Clean energy journalism for a cooler tomorrow

This MIT-backed fund wants to solve the toughest climate problems

The Engine Ventures just raised $400M to help fill the vast funding gap for tough tech” companies, including firms working to decarbonize heavy industries.
By Maria Gallucci

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Katie Rae helmed The Engine from 2017 to 2023 and now leads its venture capital arm. (Tony Luong/The Engine Ventures)

Heavy industries are among the world’s worst climate polluters. Making key materials like steel, cement, and chemicals emits over a fifth of all human-caused carbon dioxide every year. Yet only a tiny slice of total climate-focused investment today goes toward efforts to decarbonize the industrial sector.

This mismatch of proportions — big emissions, little funding — reflects the risky nature of using novel and expensive technologies to try to transform complex, large-scale processes. Increasingly, though, a handful of well-funded and high-profile venture firms are starting to fill that funding gap by backing early-stage companies with potentially game-changing solutions.

The latest example comes from The Engine Ventures, a venture capital fund focused on climate, health, and advanced systems that spun out from the Massachusetts Institute of Technology.

Earlier this month, the firm announced it had raised $398 million for its third investment fund to develop and commercialize tough tech” — a category that includes not only cutting-edge solutions for cement, steel, and industrial heat but also advanced geothermal, fusion energy, and stem cell treatments. The new fund brings the firm’s total assets under management to more than $1 billion.

Our focus is on what we think of as really big problems that will require breakthrough technology to solve, at a scale that would make it a huge business,” Katie Rae, CEO and managing partner of The Engine Ventures, told Canary Media.

She said the firm looks to back companies with the right underpinnings of a technology to create a new industry, or to transform one.”

The Engine office in Cambridge, Massachusetts. (Plexi Images/Universal Images Group/Getty Images)

MIT launched The Engine in 2016 as a public benefit corporation to help scientists and engineers turn their research projects into viable companies. Last year, The Engine formally divided its two units: The Engine Ventures, its venture capital arm, and The Engine Accelerator, which offers lab space and business support to tough-tech startups in Cambridge, Massachusetts.

Industrial decarbonization has been an early focus for The Engine Ventures, which, given its origins, is well positioned to navigate the complexities involved with cleaning up essential dirty industries.

That’s because slashing industrial emissions is far more complicated than switching to clean electricity supplies, though that’s essential too.

In some cases — as with aluminum, iron, and cement — CO2 is a direct byproduct of the process. In others, such as chemical refining and food manufacturing, large amounts of scorching heat are required, which typically comes from fossil gas. Scientific and engineering breakthroughs are still needed for certain processes, and even where technological progress has been made, few alternative solutions are available at commercial scale.

The role that someone like The Engine plays is really important, because they give a stamp of approval to other investors who don’t have the technical expertise,” said Claire Curry, the global head of technology, industry, and innovation at BloombergNEF (BNEF).

It’s too early to tell if they’re going to be good at picking the winners,” she noted. But they seem to de-risk it for larger investors” looking to back cutting-edge but unfamiliar concepts.

Taking green steel and cement from labs to the real world

One of the first startups to receive The Engine Venture’s support was Boston Metal, a company that’s developing a carbon-free process for making steel and high-value metals using electricity. Rae serves as a board member for the company, and The Engine Ventures remains a minority equity investor.

Boston Metal's molten oxide electrolysis cell is shown at the company's facility in Woburn, Massachusetts. (Boston Metal)

In 2019, Boston Metal raised $20 million in Series A funding from The Engine plus two other leading backers of industry-focused startups: Breakthrough Energy Ventures and Prelude Ventures. In January, Boston Metal announced it had raised $282 million in total Series C funding to advance work on its first-of-a-kind facilities in Boston and Brazil. The company was also picked by the U.S. Department of Energy (DOE) to negotiate a $50 million grant for a chromium metal plant in Weirton, West Virginia.

From the start, The Engine Ventures has recognized the importance of decarbonizing steelmaking and has been instrumental in helping us grow and scale our technology,” said Tadeu Carneiro, CEO of Boston Metal. He added, Anyone who knows climatetech knows that Katie Rae is a real changemaker.”

Sublime Systems, a leading cement decarbonization startup, also credits the MIT-built enterprise with supporting its spinout from the lab. Sublime makes low-carbon cement by electrically charging a bath of chemicals and calcium silicate rocks — without using fossil fuels. The startup’s cofounders, Leah Ellis and Yet-Ming Chiang, developed the process while at MIT and now operate a pilot plant in Somerville, Massachusetts.

The Engine Ventures has invested $11 million in Sublime, or nearly a fifth of the startup’s total current investment, and Rae also serves on the board. In March, the company was selected for an $87 million DOE investment to build its first commercial-scale plant in Holyoke, Massachusetts. Sublime also recently celebrated a milestone when its product was poured for the first time at a commercial office park project in Boston.

Tough-tech companies are working to radically change the world for the better — but they require patient capital to scale out of the lab and into commercial relevance,” said Ellis, who is also Sublime’s CEO. The Engine has played a pivotal role in building this needed capital base and ecosystem that supports companies like Sublime as we work towards swift and massive impact.”

Leah Ellis (left), cofounder and CEO of Sublime Systems, watches as construction workers apply concrete made from Sublime’s low-carbon cement in Boston. (David Degner/In Short Media)

Nearly eight years in, the VC fund has had one exit to date: artificial intelligence startup Zapata AI, which went public in March via a special-purpose acquisition company. But The Engine Ventures isn’t sweating the numbers just yet. Rae said that the firm’s investors include endowments, foundations, family offices, and pension funds, all of which are taking a slightly longer-term view” when it comes to earning financial returns.

We’re going after markets that take a longer time [to develop], but you have a bigger market; that’s the trade-off that you’re making,” she said. We’re shooting to have $50 to $100 billion exits here,” a level few public or privately held firms have achieved. These will be very large companies.”

Industrial decarb needs much more money — and policy 

Dramatically boosting venture capital funding is only one step that has to happen before Rae’s vision can become a reality — at least when it comes to reshaping heavy industries.

In the first quarter of 2024, the low-carbon industry sector raised $302 million in venture capital and private equity (VC/PE) investment worldwide, plus another $45 million in public financing. That amounts to 3 percent of the $11.3 billion in total climatetech funding for the period, according to a BNEF report shared with Canary Media.

The numbers show that industrial decarbonization is severely underfunded as a sector,” BNEF’s Curry said. A separate BNEF analysis found that VC/PE funding for low-carbon industries would have to double in order to match the sector’s contributions to global emissions.

Low-carbon transport, meanwhile, is consistently overfunded relative to its emissions impact. That’s largely because there are clear consumer market signals for cleaner vehicles, as well as increasingly stringent federal and state rules for curbing tailpipe emissions, all of which make vehicle and battery startups a more obvious play for investors. Customer demand for cleaner — and likely more expensive — building materials and chemicals is far less certain.

Curry said that while federal incentives and industrial funding programs created by the Biden administration will help, without a mandate or a price on CO2 emissions, most green materials aren’t likely to become cost-competitive. And manufacturers and construction firms are unlikely to change their operations or place big orders for novel, carbon-free products on their own. In the European Union, the cap-and-trade system is the main driver of industrial decarbonization.

Without a robust buyer’s market and a clear business model, investors may not have the confidence to invest at the level needed to scale up these cutting-edge technologies.

Several high-profile initiatives are striving to jump-start the global market for greener building materials by pooling demand from giant corporations, some of which say they’re willing to pay an initial premium. In the United States, the federal government and California have adopted buy clean” programs designed to leverage the vast purchasing power of public agencies to drive demand for low-carbon products.

Curry said that many industrial startups struggle to make the shift from VC funding to growth equity — meaning bigger checks from private equity investors to build demonstration projects. She noted that Boston Metal has successfully navigated that transition, mainly because it’s producing extremely valuable metals in addition to steel, a low-margin commodity.

For Rae, the latest fund raised for The Engine Ventures represents an affirmation of the work that we’ve done.”

The $398 million infusion announced this month will drive a kind of doubling down on our strategy, on the companies we invest in, and the kinds of founders we invest in,” she said.

Maria Gallucci is a senior reporter at Canary Media. She covers emerging clean energy technologies and efforts to electrify transportation and decarbonize heavy industry.