Cleantech innovation: Strategies for scaling up
In the second part of this cleantech innovation feature mini-series, Hamish Corner - a partner at UK law firm Penningtons Manches LLP - outlines the key challenges and potential solutions for green entrepreneurs and start-ups when it comes to attracting funding to turn proven prototypes into a commercial success.
In their most primative form, cleantech innovations are a dime a dozen. Numerous start-ups will claim to have a 'revolutionary' and 'disruptive' product or service at the ready, but very few actually navigate beyond the blueprints to the point of scaling up commercialisation.
The most frustrating part about this inability to climb up to the next step on the ladder of success is that it usually isn’t a lack of interest in the innovative product or service, but rather a lack of business acumen that sees start-ups – which may have already navigated the minefield of “grassroots” funding - trip at the next hurdle.
With Bloomberg New Energy Finance recently claiming that as much as $12trn will need to be invested into renewable and low-carbon innovations, the will is certainly there for wholesale financial backing of innovative cleantech ideas. But, without knowing which steps to take and how to bypass challenges, many businesses are often left trapped in the mire, unable to commercialise potentially game-changing green products.
“In the UK, there is still a funding gap between attracting seed or angel investors and securing significant series A investment,” says Hamish Corner from Penningtons - a firm consisting of more than 100 partners and 400 lawyers. “This is more pronounced in the renewable energy and cleantech sectors, where the market can be quite fragmented and opportunities are not as well understood by many investors.
“If at all possible, companies should target investors who have shown an interest and understanding in the sector, and which have the ability to provide follow-on investment.”
In his role as partner at Penningtons - a lead partner of the edie Live Innovation Zone competition - Corner has represented a wide range of cleantech companies across a variety of renewables sectors, ranging from start-ups and SMEs to large corporations. For Corner, one of the biggest issues faced by cleantech innovators is an initial struggle to “generate sufficient commercial momentum”.
Corner cites the robustness of business models; the expertise of management teams, protecting intellectual property, retaining talent and attracting and selecting external investment all as common pitfalls where entrepreneurs and companies usually get stuck.
“It is important to recognise and address these challenges,” Corner adds. “It is not only instrumental to the long-term viability of the business, but also crucial in making the business as attractive as possible to investors and strategic partners.”
In regards to developing robust business models, Corner feels that some companies are only able to introduce their concepts when market demands and trends allow them to. When specific Government policies are in place to incentivise investment in the cleantech space, more external investors will be willing to take that “leap of faith”. Conversely, when government’s abandon these regulatory drivers, the whole market can shift.
One way to bypass the market fragilities is to bring in “strategic partners or collaborators”, which can provide complementary technologies and know-how to work around the market imbalances and add respected brand identities and operations to the innovation. An example of this is Unilever’s Foundry platform which has created a crowdsourcing community to find new ways to tackle global sustainability problems.
“When this happens, it is important that both businesses go into such arrangements with a clear idea of what their roles and responsibilities are; what they want to achieve out of it,” Corner says. “Typically, we advise agreeing on a ‘heads of terms’ to iron out the principles at the outset.
“What an industry partner will expect – and how reasonable they will be – varies hugely. All in all, the time and cost to negotiate larger collaborations and partnerships are often underestimated by early-stage businesses.”
According to Corner, the crowdsourcing and fundraising options are hugely popular within young businesses. But, due to the increase in fragmented markets, companies can often find themselves cornered with investors who are unable to understand the opportunities that certain products and services provide.
Despite much of the focus being devoted to monetary gains and backing, Corner believes that taking the time to strike the right balance within a company’s management and staff is a vital, yet often overlooked, aspect of commercialising an idea.
“Many businesses need to focus on growing, attracting and retaining great designers, engineers or developers, who will form the backbone of the business as it grows over future years,” Corner says. “Likewise, there is a need to attract good quality and experienced senior management.
“Introducing experience into a business to supplement the founders – and letting them concentrate on what they are best at – is often overlooked or ignored by growing companies. In our experience, a strong management team with a proven track record is also of crucial importance.”
Corner also suggests setting up targets and incentives, both for the boardroom and individuals, as a way to incentivise future plans. Setting up a share option scheme, such as an EMI plan, or introducing overseas workers are also potential avenues for new companies to explore.
The final challenge that cleantech innovators often overlook when scaling up is the concept of future-proofing a product or business model. While this may seem daunting - considering some won’t even have the finances in place to begin commercial roll-outs - Corner believes that any uncertainty surrounding a company will be sniffed out by potential investors.
And, while big brands are working to future-proof supply chains and introduce responsible pledges, Corner feels that younger companies should work to ensure that legal property is protected and that the management team is aware of “exit strategies” and what the company should look like within the next five years.
“As any business scales up, it needs to continually monitor and assess not only its technology platform but the legal protection is has over that platform – which will be a crucial factor in keeping ahead of other competitors,” Corner concludes.
“In our experience, too often the expectations and priorities of founders and key management personnel can be misaligned. Any diverging views on the future shape and trajectory of a business will usually be picked up on by potential investors, and in any event will be likely to hamper efforts in the long term.”
The Innovation Zone at edie Live 2016
Penningtons is a lead partner of the Innovation Zone competition, taking place at the edie Live exhibition later this month.
As a competition specifically designed to promote and support innovation in the sustainability space, the Innovation Zone brings together innovative emerging technologies which are at pre-commercialisation but in the trial stages of development creating a vibrant networking and knowledge transfer hub at edie Live 2016.
The winner of the competition will be announced on the first day of the edie Live exhibition, 17 May.