By Julie Greco, Associate and Stefano Galiasso, Senior Associate
Energy Capital Ventures had the great opportunity to attend the 19th Annual Rice Alliance Energy Tech Forum this week. Designed to bring the energy ecosystem together and drive innovation forward, the Forum was jam packed with presentations from entrepreneurs and investors who are tackling one of the biggest threats to humanity, climate change. We learned a lot, met some awesome people, saw some old friends and made new ones, and had plenty of fun along the way. Here are some key takeaways from the day:
Ann DeWitt, General Partner of MIT’s Venture Capital fund The Engine, opened the day with an insightful conversation on her career and the barriers to investing in tough tech startups, highlighting the special support and mentorship required to scale such innovations. While we have come a long way since the major bust of Cleantech 1.0, challenges still exist. . Avenues into the energy ecosystem can be arduous and capturing value in the sector can take time, longer than in other areas of innovation due to the scale and hardware-intensive nature of energy. Due to these challenges, MIT refers to energy technology innovation as “tough tech”.
With traditionally sector-agnostic investors participating in Climate, there are ways to ensure that tough tech entrepreneurs do not lose momentum during this wave of Climate investing. Ann DeWitt’s advice for entrepreneurs soon became consistent topics throughout the day and several of the participating speakers also stressed the importance of these four themes when fundraising in the current state of Climatetech:
Patience: It is easy to get frustrated if fundraising is taking longer than expected. It is important to stay disciplined and remain patient while looking for investors and strategic partners. Although it may take longer to resonate with investors, new and novel technologies will have a learning curve. It will take industry and investors some time to see the true potential of the offering and how it relates to their specific goals. For example, The Engine is set up as a 12 year fund, with 2 optional 3-year extensions, bringing their funding horizon to up to 18 years. Typical funds invest in a 7-10 year time horizon. Patience is key.
Preparation: When seeking out investors, do the homework first. Investing mandates can change over time, or a fund might not fully understand the technical risk and capital needs of a new technology. Founders should connect with portfolio company entrepreneurs to determine if their company fits the caliber of the fund and if the existing dynamic between portfolio companies and VCs is really going to propel the founding team’s vision forward.
Perseverance: Entrepreneurs are not likely to immediately land a meeting with their ideal investor, but that doesn’t mean to throw in the towel. VCs are fielding calls, emails and pitches all day, it would be impossible to process every single touchpoint that hits their inbox. Founders should make sure to have warm connections and clear avenues into the networks that will help scale their tech, and if they happen to be a little tougher to tap into, persevering and insisting may make the difference between getting a meeting or being overlooked.
Passion: A founding team’s conviction in their idea should be stronger than any other selling point. An entrepreneur who wholeheartedly believes their company can solve a global challenge is far more compelling than someone who is simply asking for and fixated on their funding round. Founders should make sure their passion is clear when pitching and convey why they are the team that will lead the energy transition. In addition, Ann stressed the importance of a CEO’s commitment to self-improvement. It takes a very different skillset to lead a $5M, 3-person startup versus a $5B, 3,000-people strong company, and that requires the CEO to transform as a leader and grow with the company.
The ClimateTech valley of death is described as “the period of time needed for a company to go from a pilot plant to achieve sufficient scale and costs in manufacturing to reach commercial viability.” The VC model is not designed for slow growth, capital intensive businesses, so ClimateTech entrepreneurs should choose knowledgeable, motivated investors that can help them grow more quickly and stay as capital efficient as possible.
A good option for some ClimateTech companies is to work with Corporate Venture Capital (CVC) arms. O&G majors like Shell, Chevron, Sumitomo, and Oxy, have begun investing in new, decarbonized energy sources and have years of experience in financing and developing large scale projects, the exact skills needed to scale ClimateTech from the lab to pilot to demonstration to commercialization. For example, ECV’s portfolio company Cemvita Factory does this really well and works with Oxy Low Carbon Ventures and United Airlines to accelerate the deployment of their biomanufacturing and sustainable aviation fuel offerings.
The forum explored the pros and cons of working with CVCs and VCs. CVCs don’t always have aligned incentives with startups which means that selecting the right CVC is critical to the company’s success. Some major challenges that were identified include finding the right decision maker, being accepted by the business units, and stumbling upon potential IP disagreements. While CVCs have improved a lot in sophistication and scope and these challenges are becoming less common, it is important to be aware of them when exploring opportunities with CVCs. Some of the advantages of working with CVCs include sector experience and co-development opportunities, especially when startups have offerings that present strong synergies with the corporate investors.
Energy Capital Ventures is unique in that we leverage the benefits of both worlds. While we are a financial VC and are always fully aligned with the interests of the startups we work with, all of our LPs are publicly traded utilities that bring to us the strategic support of several corporate partners. Our relationships and engagement model with our LPs allow us to be the bridge between a start-up and the utility world and massive scale.
The most important takeaway from the CVC vs. VC conversation is that founders can benefit from working with both. As long as investors are aligned with the company values and vision, entrepreneurs will have access to the necessary resources to grow their business sustainably.
The energy industry is undoubtedly in the best position to mitigate climate change. With ample capital resources, an extremely talented workforce, and a history of solving enormous problems, who could be better to accelerate the energy transition and slow global warming? Yet, some critics argue that energy majors aren’t doing enough, quickly enough.
From the constructive conversations and knowledge sharing of the event, it was clear that the energy industry is very much committed to the clean energy transition. There is no shortage of enthusiasm, innovation, and encouragement as the energy industry continues to evolve. Although steady policy will help the transition keep pace, energy majors are mobilizing and making huge strides by partnering with start-ups and adopting and deploying new technologies.
Serge Tisman, Global Co-Head of Clean Energy Transition at Citi, rounded out the day with a positive note. There is a lot of investable capital to be deployed, and ClimateTech entrepreneurs are solving major problems that need said capital. While it is tempting to point to a silver bullet and focus all of our attention on that, the Energy Transition will require getting to Net Zero on everything and each industry has a unique set of energy problems that need unique solutions. There are different opportunities for things like alternative proteins, regenerative agriculture, hydrogen and ammonia, long duration energy storage, nuclear fusion, clean transportation, carbon capture and utilization, alternative plastics, reusing waste products, and so on. The energy ecosystem is well positioned to accelerate this transition, and Rice University, at the center of the energy capital of the world (Houston), was the ideal Forum to discuss the achievements, barriers, and opportunities ahead.
The final take away from the day was that the Energy Transition is more of an Energy Addition. We need to add clean energy to the energy mix, make it reliable and make it affordable. The major feat of reversing climate change cannot be done on renewables alone, and plenty of enabling technologies are readily available to help accelerate the transition.
We also got to catch up with our friends at Greentown Labs, HData and Anessa. Some exciting updates from them:
On Nov. 2 and 3, Greentown Labs will be hosting a Climatetech Summit on Catalyzing Commercialization at the Houston, TX and Somerville, MA incubators. The Summit will feature 200+ startups and their ClimateTech solutions; keynotes and sessions featuring leaders across ClimateTech, finance, policy, and justice; and networking with key climate action stakeholders. We already have our tickets and hope to see you there!
HData just launched a new product to add to their suite of Regulatory Technology. HData Compliance includes new features that provide regulated energy companies with more control over the import, edit, validation and filing of reports with the U.S. Federal Energy Regulatory Commission (FERC), now leveraging real-time validation to intelligently identify errors and exceptions in customer-provided FERC data, allowing them to complete FERC filings in a fraction of the time as using traditional methods.
Anessa, developer of the leading digitization solution for biogas plants and anaerobic digesters has recently launched updates to their AD-A platform that allows project developers to refine sensitivity analyses and include additional feedstocks in their RNG calculations. The team also just announced a partnership deal to distribute their products in the United Kingdom, following the release of a smart monitoring module that connects to existing SCADA and sensors in plants to get data and optimize plant performance and operations.
Thank you, Houston, the Rice Alliance, and this groovy cab for such an awesome trip!