most significant challenge is no longer proving the chemistry, but building factories, scaling production and consistently delivering high quality cells at commercial yields,” said Mark Vena, CEO and principal analyst at SmartTech Research.
“That change makes a big difference because investors aren’t betting on scientific breakthroughs. They are banking on operational execution, manufacturing discipline and capital efficiency.”
Gwen Sandberg, chief commercial officer at Holyvolt and a former investment director at Inventure, puts the inflection point later in the funding journey. “The inflection point is gigafactory-scale CapEx commitment, typically around Series C or D,” said Sandberg. “Below that, you’re still proving technology and finding customers, and venture capital is well suited to underwrite that risk.”
Once a company is “committing hundreds of millions to a full-scale production line”, she said, the dominant risk shifts from technology to execution. The question becomes whether the company can hit yield. “That’s an operational risk, not a venture one,” said Sandberg.
This is when ventures face the “factory cliff”. A company can raise a few million dollars to prove a chemistry, tens of millions to build a pilot line and hundreds of millions to begin industrialisation. Commercial manufacturing changes the question to yield, cost, quality and reliability for customers whose own warranties depend on it.
This is where many start-ups become stranded: their ambitions are too capital intensive for normal VC but their technologies are too immature for conventional debt – simply put, the banks won’t touch them.
Sandberg said the funding mix must move away from traditional venture rounds and towards “project finance, strategics and government-backed debt”. Holyvolt’s approach, she added, has been to scale alongside partners rather than carry all the capital expenditure itself, “spreading the execution risk instead of concentrating it entirely on one balance sheet”.
What failure means
Morrow Batteries is a painful case in point. It was a public-private industrialisation project with strategic shareholders, loan guarantees, public loans and grants. On 6 May 2026, its board resolved to file for bankruptcy proceedings for Morrow Batteries ASA and subsidiaries Morrow Technologies AS and Morrow Industrialization Center AS, saying it had been unable to secure the time needed to complete talks with a new industrial investor and finance the group.
Morrow had not failed to build anything. It had entered a long-term master supply agreement with Proventia and agreed its first defence industry contract with a German customer. It cited capital-intensive industrialisation, global oversupply, price pressure, higher capital costs, delays and a more restrained investment market.
Commercial progress is not liquidity. A battery company can have technology, a factory, employees, public support, customers and strategic rationale, but still fail if the next financing bridge is not crossed.
“When a battery start-up goes belly up, equity investors are usually the first to be wiped out, followed by secured lenders, strategic partners and creditors, who have the strongest claims on whatever assets remain,” said Vena. “The chemistry may be a bust, but patents, manufacturing know-how, engineering talent, testing data and specialised equipment often survive and become valuable acquisition targets.”
Shareholders may lose their investment, lenders may take an IOU and public bodies may be left defending controversial subsidy decisions. But all is not lost. There is usually something of value that can be salvaged. IP, equipment, teams, customer relationships and process knowledge can be sold, restructured or folded into stronger industrial groups.
In the worst case scenario, employees lose jobs, suppliers go unpaid, customers become wary and future investors become more cautious.
A harsher funding climate
The funding environment has changed markedly since the heady days of 2020 to 2022, when cheap capital, high lithium prices, EV growth expectations and net zero ambitions made battery technology an irresistible investment opportunity. Investors are now more selective. Lithium prices have fallen from their peak. Cell margins are under pressure. EV growth has slowed in many markets, particularly in the US and Germany. Interest rates are higher. Chinese cell manufacturers continue to benefit from scale, integrated supply chains and intense domestic competition.
“Venture funding into battery technology has fallen from roughly $24 billion in 2022 to around $10 billion in 2025, as investors realised that cell manufacturing is capital intensive,” said Sandberg. “Generalist, hype-driven capital has largely left the sector.”
What remains, she said, is “smaller but sharper”, with battery-native and energy-native specialists still active, alongside strategic and industrial money from OEMs, cell makers and materials companies that need the technology.
“The industry needs investors that build for the long term — ones that are bold enough to believe in deep technology and generational impact despite more longer-term returns,” she said.
Vena sees a similar shift. “The market is much less tolerant of ambitious science projects with long commercialisation timelines, and investors are demanding a much clearer route to profitability,” he said. “Cheap lithium and slower EV growth have shifted the discussion from ‘Can this technology work?’ to ‘Can this be a sustainable business?’”
“Having sat on both sides of that table, as an investor before joining Holyvolt, and now building a business that has to earn strategic and venture capital in the same round, I’d say the discipline is welcome,” said Sandberg. “It forces founders to be honest earlier about where the real value sits: process, materials or manufacturing capability, rather than chemistry on a slide.”
The battery industry has many promising chemistries, but fewer companies able to convert them into industrially reliable, cost-competitive production.
The return of commercial proof
Credit: Morrow
“Customer traction, commercial validation and recurring revenue often trump laboratory performance because they reduce execution risk,” said Vena. “Great chemistry still counts, but investors increasingly are looking to paying customers as the best evidence that a battery company has a realistic path to becoming a long-term business and not an expensive science experiment.”
Sandberg said an offtake agreement has become a stronger signal than a distant performance target. “A signed offtake agreement now counts for more with investors than a chemistry roadmap promising superior performance somewhere down the line,” she said. “Technology risk used to be something investors were prepared to underwrite; with capital scarcer and timelines under more scrutiny, commercial proof carries far more weight than a lab result.”
Investors still want breakthroughs, but they want breakthroughs that can be manufactured. “It isn’t simply revenue over technology,” said Sandberg. “Investors are still keenly looking for genuine breakthroughs in manufacturing and scaling, because that’s what determines whether a promising chemistry can actually be produced at a cost and volume that matters.”
This helps explain why many investible battery companies – like those reported above – are not cell manufacturers. Software, diagnostics, battery analytics, quality control, recycling automation, disassembly robotics, second-life systems, power electronics and asset optimisation offer exposure to battery growth without gigafactory-scale capital expenditures.
Chemistry, AI and manufacturing
Holyvolt’s acquisition of Wildcat Discovery Technologies demonstrates how companies are trying to fit the new funding climate. Sandberg said the logic was to combine Wildcat’s high-throughput platform and AI engine with Holyvolt’s screen-printing process, allowing the company to validate new chemistries and get them into commercial production faster, “rather than asking investors to back chemistry in isolation”.
“Generalist money pulled back from battery manufacturing, but it’s finding its way back in through AI and the data that trains it, because that pairing looks and behaves more like the kind of business investors are used to backing,” said Sandberg.
The value is in the experiments themselves, provided they are real, repeatable and relevant to manufacturing. “Every experiment Wildcat runs adds to a growing set of real, high-quality materials data, not something scraped off the internet,” said Sandberg. “Combined with Holyvolt’s manufacturing, that means we’re not just betting on one chemistry working out, we’re building something that gets more valuable and useful the longer we run it.”
The spark, not the inferno
Without VC, many technologies would never leave the laboratory. But its role should not be confused with industrial policy, infrastructure finance or manufacturing competence. It is the spark, not the inferno.
Investors to assess risk with precision, applying broad sector-specific knowledge: chemistry, software, recycling automation and BESS project development have different capital needs, timelines and failure modes. Governments need to separate strategic need from wishful thinking. Public money can bridge the industrialisation gap, but only if it is tied to milestones and realistic market assumptions. Founders need to treat manufacturing as the product, not the route to market.
Sandberg’s comments suggest one route through the factory cliff: use venture capital where it fits – technology, platform, process, early customers and proof of scalability – then bring in the right partners for industrial execution. That may mean strategics, public debt, project finance, OEM partnerships or shared capex models. It may also mean building value in manufacturing methods, datasets and platforms rather than a single “hero” chemistry.
The global battery industry still needs risk-taking, patient capital. But the companies that survive will be the ones that know when to stop behaving like start-ups and start behaving like manufacturers. Morrow’s collapse proved that, in battery manufacturing, money buys time — but not inevitability.
