Thanks Will. There are some gems in here. The insights you offer about entrenched interests and the need for consumer pull to disrupt oligopilies are spot on. As an energy guy, I've had a front row seat to many executive meetings in which the "Kodak choice" occurs and the catalyst for change is not powerful enough to overcome the very real (and often personal) cost that must be borne. Hence the success of "clean sheet" venture-backed companies in meeting emerging needs with better solutions.
I'd love to hear your thoughts on the role of venture capital, as the climate capital stack matures. Unlike SaaS, cleantech is infamously capital intensive. How can venture capital be more catalytic for the type and scale of debt financing required? You mention a few companies doing great work (e.g. Generate Capital) and the role of others like the Loan Programs Office, Breakthrough, Prelude etc. is critical. How can we better support venture-backed companies to accelerate their path to scale?
Thanks for the comment David. The climate capital stack is incredibly robust now compared to the days of Cleantech. At ReGen we navigate this capital intensity carefully. We call it a "capital conscious" approach rather than capital lite. It's as much about timing as intensity. Some of the biggest SaaS companies have actually taken a lot of capital, but they take it on the back of growth to fuel a clear revenue acquisition model rather than in advance of it in big chunks. I think venture can take on more capitally intense ventures if (a) the market demand is clear and certain (b) the timing of the capital need aligns with valuation inflections (c) you have line of sight to the future sources of each of these tranches of capital early on.
Energy specifically is a bit harder segment, particularly primary energy and fuels because it demands either deep integration into existing infrastructure or massive new stand alone infrastructure. As you pointed out, there are many new capital sources for that scaling. The place we still need more help (and have always needed help) is the early demonstration scale for these types of technologies -- the $25-$100m facilities that are not bankable but allow them to prove scale economics. Equity can be to expensive for these facilities, particularly for anything that doesn't have massive margins -- i.e. Energy, Fuels, Industrial technologies.
Some groups like Generate are playing a hybrid role (debt/equity), but there is still a gap for certain technologies. I'd love to see an innovation credit (which is what we proposed to Congress back in 2010) akin to the former EV credit that is refundable up to a certain volume of production. Absent something like that we just have to focus on solutions that can prove economics at smaller scale and have clear understanding of the debt criteria to then scale.
Thanks Will. I couldn't agree more on the funding gap for "First of a Kind" projects. VCs and a few impact investors have been stepping up over the last few years (e.g. Fervo Energy, Form Energy, Antora Energy). Others (e.g. Hydrostor) have managed to cross the chasm and bring in more traditional institutional investors earlier than would usually be the case. I wonder if the infra-scale investors (e.g. TPG, Blackrock, Macquarie, GIC) will allocate a greater proportion of their capital to FOAK-stage technologies in the next few years. The embedded optionality would seem to more than make up for the higher risk profile.
Thanks Will. There are some gems in here. The insights you offer about entrenched interests and the need for consumer pull to disrupt oligopilies are spot on. As an energy guy, I've had a front row seat to many executive meetings in which the "Kodak choice" occurs and the catalyst for change is not powerful enough to overcome the very real (and often personal) cost that must be borne. Hence the success of "clean sheet" venture-backed companies in meeting emerging needs with better solutions.
I'd love to hear your thoughts on the role of venture capital, as the climate capital stack matures. Unlike SaaS, cleantech is infamously capital intensive. How can venture capital be more catalytic for the type and scale of debt financing required? You mention a few companies doing great work (e.g. Generate Capital) and the role of others like the Loan Programs Office, Breakthrough, Prelude etc. is critical. How can we better support venture-backed companies to accelerate their path to scale?
Thanks for the comment David. The climate capital stack is incredibly robust now compared to the days of Cleantech. At ReGen we navigate this capital intensity carefully. We call it a "capital conscious" approach rather than capital lite. It's as much about timing as intensity. Some of the biggest SaaS companies have actually taken a lot of capital, but they take it on the back of growth to fuel a clear revenue acquisition model rather than in advance of it in big chunks. I think venture can take on more capitally intense ventures if (a) the market demand is clear and certain (b) the timing of the capital need aligns with valuation inflections (c) you have line of sight to the future sources of each of these tranches of capital early on.
Energy specifically is a bit harder segment, particularly primary energy and fuels because it demands either deep integration into existing infrastructure or massive new stand alone infrastructure. As you pointed out, there are many new capital sources for that scaling. The place we still need more help (and have always needed help) is the early demonstration scale for these types of technologies -- the $25-$100m facilities that are not bankable but allow them to prove scale economics. Equity can be to expensive for these facilities, particularly for anything that doesn't have massive margins -- i.e. Energy, Fuels, Industrial technologies.
Some groups like Generate are playing a hybrid role (debt/equity), but there is still a gap for certain technologies. I'd love to see an innovation credit (which is what we proposed to Congress back in 2010) akin to the former EV credit that is refundable up to a certain volume of production. Absent something like that we just have to focus on solutions that can prove economics at smaller scale and have clear understanding of the debt criteria to then scale.
Thanks Will. I couldn't agree more on the funding gap for "First of a Kind" projects. VCs and a few impact investors have been stepping up over the last few years (e.g. Fervo Energy, Form Energy, Antora Energy). Others (e.g. Hydrostor) have managed to cross the chasm and bring in more traditional institutional investors earlier than would usually be the case. I wonder if the infra-scale investors (e.g. TPG, Blackrock, Macquarie, GIC) will allocate a greater proportion of their capital to FOAK-stage technologies in the next few years. The embedded optionality would seem to more than make up for the higher risk profile.