Cleantech innovation: Navigating the minefield of investment
Innovation holds the key to unlock the global green industrial revolution. But how easy is it for low-carbon entrepreneurs and cleantech start-ups to secure vital funding and ultimately achieve commercial success? In this new feature mini-series, we explore the risks and opportunities surrounding green innovation investment.
Whether it is researchers studying the potential of tomatoes as an energy source, or architects designing new smog-sucking towers, humans across the world are striving to steer us towards a sustainable future.
The COP21 talks may have opened the door for new green innovations, and the Breakthrough Energy Coalition – fronted by Bill Gates and Mark Zuckerberg – serves to highlight just how much room there is for the green technology market to grow. But ultimately, any idea or a concept will always remain as blueprints on a page unless money is available to be invested.
With Bloomberg New Energy Finance recently claiming that as much as $12trn will be need to be invested into renewable and low-carbon innovations, existing or otherwise, the problem of matching innovation to investor is huge. And, as cleantech consultancy Carbon Limiting Technologies (CLT) agrees, navigating this investment nexus can be a ‘minefield’.
CLT - a lead partner of the Innovation Zone at edie Live - is a 15-strong team of consultants who all have experience in communicating and working with both hungry start-ups and willing investors. The company aims to bridge the gap between idea and commercialisation and, with 250 projects and 120 companies already under its belt, CLT is creating quite the track-record.
For CLT owners and Executive Directors Beverley Gower-Jones and Mark Bornhoft, investment into low-carbon innovations can lead start-ups down a rabbit hole of money-chasing that can often create an end product that is vastly different to the original concept.
“Gaining investment to get your idea off of the ground can be a bit of a minefield to navigate and you need to know your way around it,” Gower-Jones tells edie. “It’s not merely a linear process of upscaling funds and the management teams often spend too much of their lives chasing money instead of delivering on their business plans.”
Able to offer more than 90 years of cumulative experience in the clean tech innovation market, CLT has seen numerous competitions and companies launch innovation platforms designed to support start-ups – which are actively searching for funding – but sometimes applicants have to modify their objectives in order to fit the criteria of the programmes and those with the money, rather than focussing on the requirements of their target market.
While it is difficult enough to appeal to investors, Bornhoft also believes that current policy and regulatory incentives – although positive – still aren’t doing enough to encourage the early market adoption of innovative low-carbon solutions over more mature incumbent solutions.
“We need to change the way that funding is applied and it needs to address the need for more patient capital to develop clean technology engineering solutions, and then scale-up adoption to bring down capital costs” Bornhoft says. “The biggest challenge is creating a clear route to market for clean technologies that need new business models within mature sectors, and this won’t be achieved without knowing that what you’re creating is what those markets will be encouraged to adopt”.
“Companies need to allow enough time for first-time innovators to actually build the concept that they want to introduce. For the first-timers, it’s not just about the money, but also finding the right first market applications and the right partners to develop teams and ideas at the right pace.”
CLT is currently in conversation with DECC to bring about some of these market changes. The company is hoping to introduce investment for cleantech ventures at the point where they are preparing first-of-a-kind operational demonstrations and prototypes.
Gower-Jones thinks the time has come to take a fresh look of how Government money and private sector investment can work together to make sure that today’s early stage clean-tech engineering technologies can fulfil their massive potential and become established solutions.
Bornhoft notes that in the very early stages, a start-up's best bet is to gain funding through a ‘friends and family’ deal, angel investors, or an angel fund which invests raised money into seed stage companies to make a return for its investors over a number of years.
CLT notes that matching these types of funds with grants can provide an initial foundation, usually up to £250k, Public agencies like Innovate UK, DECC, and Climate KIC, – which recently launched the ‘Tinder’ of low-carbon innovation - are acting as valuable sources of grants for start-ups.
“Innovation, especially in areas like the engineering sector, can’t be reprogrammed like software,” Bornhoft says. “If you get it wrong it can take another three years to re-develop, so once you’ve got the money it needs to be spent efficiently.”
CLT believes the Seed Enterprise Investment Scheme (SEIS) – which offers tax breaks to investment into small start-up businesses – has been ‘positive' in lowering the pressure on start-ups and increasing willingness of investors to invest at an early stage, but Gower-Jones claims that due to State Aid restrictions these types of schemes aren't delivering all the investment potential available.
Wider promotion of SEIS &EIS and relaxing some of the qualifying constraints for companies and investors would also help increase the amounts invested and available to UK start-ups.
“The current process puts real pressure on the innovators,” Gower-Jones says. “Design iteration in clean-tech development is to be expected but if you build something and don’t quite get it right, it will be necessary to go back round the loop again and it’s harder to get the necessary money. This essentially means you’ve got one shot to spend funds efficiently during development.”
Despite fund raising being a minefield, it can be navigated, and schemes such as SEIS and organisations such as CLT and Innovate UK can help provide direction and support to innovators. With the aid of those with specific expertise in helping start-ups, CLT is anticipating a boom in the upscale of clean tech and energy innovation to meet demand for an economic sustainable future.
“I believe people will be surprised once these innovations go past the tipping point and start to be adopted on a mass scale, after which uptake and cost reduction will be a lot more rapid than people expect or predict,” Bornhoft says.
“The growth of the internet and the use of mobile phones and even the introduction of modern engines in vehicles all far exceeded the original predictions. So we would anticipate that we will see a similar growth with smart energy and clean technology innovations once they hit the market place.
"But to get there, we need the investment.”
The Innovation Zone at edie Live 2016
Carbon Limiting Technologies is a lead partner of the Innovation Zone competition, taking place at the edie Live exhibition in May.
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.