So you’re an energy startup; where do you look for funding?
Looking at the trends in funding for the cleantech industry in general and renewable energy in particular, one can see clearly that more and more people want to make a positive change in the world they live in. After a period of decline that had to do with some notable shortcomings of cleantech companies and low returns on investments, the amount of money poured into the industry is about to start growing again.
The funding for cleantech and energy startups can come from different sources, and it’s very important for an entrepreneur to understand where to look for an investment on different stages of their company’s existence. I would define three main directions to look when you’re looking to raise a funding round: VC funds, corporates, and informal investments.
There are dozens if not hundreds of venture funds that invest in renewables, cleantech and smart energy projects. Some of them would look for companies with a clear product/market fit and business model, while others are more interested in innovative technologies that can change the way we deal with energy in the long run.
A good example of the latter is the $1 billion Breakthrough Energy Investment Fund that Bill Gates launched with twenty like-minded founders including among others Jeff Bezos, Mike Bloomberg and Jack Ma. This fund is put in place to invest in scientific breakthroughs that have the potential to deliver cheap and reliable clean energy to the world. It’s focused on developing new technologies or getting new tech to come out of the laboratories and implement them in the marketplace.
Another example is SET Ventures, which focuses on investing in European early growth-stage companies that can impact the future of energy markets worldwide. Recently SET Ventures has invested in Energyworx, a Netherlands-based startup that has developed a SaaS-based platform for energy data management.
A huge part of funding in the world of clean energy comes from corporates. General Electric is one of these corporates that is focusing much more on investing in smart tech and the future of energy through Energy Technology Ventures, a joint venture that was launched together with NRG Energy and ConocoPhillips.
Another example is ENGIE, a French-founded electric utility company which is also a partner of Rockstart in the Smart Energy program. At the end of last year, ENGIE invested $20 million in the off-grid solar startup Bboxx to power its expansion in Kenya, Rwanda, and beyond. Just three weeks ago ENGIE also invested in Semiotic Labs, a startup that can predict when electric motors are at risk of breaking down. Besides investing in startups, ENGIE is also investing in their own internal teams that are stepping forward with an idea that could change the energy business.
Inven Capital established by CEZ in the Czech Republic and Statkraft Ventures in Norway are two more examples of investment vehicles at utility companies. Unlike traditional VC firms, these are fully funded by corporates that are interested in aligning with innovative energy startups.
It’s not just funds and corporates that are interested in funding energy startups, but also angel investors who see the relevance of renewables in today’s world. They are stepping in not only because they want a return on investment, but also because they want to contribute to a positive change in the world. When investing, business angels often actively engage with startups, adding their knowledge, experience and connections to empower young teams.
Don’t starve, but also don’t get eaten alive
For a startup, it can be extremely difficult to identify the right investor. Although ultimately you’ll have to work very closely with corporations to be successful in this sector, it can be extremely dangerous to hook up with one of them early on, as it can either eat your startup alive or slow it to death. It is beneficial for an early stage founder to look for investors that have entrepreneurial experience and knowledge.
One of the difficult things in the energy play is that the market is totally controlled by vested interests, which potentially makes it a slow one. Ideally, the startup can become significant with the help of VCs and angel investors, while testing their product and working together as a partner with a corporate. A corporate would be nice to have on board in a late stage funding round or even as an exit opportunity for the company.
By teaming up with the right network of angel investors, VCs and corporates, startups have the opportunity to bring innovative and smart energy technologies to the market. Mistakes, however, can be costly, so the main thing to remember for an early stage founder is to always think about their cap table and only take on board investors that understand the long-term goals of the project and the whole industry.
Freerk Bisschop is the program director of Rockstart’s Smart Energy Accelerator program and has been part of the team since 2015.
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