Scaling clean energy startups requires consideration of not just financial scalability, but also commercial, engineering, and business model expansions. From day one.
The roadmap can be long from the early TRLs to securing bankability, and a couple of interesting questions could be:
Are there key common steps to follow in a renewable energy project pipeline?
What are the main pitfalls that founders should avoid in a renewable energy project?
How should financial and technical operations be managed within a startup team working in this field?
So, for the 40th episode of Deep Tech Catalyst, I had the real pleasure of hosting Roee Furman, Managing Director at Doral Energy-Tech Ventures, to decode the intricacies and opportunities of this path!
Key Themes Covered:
🔋 Exploring Innovation Opportunities in Renewable Energy
🚀 Planning a Strong Pipeline from Early TRLs
📈 Leveraging Partnerships and Financial Strength to Scale
🏦 Securing Bankability in Clean Energy Projects
🧗♀️From Academia to Entrepreneurship: Navigating Financial and Operational Challenges
Welcome to the 40th episode of Deep Tech Catalyst, the channel by The Scenarionist where science meets venture!
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KEY INSIGHTS FROM THE EPISODE
🔋 Exploring Innovation Opportunities in Renewable Energy
Essentially, renewable energy involves harnessing natural resources, such as sunlight, wind, or geothermal energy, to generate clean, low-carbon energy. Each area of energy infrastructure—generation, transmission, and distribution—has its own challenges and plenty of room for innovation.
For instance, in terms of generation, innovations are focused on improving power production efficiency. This could involve improving the utilization of assets, such as coating solar panels to prevent them from overheating, which helps increase energy production.
There are also advancements in energy efficiency, particularly with materials like perovskites, which are being used alongside traditional silicon in solar panels to boost efficiency.
Another exciting area is automation, especially when it comes to building solar projects. With the current labor shortages and rising labor costs, there’s a growing interest in using robotics to carry out tasks in solar project construction. It’s a straightforward solution that can reduce costs and improve efficiency.
Furthermore, new financial models are being developed, often with the help of fintech startups, to provide better access to tax equity partners, especially in markets like the U.S. These models help streamline project financing and make the renewable energy marketplace more accessible.
Energy Storage Systems: an Emerging Trend
One of the most significant trends in our industry is the introduction of energy storage systems. These systems provide the technology to store energy generated during the day—charging batteries when there's excess energy—and then discharge it at night when demand is higher.
Energy storage systems are unlocking new possibilities, such as behind-the-meter applications, where energy is stored directly by consumers or grid-scale storage solutions.
There are also innovations in the chemistry of these storage systems, aimed at improving durability, efficiency, safety, and reducing costs.
🚀 Planning a Strong Pipeline from Early TRLs
There is a strong and growing demand for energy, particularly clean energy.
However, despite the optimism, the energy sector is known for its conservative and slow-moving nature.
Entrepreneurs must envision their companies at scale from the outset.
For instance, developers of new technologies like electrolyzers should consider how their innovations will integrate into large-scale projects, such as 200-megawatt installations. It’s crucial to plan not just for financial scalability but also for commercial, engineering, and business model expansions.
A common observation in this field is the intense focus on technical development, often to the detriment of commercial viability. While advancing through Technology Readiness Levels (TRL) in the lab is vital, it alone may not attract investors.
Successful scaling necessitates a dual approach that balances technical development with commercial strategy.
Demonstrating real demand for a product is essential. Establishing design partnerships or joint development agreements can serve as proof of market interest.
For example, developers of new battery chemistry should consider potential applications or secure industry orders, showcasing engagement with market demands beyond just technical advancements.
Managing expectations is crucial, especially for startups.
Even if a technology is not yet market-ready, showing potential interest and demand from industry partners can be pivotal. Enhancing a data room with evidence of commercial interest alongside technical achievements will significantly strengthen a startup’s position.
In summary, entrepreneurs should not solely focus on technological advancements but also parallelly prove the commercial viability of their products. Demonstrating industry engagement and readiness for collaboration can notably enhance the likelihood of success.
📈 Leveraging Partnerships and Financial Strength to Scale
There are various paths to take, and valuable lessons can be learned from the experiences of those who have previously navigated similar challenges, drawing from both their successes and errors.
For instance, partnering with reputable engineering firms for initial projects can validate scalability plans and enhance investor confidence by demonstrating the feasibility of the ideas.
Another good way to start when planning a renewable energy project is to analyze the strategies of established companies in the industry
Understanding their methods for gaining traction, planning growth, and interacting with project financiers and insurance companies is crucial. Framing the needs of these stakeholders, such as performance warranties, can facilitate preparations and increase the chances of securing deals.
Companies may choose slightly outdated technologies backed by robust corporate partnerships or financial assurances because they present lower risks.
The recommended approach is to either develop a strong financial foundation, secure substantial funding to independently showcase a pilot project, or collaborate with a larger entity that can lead while the innovator provides the core technology.
This strategy is crucial during the initial phases of technology demonstration.
Although scaling in this sector might be more challenging than in others, companies that successfully overcome these hurdles tend to become more resilient, solving significant human problems. Energy technology, in recent years, has shown stability even amidst market fluctuations, underscoring its reliability compared to other sectors like SaaS.
🏦 Securing Bankability in Clean Energy Projects
Bankability is a critical concept, especially as projects transition from early-stage development, to more substantial financing stages.
Essentially, bankability is the ability of a project or technology to secure financing from banks or other financial institutions, indicating that it has been sufficiently validated to be considered a low-risk, investable opportunity.
Regarding capital, numerous non-dilutive grants are available today that aid in demonstrating technology at early stages. However, it is equally crucial to begin engaging with advanced financiers early to showcase your project in action. Relying solely on customers for securing financing is less effective than positioning your company to provide financing solutions alongside your technology, which can simplify transaction closures.
Collaborating with firms is essential as they offer a quality stamp for your technology, with each firm having different assessment standards. For instance, while some insurers might require at least a year of operational data before issuing performance warranties, others may be satisfied with efficient simulations and field trials.
By understanding these requirements early and integrating them into your product design and key performance indicators (KPIs), you can better prepare for future challenges. For example, if integrate proven technologies with your proprietary innovations, you can market the proven components as bankable and the innovative, riskier parts as negotiable, thus minimizing potential financiers' risks.
Moreover, the presence of philanthropically-driven funds is increasing. These funds are designed to support the financing of energy technologies that carry a different risk profile than traditional investments. Some energy storage companies have successfully accessed these funds, securing debt financing under more favorable conditions.
When evaluating financing options, it's vital to determine the economic viability of raising more equity versus taking on debt, based on current market conditions and interest rates. The due diligence process for debt financing often extends longer than that for venture capital deals, so timing expectations need to be managed accordingly.
🧗♀️From Academia to Entrepreneurship: Navigating Financial and Operational Challenges
Having financial expertise within the founding team, such as a dedicated Chief Financial Officer (CFO) or a team member knowledgeable about capital needs, is immensely beneficial for navigating the intricacies of bankability and capital strategy.
These elements are foundational for the long-term success of a company.
Transitioning from academia to entrepreneurship presents significant challenges, especially when scaling a startup from a theoretical concept to managing a sizable team. This transition can place new demands on a founder, from fundraising and storytelling to maintaining investor relations and team management. Moreover, balancing professional responsibilities with personal life, including family commitments, is crucial for overall well-being and sustained productivity.
Founders often need to be multilingual in a business sense, understanding not just the technical aspects of their project but also regulations, financing, and stakeholder expectations. However, it's impractical for any individual to master every facet of a complex business environment.
Transparency about the company's real status and being proactive in communication can build trust and foster a supportive relationship with investors. Regular updates that extend beyond standard board meetings can be invaluable. These updates might include specific assistance requests, such as help with hiring, exploring new markets, or navigating regulatory landscapes.
Leveraging investor resources and networks by openly requesting help is not a sign of weakness but a strategic approach to business growth. Investors are typically eager to support ventures they are financially committed to, so utilizing their expertise and connections can accelerate progress and lead to more successful outcomes.
