Consolidate or Collapse: Cutting Startup Redundancy to Achieve Scale  

The Status of Climate Tech Startups

As of today, there are over 100 active startups in direct air capture (DAC), over 100 active startups in water electrolysis, and another 150 startups actively producing low-carbon products from this CO₂ feedstock. This is a result of novel technology penetrating what was once a white space, and while it signals high innovation, several of these companies now develop near-identical to each other or identical solutions to those of their corporate competitors. Differentiation is becoming difficult to establish; without it, startups will fade into the crowd of competitors with indistinct value proposition. Most importantly, they will alienate strong industry partners as capital becomes selective and market environments shift from today’s several seed and Series A rounds to a handful of Series C/D rounds that will aim pair innovation with scale.

3 Strategies For Startup Consolidation

Companies must internalize this reality and brace for much-needed startup consolidation. This is not a long-term trend but is something that is already materializing. Taking DAC as an example, Lux calls out three types of consolidation that make technology developers more competitive than their peers:

• Positioning innovation to enhance, not replace, incumbent approaches. Resilient innovation can incorporate what incumbents do well and address specific gaps, thereby augmenting existing systems to accelerate a go-to-market strategy. In April 2025, Occidental acquired its second DAC startup, Holocene, with plans to combine Holocene’s technology with that of its first DAC acquisition, Carbon Engineering. Both DAC companies use a two-step liquid phase process where a capture material is transformed into a carbonate, which is then washed with a secondary chemical agent for mass transfer of CO₂. But Holocene allows for lower-temperature operations, which increase compatibility with heat pumps and renewable electricity, positioning Occidental to augment Carbon Engineering’s process. Another route to enhance incumbent systems is through linear integration of compatible technologies. An example would have been retaining the absorption steps of Carbon Engineering’s technology but swapping the high-temperature calcination step with an electrochemical component, as seen in hybrid electroswing startups like Carbon Blade or Phlair.

• Horizontal consolidation — project developers building a startup portfolio. Without regulatory subsidies, it will be impossible for a single entity to independently reach mega-metric-ton-scale DAC capacity by 2030. This is no longer a realistic target for the industry, but startup consolidation under the umbrella of a single project developer can help DAC capacity reach this order of magnitude. Lux has been highly favorable toward this model, embodied by project developers like Deep Sky in Canada and Cella Mineral Storage in Kenya. These project developers provide the systemic infrastructure needs of the startups, namely, energy and sequestration, and now have over 10 DAC startups in their portfolio.

• Maximizing cost reductions by consolidating systems- and materials-based innovation. DAC innovation has two lenses: materials innovations, which target improved chemistries, and system design innovations for efficiency improvements. Both are important, but most startups employ materials innovation, which allows companies developing systems innovations to differentiate and collaborate with materials providers. Systems modifications include sorbent-agnostic modules, improved heat transfer efficiency (coating sorbents directly on heat exchangers), or centralized desorption systems (such as those developed by Shell). CarbonCapture in the U.S. was the first to come to market with sorbent-agnostic DAC modules, a sensational strategy that allowed it to outsource materials innovation while it focused on securing offtakes and raising capital for larger-scale projects. A more recent example was Skytree’s acquisition of ReCarbn, where Skytree integrated its amine sorbent (materials innovation) with ReCarbn’s innovation in filtration and circulation (systems innovation).

Consolidation like these examples is necessary to not just form links between complementary technologies but also to consolidate workforce talent and skillsets needed to evolve a pilot into a commercial facility. As these startups scale, it will be important to create teams with expertise spanning engineering, process modeling, materials development, and drafting statements of works for permitting and public stakeholders, among others.

Lux expects to see more of these developments in 2025, and industry should consider any of the above trends to be a positive sign of a maturing competitive landscape.

To discuss these trends further, reach out to schedule a meeting with the Lux Team.