By Crystal Jain, Shagun Maheshwari and Nicolo’ Campagnol
Over the past five years in the West, batteries went from unstoppable to uncertain. EV adoption and AI-driven electrification are accelerating demand, yet investments in next-gen chemistries and Li-ion manufacturing have fallen sharply (Figure 1). Capital is more selective. Lead times are long. And China’s ascent to scale looks unmatchable.
So what is actually fundable heading into 2026?
To answer that question, we analyzed the evolution of the battery sector and interviewed seven investors across North America and Europe to understand where money is still moving, and what founders must prove to earn it.
Where We Are Now: The Move from Battery 2.0 to Battery 3.0
Where Capital is Actually Moving
We interviewed battery-native funds (TDK Ventures, Volta Energy Technologies), deep-tech specialists (360 Capital , Anzu Partners) and generalist industrial capital (Societe Generale Corporate and Investment Banking – SGCIB, Algebris Investments) and a tier-one US venture firm focused on manufacturing and energy systems) (Figure 2).
Battery-Native & Climate Funds: From Breakthroughs to Factory Economics
Battery-focused investors are prioritizing technologies that remove cost from production: dry electrode and solvent-less processes, yield improvement through in-line quality assurance, and non-automotive entry points such as sodium-ion for stationary storage.
This is also where some see a real opportunity for U.S. leadership. Their guidance: Don’t build the next gigafactory. Build what the next gigafactory will run on.
Deep-Tech Funds: Industrial Credibility is Mandatory
Battery investment remains a subset of a broader deep-tech strategy, but the filters have tightened. Fundable companies demonstrate amp-hour scale validation, not just coin cell performance, and credible strategies to integrate with existing supply chains and equipment without a total overhaul of the current industrial ecosystem.
Generalists and Corporate Capital: Energy as a National Security
Generalist and corporate investors are applying a national security lens to the sector, specifically targeting space, defense, and energy while strictly avoiding the cell manufacturing “trap”.
Capital is moving upstream towards lithium mining and processing, where margins often remain in the 30-50% range, and downstream towards data centers as high-margin beachheads with immediate power needs.
Operational leverage is now mandatory: companies must show that software or network effects allow revenue to scale faster than cost.
Policy volatility reinforces this discipline. As one investor put it, “subsidies are support, not strategy.” Across both the U.S. and Europe, investors emphasized that energy, particularly to power AI, is increasingly viewed as national defense rather than a pure decarbonization effort.
Market Takeaways
1. Ride the buildout, don’t be the buildout. Evaluate where venture capital actually fits.
Battery manufacturing in the West is essential, but it’s structurally misaligned with venture capital. Cell factories are capital-intensive, slow to scale, low margin, and dependent on long-dated financing that don’t generate returns in traditional VC timelines. Increasingly, they resemble the semiconductor fab model, which was enabled by public-private partnerships, government incentives, loan guarantees, and industrial policy.
In other words, the buildout will happen. It just won’t be solely VC-underwritten. For venture investors, the opportunity lies in the layers that make the buildout performant and financeable. Power electronics and software that sit adjacent to the battery, as opposed to sitting inside the cell, are much closer to a familiar software/services profile for many VCs:
Microgrids and site-level controls (e.g. Clarke Energy’s Heila Edge, Uplight VPPs)
BMS controls algorithms for performance optimization (e.g. Qnovo , Brill Power)
Life cycle management software such as asset-level digital twins (e.g. TWAICE)
Data analytics and data pipelines for battery manufacturers (e.g. Voltaiq , Micantis, Inc)
These businesses scale differently than cell manufacturing because they require less capital, iterate faster, and can be chemistry-agnostic.
2. Start where speed meets margin
Don’t just start where willingness to pay is high – start in a beachhead where you can commercialize before your edge commoditizes.
In the US, this looks like defense, drones, extreme-temperature operations, and data centers. In Europe, it’s long duration storage, specialty components, and circularity.
However if your first customer segment is “EV/ESS at scale,” several investors put it bluntly: you’re probably going to die.
3. Frontier tech still matters – with proof
Next-generation chemistries and AI-accelerated materials remain fundable if amp-hour scale exists (not just coin cells!), a non-commodity entry market is chosen, and there’s a credible route to production.
The contraction in Figure 1 from $24B in 2022 to $10B in 2025 signals the end of the EV hype cycle. With the termination of U.S. federal EV tax credits in July 2025’s OBBBA legislation, Battery 3.0 companies are pivoting towards three high-margin lifelines:
Defense & Drones: The Pentagon’s “Drone Dominance Program” targets 300,000 drones by 2028, creating a demand for 30 million specialized cells. This has become a primary volume play for companies like Amprius Technologies, Inc. and SES AI.
AI Data Centers: Massive power requirements have made data centers a high-priority sector for early-stage capital (Figure 3, Figure 4). Companies like SES AI are leveraging this shift by integrating AI-driven material discovery with a new focus on stationary energy storage.
Geopolitics & Localization: A 2028 ban on Chinese battery components in the Pentagon’s supply chain is creating a “walled garden” for domestic players. To stay compliant, manufacturers are migrating capacity to U.S.-aligned regions like South Korea.
This market crystallization is unforgiving. While domestic LFP initiatives like Mitra Chem attract hundreds of millions in investment, others are falling into the “Battery Grave”.
Ultimately, Battery 3.0 is no longer about maximizing total capacity, but about delivering the highest value per kilowatt-hour.
How Founders Win in Battery 3.0
Investors are no longer funding scientific novelty or total addressable market (TAM) slide decks. They’re funding companies that are market-driven and policy-resistant.
1. Start with a fundable beachhead
EV and grid-scale storage are the wrong first customers. OEMs demand ultra-low cost, supply-chain maturity, and bankability instead of indexing on novelty..
Early markets that still pay for performance:
US: Defense, drones, rail, mining, data centers, power-grid
Europe: Long duration storage and speciality components
2. Build for scalability
Investors want hardware that works inside the existing ecosystem:
Amp-hour cells
Real-world cycling
Integration with existing equipment
3. Localization is a major advantage
Great technology often fails when it is built in a vacuum with a lack of domestic suppliers, no nearby customers, or local manufacturing partners. However, when a company builds in specific markets, like domestic military projects, grid security, or data centers uptime, investors are much more confident when localization is factored in.
Localization is no longer a “nice to have”, it is a core component a part of a product’s defensibility.
4. Execution outweighs originality
Investors aren’t screening for the “best idea.” They’re screening for teams who can survive manufacturing reality. This often includes teams that have:
Shipped hardware before
Hired and retained technical teams
Navigated certifications and QA standards
Managed cash burn against ramp plans
5. Focus on proof over potential
The reality is that LOIs used to open doors, but today they hold significantly less weight.
Evidence investors now expect:
Paid pilots
Operational deployments
Manufacturability roadmaps tied to real suppliers
And while federal subsidies can help, dependence on them kills conviction:
The battery industry is maturing, and for founders who can build within these stricter rules, this shift creates a major opportunity to succeed in Battery 3.0.
Call to Action for Founders
If you’re a founder building in energy storage, this is your moment.
At Volta Foundation, our mission is to help those founders get seen, get connected, and get funded. Some ways you can get engaged with the community:
1. Get discovered by investors and customers with the Battery Business Directory.
Add your startup to the Battery Business Directory to be searchable by thousands of battery professionals globally.
2. Apply to Volta’s Startup Program
This is our latest initiative which connects founders directly to top OEMs and integrators, manufacturing partners, industry mentors, and a growing network of 75,000+ battery professionals. If you’re solving a real problem in this space, we want to help accelerate you. Apply here!
Additional Resources
China vs America: The Battle for Global Dominance Explained | Dan Wang interview
Volta Foundation’s annual Battery Report
Subscribe to Volta Foundation’s battery newsletter, “Watt’s New in Batteries,” here!
Climate 3.0: Investing in Scalable, Profitable Climate Solutions (B Capital)
