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Foundations: The New Frontier of Cleantech Venture Funding?

By Posted on July 7, 2015
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Dan RadomskiInvestment can be hard to come by if you are a “hardware” based cleantech company. Hardware technologies generally require a higher level of capital to develop prototypes, demonstrate, test and validate their commercial viability. Cleantech investment in start-ups was at an all-time high years ago. With the convergence of expanding global markets with open supply chains; immature products and processes that were ripe for innovation; and cleantech backed by an unprecedented level of federal stimulus funding, it was the perfect cleantech investment storm. Unfortunately, these glory days passed quite some time ago. While you can still find venture capital firms investing in “software” based cleantech entities, attracting investment to a hardware based cleantech firm requires some creativity.

NextEnergy consults many cleantech hardware innovators – some of the most impressive technology developers on the globe. From new power generation devices, to next generation batteries, to unique advanced materials, to new manufacturing processes, there is no shortage of cleantech hardware innovation in Michigan. In fact, our region has had an abundance of innovative talent. However, what’s new is how we help these companies commercialize their technology. Fundraising for these types of ventures now require an “all of the above” strategy. Hardware innovators need to be more diligent about securing a patchwork of funding to support their technology and business readiness levels. The successful companies we support will compile friend and family dollars, federal R&D funding, state mission-based grants and loans, corporate partner investments, angel funds, and business plan competition awards. Enter a new potential source of funding: Foundations!

Recently, NextEnergy became an approved channel partner to the Wells Fargo Cleantech Innovation Incubator – a unique technology validation program initiated by a $10 million environmental grant for clean technology startups funded by the Wells Fargo Foundation. The program is co-administered by the Energy Department’s National Renewable Energy Laboratory (NREL). To date there have been a number of energy efficiency technology companies funded (up to $250,000 in value) for business development needs, research and testing support at NREL’s world-class facility in Golden, Colo., along with coaching and mentorship from Wells Fargo. Selected technology companies will reach specific technology milestones in the NREL lab with an opportunity to deploy and field test in Wells Fargo buildings. The focus areas include commercial building energy efficiency technologies including: lighting, sensors and controls; space heating and cooling; windows; energy modeling; plug loads; and building envelope. Applications for the second round of companies interested in this program are to open on July 22. To apply, you need to be recommended by an approved channel partner. NextEnergy is an approved partner and you can contact me directly at danr@nextenergy.org to learn more.

Wells Fargo was one of the first examples of foundations funding cleantech start-ups (although the program is orchestrated in a creative way to provide funding to a national lab to provide services to start-ups – not providing funding directly to the company). But when might we expect foundations to place direct investments in cleantech start-ups?

Foundations have largely been prohibited from making direct investments into for profit companies. Many philanthropic funders want to put their charitable capital to work in this field, but struggle with high transaction costs and complex investment structures. But this appears to be changing in a positive way. The US Treasury Department has committed to publish new guidance to clarify that foundations are permitted to make certain “mission-related” investments (MRIs) in companies that further the foundation’s charitable purposes. Some long-term investments in climate solutions, including clean energy technologies that can yield market returns after a relatively long period of illiquidity, may be attractive MRIs for foundations seeking to reduce carbon emissions or prevent climate change. And it is already happening.

PRIME Coalition has recently launched as a nonprofit organization dedicated to facilitating charitable investment in market-based solutions to climate change. Supported by the Betsy and Jesse Fink Foundation; Blue Haven Initiative; the Chesonis Family Foundation; Echoing Green; Glass Charitable Trust; the Pritzker Innovation Fund; the Stiefel Family Foundation; and the Will & Jada Smith Family Foundation, PRIME is focused on early-stage innovations that promise to significantly reduce greenhouse gas emissions. In June, PRIME Coalition officially announced its first investment: Quidnet Energy – a start-up company developing ultra-low-cost, grid-scale energy storage. The Sorenson Impact Foundation, the Will and Jada Smith Family Foundation, and multiple individual investors participated with PRIME in the financing, and other investments are promised. NextEnergy is an approved cleantech incubator partner of the PRIME Coalition to funnel ventures into their system for investment consideration. More information will come on this in the near future.

Fortunately for innovators, there appears to be more groups like PRIME on the horizon. Divest Invest Philanthropy, a coalition of over ninety foundations and other investors representing $4.8 billion in total assets, is committing at least 5%—and in many cases over 10%—of their respective endowments to investing in new energy solutions over the next five years. Participating foundations include the Christensen Family Foundation, the Compton Foundation, the Betsy and Jesse Fink Foundation, the General Service Foundation, the Nia Community Fund, the Overbrook Foundation, the Rockefeller Brothers Fund, the Schmidt Family Foundation, and the Switzer Foundation. The Obama Administration recently made significant announcements of federal, foundation and other cleantech funding commitments.

So can you expect a foundation to invest in your cleantech venture? The answer right now is…maybe. But one thing is for sure – it is worth investigating, especially if you are a hardware based technology developer and multiple sources of support are needed to advance your commercialization efforts. Welcome to the “all of the above” club foundations, we need you!

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