If you have spent any time in the cleantech industry over the last few years, you will notice that venture capital for clean energy technologies is hard to secure unless you are taking a new mobile app to market. What used to be called cleantech venture capital is now rebranded as “clean web” — a much easier, low capital investment risk pill to swallow. And while there are many promising clean web ventures, cleantech “hardware” based technology developers are pushing their innovations uphill with traditional early stage investment routes.
As an incubator that supports the commercialization efforts of some of the most promising cleantech “hardware” ventures, we have largely abandoned venture capital as a fund raising approach for our clients, and we see some of the most promising advanced material and advanced manufacturing technologies globally in our home state of Michigan. NextEnergy has found it increasingly more challenging to find willing funding pools to support the technical and business milestones of these very promising hardware based ventures. We have been forced to be more creative in patching together a number of funding resources to enable their commercialization efforts – from mission-based seed capital, state loans, federal grants, business plan competitions, accelerators, angels, and most importantly — strategic industry partners.
I find it interesting that strategic industry partners are often overlooked as a pathway to support a company’s growth when we continue to be successful over and over again in helping early stage ventures move the needle on both their technology and commercial readiness level through alliances within our corporate network. Why, you say? More and more large corporations are launching investment funds or tech scouting teams in an effort to keep tabs on innovation being developed outside their organizations. With shrinking internal R&D budgets and new global open innovation channels, large multi-nationals have recognized that their companies can’t possibly develop everything in-house and want to position themselves to have a wide angle view of technologies that are important to their future product development, enabling a competitive advantage.
NextEnergy has built up relationships with many large corporate ventures, tech scouting staff and innovation teams with the purpose of having alternative pathways for our early stage technology clients to commercialize their inventions. It is important to note that corporates don’t just offer direct investment — in fact, in many cases, they support a young innovative firm by developing or validating their technology, supporting their R&D or integrating their technology platform into their own products or operations.
Just last month we helped a struggling start-up secure a strategic industry partnership in the form of joint development agreement where the funds will be utilized to help the start-up company custom develop a product utilizing their proprietary technology platform. The new product is to be designed under their industry partners name plate, eventually to be taken to market by that same industry partner who has much stronger global distribution and sales channels than the start-up company could ever dream of developing on their own.
We have also recently seen an advanced inspection start-up pen a commercialization agreement with a leading renewable energy operations and maintenance firm, thereby recognizing the commercialization of their technology by utilizing a revenue-sharing model on a new inspection service offering for the industry.
Also within the last couple months, we have witnessed a remote monitoring company develop a multi-million dollar licensing and royalty partnership through an industry vertical partner. The list of strategic partnership success stories from our network continues to grow each day, most reaching commercialization success without venture capital funding.
So where is your strategic investment partner? When considering strategic industry partners you only need to look at your own value chain. First, identify the type of companies “upstream” from yours that provide your technology with critical materials, components, manufacturing services — these are your likely strategic industry partner targets. For one, they can help you design and develop a better product, potentially lending free materials and services in exchange for an equity position, royalty exchange on future sales, or exclusive supply chain relationship. After all, with their stuff in your product, they stand to benefit the most from the commercialization of your product into substantial volume.
Secondly, classify the type of firms “downstream” from your product that are likely to benefit the most from the proliferation of your product in market. Let’s say you have developed the next generation of a high energy density battery cell. You may find partners downstream the likes of battery pack system integration firms, vehicle OEMs, battery pack remanufacturing firms, and after-market sales agents. Conversely, you may identify “downstream” partners in the raw materials providers that make up your new battery cell chemistry. And don’t overlook the incumbent battery cell manufacturers that have the most to lose if you displace their market share. Those that may appear to be your competitors could prove to be your most trusted allies.
Industry investment partners, whether they are derived upstream and downstream, are called “strategic” for a reason. Most often, industry partners know the market you plan to serve better than you do, understand what is required to bring a quality product to market, and likely already have access to the appropriate channels to take it to market. They will also prove to be smart and patient with a clear understanding of market adoption rates, supply chain adjustments needed, customer testing and specification requirements. They are likely to remain patient to see your innovation recognized to a clear competitive advantage.
Look, no one should ever claim that partnering with other companies is easy when commercializing new technology, especially disruptive innovation. But increasingly, companies of all sizes are willing to borrow other people’s innovation, and share in the risk and upside rewards. Now more than ever the pathways for support lead to the industry partners that ultimately could also be your first supplier, eventual distributor, or early adopting customer. So move on without VC funding, and find your industry partners.