©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


Agenda

Introducing EcoMachines

Funding options for startups

Some lessons from our experience

Q&A


1. Introducing EcoMachines1. Introducing EcoMachines


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


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


Sectors of Interest

01Power Generation

02Transport

03Circular Economy and Resource Recovery

04Smart City and Energy Efficiency

05Industrial high-tech


Technologies of interest

01Robotics

02Materials science

03Power electronics & controls

04Internet of things

05Advanced engineering


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


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


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


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


Geographic reach

Coverage across Europe and Israel.

Representatives in:• London (HQ)• Paris• Moscow• Prague• Tel Aviv


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


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


2. Funding options for startups


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…


The funding life-cycle – where are you and where will you be?


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


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.


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


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


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.


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


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!


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.


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


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?


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?


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.


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


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


What we want to avoid in start-ups!


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

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4. Q&A Session


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

©2015 ecomachines ventures. all rights reserved funding innovation: options for cleantech startups...

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