©2015 EcoMachines Ventures. All rights reserved Funding Innovation: Options for Cleantech Startups...
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Transcript of ©2015 EcoMachines Ventures. All rights reserved Funding Innovation: Options for Cleantech Startups...
©2015 EcoMachines Ventures. All rights reserved
Funding Innovation: Options for Cleantech StartupsDr. ILIAN ILIEV CEO, EcoMachines Ventures
6th May 2015 Cognicity Programme
©2015 EcoMachines Ventures. All rights reserved
Agenda
Introducing EcoMachines
Funding options for startups
Some lessons from our experience
Q&A
©2015 EcoMachines Ventures. All rights reserved
1. Introducing EcoMachines1. Introducing EcoMachines
©2015 EcoMachines Ventures. All rights reserved
Focused on SMEs in advanced engineering
and high-value manufacturing
A seed accelerator + early-stage VC fund
About EcoMachines Ventures
We leverage our investment impact
through strong links with industry experts,
and corporations
©2015 EcoMachines Ventures. All rights reserved
About EcoMachines Ventures
EcoMachines Ventures is an investment group that provides seed, Series A/B and growth finance.
We strive to build one of the top 5 VC funds in Europe focused on industrial high-tech.
We leverage the impact of our investment through co-investment and collaboration with corporations, industry expert networks, presence in key investment locations in Europe/Israel, and hands-on engagement
We currently invest through a Seed/Accelerator Fund, strong links with industrialist family offices and investor network
©2015 EcoMachines Ventures. All rights reserved
Sectors of Interest
01Power Generation
02Transport
03Circular Economy and Resource Recovery
04Smart City and Energy Efficiency
05Industrial high-tech
©2015 EcoMachines Ventures. All rights reserved
Technologies of interest
01Robotics
02Materials science
03Power electronics & controls
04Internet of things
05Advanced engineering
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Portfolio
Robots to apply insulation under old houses
Nanoparticles to create superior lubricants
Converting mixed plastic waste into fuel
Energy efficiency in industrial electrical motors
Light-weight, highly efficient engines
Connected car technologies
RotaryEcoMachines
©2015 EcoMachines Ventures. All rights reserved
Accelerator Investments
We help entrepreneurs transform their businesses from a startup with a proof-of-concept technology into a high-growth, investable company
We are able to follow-on our investments
©2015 EcoMachines Ventures. All rights reserved
Follow-on investments
We also invest in post-revenue high-tech companies – providing leverage through syndicated rounds with corporate and financial investors
Example: Nanotech Industrial Solutions (US-Israel• Disruptive nano-technology with application in industrial efficiency• $22.5M invested by EcoMachines + network since 2013• Revenues grown $200k (2013)> $1.5M (2014) > $10.5M (2015*
30-100nmThe particles
are truly nano
©2015 EcoMachines Ventures. All rights reserved
Philip VereyHead of Business Development
EcoMachines Team
Dr Ilian IlievCEO and Founder
Igor TurevskySVP Energy & Power
Dr Oleg EvdokimenkoChairman
Investment Committee
Oliver JohnsonAnalyst
Alexey KrenkeInvestment Director
Oksana HilinskayaInvestor Relations
Rob SnellgroveAssociate
Max MiddletonAnalyst
Operational Team
Harel BorenHead of Corporate Development
London Moscow Prague Moscow Paris
LondonLondon Tel Aviv London
Flora BaillieMarketing Associate
London London
Max MiddletonAnalyst
London
©2015 EcoMachines Ventures. All rights reserved
Geographic reach
Coverage across Europe and Israel.
Representatives in:• London (HQ)• Paris• Moscow• Prague• Tel Aviv
©2015 EcoMachines Ventures. All rights reserved
Selection Criteria
Strong & Committed Team01Successful teams must contain a range of expertise
Key team members must be working on the startup on a full-time basis
Willingness to change business model ... repeatedly!
Market Focus02We favour technologies or products with multiple possible market applications
We are interested in businesses that are scalable at reasonable capital cost
Technology Maturity and Type03
We are flexible in our expectations for the level of maturity of the business and technology, but there are several broad selection criteria
At least at Proof of Concept level (TRL 3+)
Software and connectivity plays an increasingly important role in hardware innovation – so we’ll look at software-enabled hardware too
©2015 EcoMachines Ventures. All rights reserved
Selection Criteria
Exciting Technology or Product04We are interested in disruptive innovations, rather than incremental innovation
Patents or patent pipeline
Credible Exit Scenarios05Can you demonstrate a credible exit scenario showing a) possible buyers of the company if it’s successful and b) what the drivers of an acquisition would be?
Grant Co-Funding Potential06
We are flexible in our expectations for the level of maturity of the business and technology, but there are several broad selection criteria
Use our equity as leverage for more applications
We are particularly interested in companies that have been awarded or are awaiting results of a grant application
©2015 EcoMachines Ventures. All rights reserved
2. Funding options for startups
©2015 EcoMachines Ventures. All rights reserved
The Funding Ecosystem
SMEs
Corporate VC
VC Funds
Angels
AcceleratorsFamily Wealth Offices
Project Finance
Public grants
Crowd Funding
Getting funding… so many more opportunities, yet in a way its becoming more difficult…
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The funding life-cycle – where are you and where will you be?
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Angel investors
The UK is the EU’s leading angel investment location – driven by growing experience, tax beneifts (SEIS/EIS), crowd funding platforms… and zero-interest rates
To some extent Angel funding has alleviated the VC funding gap, providing startups with:• Easy(er) funding source • Hands on experienced investors with networks• Links to follow-on investors • Angel networks can now ‘handle’ £300-400k round size
Risks & limitations: • Constraints in terms of capital available• Time and resource availability (it’s a person) • Preference by many for software/capital light models• Overvaluation risk due to SEIS/EIS – making later stage funding more difficult
©2015 EcoMachines Ventures. All rights reserved
Accelerators
What is it: • Programme-based hands-on approach to rapidly accelerate the
growth/maturity of a business• Access to large pool of mentors • Investor links • Halo effect (if it’s the right Accelerator)
Risks & limitations: • Typically focused on software/digital media companies – so is it the right
model for you?• Are the Mentors the right calibre? • It is not a substitute for finance… it’s a step towards it
London has the highest concentration of Accelerators in Europe. Accelerators provide a complementary and valuable addition to the ecosystem.
©2015 EcoMachines Ventures. All rights reserved
Venture capital funds
Pros: • Really powerful source of funding that can help companies get to the next stage, and
get funded through to exit• Multi-round access to financing• It can really scale the funding – access to follow-on investors• Very clear and powerful incentives – their investors want returns
Risks & Limitations:• Very difficult to get – especially if you’re in hardware• High threshold/requirement of investability – requires high level of model validation
and realistic exit strategy • Also company must fit in VC’s investment mandate • Limited investment timeframe• Loss of independence by founders
The UK is the EU’s largest VC market… but VC has largely focused on post-revenue companies in the energy/Cleantech/waste space
©2015 EcoMachines Ventures. All rights reserved
Corporate venture capital
Pros: • Looking beyond financial returns to strategic fit• Active channel to help companies link up with parent companies• A ‘super-validator’ – increasing company value and likelihood of exit
Cons: • High-threshold - difficult to get• Possible limitations on who you can work with • Possible limits on independence
London is also a centre for corporate venture capital (CVC)CVC are funds owned by a corporation, tasked to identify and invest in companies that help the parent company’s ecosystem
©2015 EcoMachines Ventures. All rights reserved
Family wealth offices
• Very difficult to access/get to – but genuine alternative or complement VC funding
• They can provide significant amounts of investment + international networks
• Often – access to emerging economy markets through their founders’/principals’ networks
• But… unlikely to act as angel investors – typically post-revenue, looking for scalability
London is also a global centre for family wealth offices.
©2015 EcoMachines Ventures. All rights reserved
Project finance
• Growing number of examples in waste-to-energy, smart metering, retrofitting, where project finance structures have led to scale-up of technology companies
• An alternative way of scaling for companies with mature technologies
• While the ‘Silicon Valley’ model is to build OEMs/global leaders… perhaps the UK model is to scale fast through service/build own operate models backed by project finance?
London is a world centre for project finance and public-private financing models
©2015 EcoMachines Ventures. All rights reserved
And finally… Bootstrap!
Pros:• Retain independence and avoid dilution while you figure out your business
model • Focus on growing the business, instead of fund-raising• It shows investors commitment – they prefer to see that you’ll do it anyway!
Cons:• Losing out on the expertise of other investors• Slower growth trend• Competitors may eat your cake
For an early stage startup there are many opportunities to build some traction through grants, consultancy… and starvation!
©2015 EcoMachines Ventures Ltd. All rights reserved
3. Lessons from our experience
©2015 EcoMachines Ventures. All rights reserved
Some lessons from our experience
Promising companies:• Hyperfocused on a specific easy to reach market applications• Close to a Minimum Viable Product• Ability to articulate pivots on current business model
– (Pivot early, pivot frequently – you can do it, corporates can’t!)• Deliver real and significant benefits to a real client… at the same or lower price• Team with experience specific to the market application • Find the low-capex model for growing the business• Investors with relevant experience• Business model supporting early cash flows
The promise: if you get it right, investments in ‘hardware’ businesses can be highly scalable at relatively low capex, and can ‘plug-in’ to existing industry infrastructure.
©2015 EcoMachines Ventures. All rights reserved
Lean startup for hardware companies 1
What is the Lean Startup method ?The Lean Startup approach of ‘validated learning’ and iterative product
releases has been tremendously influential as an entrepreneurial approach for Web/software companies...
....Which has seen the bulk of VC investment in recent years...
...So hardware companies should be curious! Key elements of Lean Startup : • Minimum Viable Product• Continuous deployment• Split testing • Actionable metrics• Pivot
©2015 EcoMachines Ventures. All rights reserved
Lean startup for hardware companies 2
Lean Startup – key elements
Hardware implications Solutions
Minimum Viable Product
It takes more investment and time to build an MVP for hardware
•Virtual prototyping•Rapid prototyping & additive manufacturing•Scenario testing with clients•Industry partnerships•Low-cost prototyping
Continuous deployment
It takes more time and ££ to do iterations on hardware prototypes
Split testing Its more expensive to build hardware prototypes
Actionable metrics Different type of metrics for hardware and B2B
Use deep sector expertise to identify relevant metrics
Pivot More expensive Do market-product fit testing earlier on
But... Is Lean Startup appropriate for Hardware?
©2015 EcoMachines Ventures. All rights reserved
Valuation – the common sense checkpoint
Common sense checkpoint:
• % new investors get from the new round – is it reasonable? • Does the funding get you to the next fundable event? • What happens if there’s a down-round?• Is it ‘just’ to the investors? • How much can this business be worth realistically – and how
much will investors have in it? • How does this compare to other companies we see?
©2015 EcoMachines Ventures. All rights reserved
Valuation – working the numbers
Keep in Mind:• VCs take on a portfolio of inherently risky assets (Start-ups)
• Even for the best VCs, a portfolio of 10 companies may only yield 1 or 2 huge successes
• Therefore, VCs have to look for big potential returns (5-10x) to compensate for the very high risk involved in early stage investment
• If the pre-money deal valuation is too high (relative to realistic exit valuation) the deal will not clear a VC’s investment committee, as returns will be limited and the portfolio becomes imbalanced
• …Unfortunately this means some deals that should go through do not, simply because there is a gap in expectations between the VC and start-up
Takeaway: It’s important to work the numbers to understand the valuation drivers…and help you in your negotiations.
©2015 EcoMachines Ventures. All rights reserved
Valuation tips
• Do your analysis and build a decent model• Look at it from the investor’s perspective• You’re not unique! Your competitors here are other
competitors for funding• Make it easy to analyse: Do the research – look at valuation
multiples in your industry, share the examples• What is more valuable to you – target valuation or to move
the business forward? • Do not make the deal about the valuation – there’s many
other structural aspects of a deal that you can use to reach a good outcome
©2015 EcoMachines Ventures. All rights reserved
Scaling the business
• Hardware and industrials can be massively scalable with the right approach
• Product vs. service models• Funding needs: more and more VC investment or
project finance? • Vertical control - keeping it in-house vs. outsourcing • Partnering for scale vs. independence
©2015 EcoMachines Ventures. All rights reserved
What we want to avoid in start-ups!
©2015 EcoMachines Ventures. All rights reserved
How to engage with EcoMachines
• We are offering mentoring slots for Cognicity startups – talk to us if you’re interested in a free investment readiness diagnostic session
• You can also meet the EcoMachines team during our monthly Open Office Hours, where there will be an opportunity to discuss your business plan
• Join our newsletter to follow our latest activities: http://tinyurl.com/mfs5b3m
©2015 EcoMachines Ventures. All rights reserved
4. Q&A Session
©2015 EcoMachines Ventures. All rights reserved
Ilian Iliev (CEO)London, United Kingdom (m) +44 77863 73965(e) [email protected]
Contact UsTo find out more about EcoMachines Ventures, please contact us.
ECOMACHINES VENTURESRainmaking Loft, International House, 1 St Katharine’s Way, London, E1W 1UN, United Kingdom
www.ecomachinesincubator.com @EcoMachinesUK