It's growing amazingly fast to keep up with the flywheel growth of AI. While data centers are essential AI infrastructure, really, they store an AI company's compute, they are expensive to build, seemingly more so to run, and they are a huge energy suck. The startups are trying hard to make data centers more efficient and sustainable, but it is not that simple.

According to P&S Intelligence, the worldwide data center market is likely to touch $301 billion, and it will probably double to reach a $622.4 billion market by 2030. Currently, it consumes around 4% of total power in the U.S., as stated by the Electric Power Research Institute; however, by 2030, it will more than double to 9%.

Data centers, and the big companies that rely on them, are scrambling for power. Last month Microsoft inked a deal with Constellation Energy to restart its nuclear reactor on Three Mile Island to keep up with demand.

With the increase in data centers, more and more start-ups are coming up to address the energy crisis and the impact on the environment by the data center industry. Most notable in this respect are start-ups like Incooling and Submer who seek to take a bite out of the space by cooling down data center technologies already existing such that they do not give off so much heat. Others such as Phaidra through software support in cooling data centers to more efficiency.

Some want to build a completely new model. Verrus is building a more "flexible" data center with microgrids. Sage Geosystems is working on building a way to power data centers using hot, pressurized water instead of natural gas.

For sure, there had always been entrepreneurs trying to build data center tech before the AI boom-for example, data centers play an enormous role in cloud computing and bitcoin mining. But over the last year or so," says Sophie Bakalar, a partner at Collab Fund, which is an investor in Phaidra, "I have seen founders 10x-increasing groups of folks looking to build tech for this space.".

"We have seen a company that is building data centers in space, it runs the whole gambit," Bakalar said. "Whenever you have such an obvious problem in supply and demand, it's natural you will see a lot of entrepreneurs eager to tackle the issue from different angles."

But while data centers are growing so rapidly that eventually they'll have a solution to get more efficient in the future, that does not translate to make adoption easier for startups.

Challenges of the data center
That speed makes it much harder for those startups to find people who will test their tech or take a chance on them, said Francis O'Sullivan, a managing director at S2G Ventures, interviewed by TechCrunch.

"[Data centers] are monsters of cost. Multi-billion-dollar facilities. The fact of the matter is that they have to run," O'Sullivan said. "So in fact the real meaty data center world is not a proving ground.

Arguably, this sort of tech has a more concentrated customer base, and with that, likely a harder market to penetrate, said Kristian Branaes, partner at climate-focused VC Transition. Branaes said his firm has spent a lot of time researching and going deep into the data center tech category but found cool companies building novel tech, so they couldn't gain enough conviction to invest.

Branaes is concerned about how companies scale. He thinks that out of the startup companies he has come across, some fall into the classic climate enigma of cool tech not necessarily being a company that can generate venture-like returns. "To get a venture-scale company selling into a handful of large companies, it's hard," he said.

"We have come to [the] view: It is very, very hard to build a large company only selling to AWS and Microsoft and whatever; they are ruthless at procurement," Branaes said. "They are not in the business of giving away a lot of margins. If you start to make too much money, they want to circumvent that or start doing it internally."

Powering on
Although some investors are skeptical, quite a number of the startups working in this area are gaining traction. Upcoming regulations both in Europe and in the U.S., particularly in the data center-heavy states like Virginia, are such that even if these big customers aren't looking for solutions today, they will definitely have to look in the future.

Six years ago, when the topic was still fully about AI hype, Helena Samodurova co-founded a Netherlands-based startup called Incooling, which is looking to cool data centers way down. But it's totally different today compared to that of six years ago-the demand for Incooling's tech.

"Back in the day, people didn't really know about it," Samodurova said. "In the last six years, that has changed tremendously. As we went through this journey, we really had to educate people on what this was. Fast forward six years later, that's not the case. We are being sought out."

Samoduorva said that interest has picked up on both ends, of course, from potential customers and investors, too. She added that the data center industry is much more diverse than just the Amazons and Googles of the world and that helping reduce data center emissions is not just focused on those few large companies.

"You have a bus to go to the station, you have a car to take your family to go out, you have a Ferrari to go racing, everything has four wheels but the mechanics of it is different," Samodurova said. "We provide cooling solutions or computing solutions to fix whatever bottleneck you are."

O'Sullivan said for him personally, while much of the data center tech is just too nascent to get excited about yet, there are other companies in other categories that one can back that will help solve at least some of the very similar problems that data center tech is attempting to solve: solving the problem involved with getting the actual energy to the data center and making sure that power grids can handle that level of power.

For data center-focused startups, adoption may just come too early for some of the category's earliest movers. While Incooling is pretty new-many firms were just founded over the last two or three years-most early-stage companies that are part of a burgeoning industry don't ever get to see its later innings, let alone many years down the line. However, while the data centre tech market may be in its earliest innings, AI and the data centers that will be needed to power the industry are not going anywhere anytime soon.

"I think the key thing to remember is that there's a real urgency, here, Bakalar said. "The growth is really outpacing the current infrastructure we have. We need newer, better, faster ways to achieve the promise we've heard about AI."