Navigating the Evolving FOAK Landscape

• August 6, 2025
• Susan McGeachie

Susan McGeachie joins the Mantle Developments team for a tour of the University of Toronto’s mass timber building, a first of a kind construction in Toronto demonstrating sustainable design.

A recent roundtable with leading venture capital investors convened by MaRS Discovery District surfaced key insights around the persistent financing gap for first-of-a-kind (FOAK) projects.

MaRS’ Tyler Hamilton and Leah Perry opened up the discussion with a recent CTVC newsletter highlighting what many in the industry already know: First-of-a-kind (FOAK) projects remain a major funding cliff, with 69% of respondents expecting investment in FOAK deployments to decline. The survey identified a particular pinch point in the $40M–$100M project range, often called the “missing middle within the missing middle,” where financing is hardest to secure. The two primary reasons for the decline are:

• High Risk, High Uncertainty: Without a proven track record or risk-sharing structure, these projects struggle to attract traditional VC, PE, or project finance.
  
• Policy Volatility: Investors cite “policy whiplash” as their #1 fear for early projects, adding to perceived risk.

This decline underscores the persistent gap between promising pilot projects and commercial-scale execution. As the challenge becomes more acute, it’s critical to identify and investigate practical, creative strategies ventures are using to bridge the FOAK gap. While philanthropic and catalytic capital players are stepping in to bridge funding for these early deployments, creating a cohesive financial architecture that unlocks broader participation across venture, growth equity, and long-term institutional lending is needed to mobilize the magnitude of capital required.

Philanthropic catalytic capital is uniquely positioned to absorb early risk and validate emerging models, helping to unlock later-stage private and institutional investment in FOAK projects. According to ClimateWorks’ Funding Trends 2023 report, climate philanthropy reached approximately USD 4 billion in the US – more than 50% of global climate-focused giving – compared to less than CAD 100 million in Canada. The UK and Europe reached approximately USD 1 billion combined, revealing a significant disparity in philanthropic firepower. To bridge this gap in Canada, coordinated efforts are needed to deploy catalytic capital strategically de-risking FOAK deployments, support platform-based investment models, and anchor blended finance structures that invite broader market participation.

Early equity investors play a critical role in FOAK deployments, as they understand these projects won’t deliver the same returns as second-, third-, or later-of-a-kind investments. To attract VC capital, FOAK projects must be structured as platforms, with the option for follow-on participation and first right of refusal on future deployments. The investment model is built on ‘plug-and-play’ modules that standardize the financial structure, site assessments, EPC contracts, risk allocation, project milestones, performance guarantees, and monitoring. A robust pipeline of LOIs and long-term partnerships with clients, offtakers, and suppliers, designed for replication across multiple projects, is essential to scale. Blue Reef Capital illustrates a proposed funding structure in Figure 1, below.

Figure 1: Proposed Funding Structure for Scaling FOAK Projects

The financial modelling required to raise hybrid funding must have both consolidated Holdco equity metrics/projections, with specific and project-level metrics and projections (demonstrating the Holdco + project ‘equity’ investor % participation in the project SPV). FOAK project finance is generally equity, not debt. Equity and project equity alignment is vital as, for the first few years, the project equity investor will receive a significant preferred return from the project SPV until they hit their equity hurdle rate, and then SPV distributions are split based on Holdco/project equity ownership.

While standardizing investment structures is key to scale, most EPC contracts will be prohibitively expensive at the FOAK stage. Companies need to leverage the assessments and performance metrics from similar technologies and have fully committed service providers in place with a track record of delivering. By the second-of-a-kind (SOAK) project, they will need an EPC.

The KEY criteria for getting FOAK funding is to have a corporate/strategic partner who has either commissioned/sponsored a paid pilot, committed to an offtake, or featured on the cap table. Governments can support this effort by requiring a FOAK decarbonization project as a requirement for federal funding.

Finally, technical fluency is essential, as few investors are willing to absorb technology risk, especially in the wake of recent valuation corrections following early market hype. To bridge this gap, technical and investor expertise must be integrated to help the cap table better recognize and underwrite the opportunity.

The FOAK financing gap is a key focus in the Global Climate Finance Accelerator’s 2025–2030 programming. By convening academia, business, government, and finance, and engaging graduate students in finance, engineering, policy, and science, we will pilot FOAK projects to co-develop the capital models and de-risking strategies required to bring these projects to market.

Thanks to MaRS and their network of VCs and intermediaries for sharing practical, implementable examples of FOAK financing from their own experiences.

About the authors

Susan McGeachie is CEO of the Global Climate Finance Accelerator, which convenes partnerships across business, finance, government and academia on strategies, policies, procedures, and tools to finance the deployment of technically viable climate solutions. 

Marc Oppenheim runs Blue Reef Capital, an elite corporate finance boutique that raises blended capital for world-leading climate tech companies.