Every startup founder or CEO of a young company is in a hurry to succeed. The company is their life’s work; their hopes and ambitions all tied up in it alongside their capital. When that business is a clean energy business, there is added urgency: climate change doesn’t wait, and if this innovation can make a difference, there is a moral pressure to get it to market yesterday, if not sooner.
So, when the first VC makes an offer, the temptation to take the money is strong. Money in the bank this morning means investing in the business this afternoon, which means profit and environmental impact tomorrow.
But picking the right investor can be a case of ‘more haste, less speed’. In fact, it may be that clean energy entrepreneurs eager to scale-up and make a difference are better served looking for something other than a pure investor — something bigger. They may be better served picking a partner. Here’s what to look for.
Access to a network of partners
Cash is only one of the ingredients for a successful startup or scale-up. That recipe calls for any number of other things such as the right employees, first customers, researchers and marketing support. In the highly regulated world of energy, it can also require legal advice or even – when the business is doing something especially new and innovative – influence at the policy level.
A good investor may be able to help with a handful of these aspects in addition to investment, but is unlikely to tick all the boxes. By contrast, a partner that takes commercialisation and scale-up support as its raison d’être is more likely to offer multifaceted support to a company looking to grow.
For example, if a company’s founder is an inspirational engineer but not a natural CEO, a partner with a deep and broad network can help find the right person or team to supplement the leadership. After all, smart people should be building things.
Or maybe a battery storage startup has everything it takes to thrive but suffers from an unclear regulatory status as a generator or consumer of energy – a partner plugged into Brussels’ corridors of power may be a vital component of success. For example, our network at InnoEnergy encompasses more than 400 partners and creates 45,000 connections per year between companies and startups.
What to look for: an extensive network throughout Europe that can connect a young company to all sorts of support they will need for success, including but not limited to capital.
A sustainable investing model for sustainable businesses
Clean energy start-ups often face higher hurdles than counterparts in other industries. Energy is a highly regulated market with typically high capital costs and a longer average time to market than most. It is not the market to enter for entrepreneurs looking to make a quick buck.
Clean energy entrepreneurs tend to understand this (without losing any sense of urgency), but it’s important to find a partner that does so too. Some investors are more patient than others, and the best fit partners will approach sustainable energy businesses with an equally sustainable long-term investment strategy. A strategy based on a relationship, not a transaction.
What to look for: a partner with a track record of long-term support – both financial and otherwise – rather than a quick-sale approach.
There are some businesses, like Google or Facebook, that naturally transcend borders. There are others which are more grounded in their place. Energy companies can often fall in the latter category, with products or business models built according to the idiosyncrasies of their home market. In Europe, this can be especially challenging, as despite an impressively unified regulatory and policy framework, differences remain, compounded by language and cultural barriers.
But that doesn’t mean the innovations themselves can’t address pan-European or global needs. Far from it. Portuguese Pro-Drone for example, which helps wind farm operators cut inspection costs, has as much to offer asset owners in Scotland or Estonia as it does those in Portugal. Or take London and Valencia based Solaris Offgrid, which has provided clean electricity to more than 15,000 people in six countries since 2014.
A partner with in-country expertise internationally can spot a concept originating in one market with a lot of potential in another, and it can provide the expertise and network to make that international move happen. At InnoEnergy, our ecosystem spans 26 countries and provides access to 150 markets.
What to look for: an international partner which can both provide support internationally and supplement its own capacities with a broader network.
Of course, though money isn’t everything, it does count for a lot. The right partner will also be a route to the vital funding that a young company needs to grow and succeed.
However, it would be a mistake to assume that means the entire investment must come from the partner itself. Look at the example of Northvolt — the Swedish battery gigafactory opened by former Tesla VP Peter Carlsson. When Northvolt was looking for investment a few years ago, InnoEnergy invested its own capital, but more importantly facilitated an eight-figure deal with the European Investment Bank that made the difference. Though InnoEnergy did not make the full investment itself, it combined its capital and network to provide the most efficient route to funding.
What to look for: a partner that can both take a stake in the company itself while also opening up relationships with a broader set of investors.
Low mortality and a track record of success
The most innovative entrepreneurs often go all-in on their businesses and stand to lose everything if they fail. The stakes are high. James Dyson famously took 5,127 prototypes and 15 years to arrive at the design that ended up changing the vacuum cleaner. By design 2,627 money was tight, and by 3,727 his wife was giving art lessons to make ends meet.
Dyson obviously survived — securing a Japan-only license deal for his technology that generated just enough cash for him to set out on his own — but startup mortality is a real concern. InnoEnergy startups enjoy a 97% survival rate, comparing favourably to MIT alumni startups at 80%. Perhaps, more than anything else, this is the number that tells an innovator whether a partner can help them fulfil their potential.
What to look for: a partner with low mortality and a demonstrable track record of success.
Picking a future
Investment is important, but success depends on so much more. For entrepreneurs and innovators in a sector as difficult, complex and important as clean energy, success often means looking beyond the number of zeros on a cheque to what else a partner can invest.
Also published on Medium.