🎙️ Reflecting on the Latest Climate Insiders Podcast with Nadav Steinmitz 🌍 Three key takeaways really hit home for me from the latest episode: 1️⃣  VCs Need to Rethink Cleantech:  Unlike software startups, climatetech ventures take time—**3+ years** before they hit first revenue. That’s not a quick sprint, it’s a marathon. And the gap in FOAK financing is a direct result of this mismatch in expectations.  2️⃣ Herd Mentality in VC Funding:  Investors flock to hyped-up climate tech that isn’t ready for prime time. The result? Money poured into solutions that aren’t quite scalable yet, leaving others that are ready starving for capital.   3️⃣ Funding Rebound Ahead:  Despite a dip in VC funding over the past two years, Nadav predicts a rebound as the global economy steadies. So, stay sharp—things are about to get interesting.  Catch the full podcast below and 👇follow me for more cleantech scaleup insights and drop me a line to chat about your scaleup! 💬 https://www.climateinsiders.co/can-deep-tech-hardware-solutions-decarbonize-our-planet-ft-nadav-steinmetz-climate-first/ #Cleantech #ScaleUp #VentureCapital #ClimateTech #FOAK #innovation #podcast #VC #funding

🌊In the days of the Genoa Republic, a startup would not be about building cutting-edge tech in the comfort of your lab -  it was about buckling on a cutlass and setting sail into treacherous seas. Back then, the stakes were a bit different—storms, pirates, and illness meant the risk wasn’t just financial but often life-threatening. Yet, the Genoans were legendary seamen, known for their innovations and dominance on the waves. What’s fascinating is how they structured their ventures, particularly their capital stack. 💰Here’s how it worked: wealthy Genoans who didn’t fancy risking their lives at sea—let’s call them the investors—would fund the ships, crews, and cargo. The captains—the founders—had no money but were willing to brave the seas for a share of the profits. The deal? A 50/50 split of the profits between investors and the captain. This arrangement gave captains every incentive to make the voyage a success. With skin in the game and control over the journey, it’s no wonder Genoa ruled the seas for seven centuries, innovating everything from brutal fencing to denim. 👨🏼‍💻Fast forward to the 21st century, and you’ll find that raising money for your FOAK (First-of-a-Kind) project can feel like navigating those same stormy seas. But unlike the Genoan investors, many modern-day investors balk at the idea of a 50/50 split. In one case I witnessed with an electric car platform startup, an investor insisted on taking 100% ownership because the founding team wasn’t contributing capital—just their expertise and sweat equity. Spoiler: this story doesn’t have a happy ending. But we’ll come back to that.  So, what should you watch out for when building your FOAK capital stack? Let’s break it down: 🚫 Don’t Dilute Too Much Planet A’s "Building and Scaling Climate Hardware Playbook" offers sensible advice here: don’t dilute too much. But how much is too much? In episode 6 of my podcast, WattsUpWithStartups , I talked with Duke Oh, the founder of JR Energy Solution. Duke’s startup, a classic hardware cleantech, built a factory capable of producing 500 MWh of lithium-ion electrodes annually. But Duke couldn’t prevent his investors from diluting his share too much, leading to management challenges and a severe drop in motivation. My take? Aim to keep a controlling stake of 50%+1 share. This is crucial if you have one or two major investors holding more than 25%, giving them a blocking stake. With a simple majority, you can push through key decisions. Remember, after your FOAK, you’re not done with equity funding—you’ll likely need to dilute further. If you drop to 25% or less post-FOAK, your share will dwindle even more when building NOAKs (Nth-of-a-Kind projects), leaving you with little control and motivation. 🚷 Watch Out for Non-Operating Founders Non-operating founders—advisors, counselors, and other part-timers—can contribute to your success, but they shouldn’t hold too much equity. Planet A suggests keeping their stakes below 5%. If they already own more than that, implement buy-back or dilution clauses to regain control.  👑 Concentrate Decision-Making Authority A capital stack that’s too diffused among many small investors is just as dangerous as one dominated by a single large investor. Too many small investors lead to confusion, slow decisions, and muddy governance. On the flip side, if one investor holds a majority, their opinion will outweigh everyone else’s, effectively making them the sole owner. To avoid these pitfalls: - Keep any single investor’s share under 20%, especially in the early stages. Don’t let them accumulate a blocking stake of 25%+. - Pool smaller investors’ decision-making rights to streamline processes. This is where a good lawyer can be invaluable. - Beware of exclusive rights like vetoes, golden shares, or rights of first refusal. These can undermine your control—avoid them at all costs. 🚩 Worst-Case Scenario Back to that electric car platform startup. The original inventor, eager to get the project off the ground, conceded to the investor’s demands, handing over 100% ownership. The founder is now just an employee, drawing a paycheck instead of sharing in the success. It’s like agreeing to navigate stormy, pirate-infested waters—not for half the profit, but for a meal. 🧭 Need Guidance? If you’re navigating the tricky waters of building your FOAK capital stack, reach out. I can help you secure the necessary funds while ensuring you retain the decision-making power you need to steer your venture to success. 🌊🚀 #FOAK #Cleantech #Startups #VentureCapital #Entrepreneurship #ScalingUp #CapitalStack #Innovation #FounderTips #DecisionMaking

This question came up yesterday at the 4WARD VC roundtable with energy CEOs, and it's a good one. Two days ago I posted about the rise of VC funding of batteries. That’s an early sign of coming change, but the change itself is not yet here.  It’s actually pretty natural for batteries to lag behind renewables. Research shows that you need at least 30% of renewable energy in your grid before batteries become essential to balance the system. That need spikes once you hit 60% penetration. Right now, renewables account for 43% of total installed capacity, but they’re only generating 8% of electricity. So, in most cases, it’s just too early for batteries to take the spotlight. The exceptions? Countries where renewables already have surpassed the 30% mark. You’ll know them by the battery co-location requirements their governments impose on new renewable projects. So, for most of the world, it’s a waiting game. But that tipping point is coming. ⏳ #EnergyStorage #Renewables #BatteryTech #CleanEnergy #GridBalancing #4WARDVC #Batteries #EnergyTransition

🏁The race is on! Gigafactory capacity is already big enough to meet all Net Zero targets—and there's more on the way. We’re seeing some exciting contenders like sodium-ion and lithium-sulfur, but the real winner? It’s going to be the tech that slides right into existing gigafactories without a hitch.  🏭Here’s the deal: billions have already been poured into building these factories, and everyone’s now eyeing their returns. No one’s going to back a battery tech that can’t be produced with the equipment already in place. The production process will make or break the next big thing in batteries.  #BatteryTech #Gigafactory #CleanEnergy #Innovation #SodiumIon #LithiumSulfur #NetZero #EnergyStorage

🔋 The Battery Boom (no, not THAT one!): VC Funding Surges as Renewables Demand Grows 💰 Intermittent renewables like 🌞 solar and 🌬️ wind need batteries to keep the lights on when the sun isn’t shining, and the wind isn’t blowing. And now, it seems that renewables have finally grown big enough to draw serious investment into stationary battery technologies. In Q2 2024, the grid infrastructure segment saw a record $2.6 billion in VC funding, making up 60.1% of all clean energy investments for the quarter. Within this, battery energy storage stood out, overtaking solar photovoltaics as the largest category with $2.3 billion in VC deal value, compared to $1.1 billion for solar. ⚡ Interestingly, alternative energy storage technologies also made waves, becoming the third-largest category for the quarter. This puts all three major categories in the grid infrastructure segment—battery energy storage, alternative energy storage, and solar photovoltaics—among the top five by total funds raised. 📈 Here are the quarter’s largest deals: - Nexamp: Raised $520 million in later-stage VC funding as a renewable energy developer. 🌱 - Highview Power: Secured $381.9 million in later-stage VC funding for its liquid air energy storage technology. ❄️ - Sila: Pulled in $375 million in Series G funding for its lithium-ion battery development. 🔋 The message is clear: as renewables scale up, so does the demand for the technologies that support them. And investors are paying attention. 👀 Follow me for more insights into cleantech scaleups!  Source: PitchBook INC. #EnergyStorage #VentureCapital #CleanEnergy #Renewables #BatteryTech #Grid #Infrastructure #VCFunding #ScaleUp #Batteries #Hardware

CTVC is claiming that the hydrogen bubble is deflating, if not bursting. The reason - slowing investment growth and some startups going bust. I think this fairy tale is not yet over.   When a couple of startups go out of business, it is not the time yet to state the death of an industry. Startups go out of business all the time. This is usually a good thing for the industry. Ideas that are not working in practice get winnowed out, the good ones get a chance to grow.  With hydrogen, you have to be patient. The multitude of sectors where it can be applied is bewildering to investors. This makes it very difficult to separate hydrogen zombies from hydrogen unicorns.  Doing homework and technical due diligence seems to be lost on many hydrogen investors. So it will take a long time and lots of money, both private and taxpayers, before we figure out what works and what does not.  Meanwhile, have a read:  https://www.ctvc.co/the-hard-truth-about-hydrogen-210/

How to determine the right scale for your FOAK manufacturing plant? Here is a step-by-step guide. Scaling a First-of-a-Kind (FOAK) manufacturing plant is all about finding the sweet spot where your costs start to drop significantly with increased output. While your FOAK plant might not achieve the full scale needed for optimal efficiency, it must demonstrate the potential for cost reduction as production ramps up. Here’s a step-by-step process to determine the right scale for your FOAK plant:  1. Understand the Purpose of Scaling The primary goal of scaling is to reduce unit costs. Your FOAK plant needs to show this dynamic—proving that as you scale, your costs decrease.  2. Identify Your Business Type Start by determining whether your business is OPEX-intensive or CAPEX-intensive: - OPEX-Intensive: If your operations require a constant influx of materials, energy, or labor, you’re likely OPEX-intensive. - CAPEX-Intensive: If your business requires significant investment in large structures or machinery, with relatively low ongoing operational costs, you’re CAPEX-intensive. Understanding this distinction is crucial because it dictates where your cost savings will come from—whether through operational efficiencies or capital investment reductions and funding mix.  3. Engage with Suppliers Your next step is to talk to your suppliers, as their pricing will significantly impact your costs: - For OPEX-Intensive Businesses: Discuss with suppliers to understand at what order volumes they’re willing to offer substantial discounts (ideally 30% to 50%). These discounts are usually available for consistent, long-term orders (3-5 years) of materials, components, or energy. - For CAPEX-Intensive Businesses: Engage with equipment suppliers to determine the conditions under which they’ll offer discounts on large orders of machinery or infrastructure. For example, when planning a lithium-ion cell gigafactory, I found that ordering one electrode-to-cell line cost X, but ordering four lines yielded a 10-15% discount. In another case, sourcing wind turbine blades, we secured up to 80% discounts. If your materials are traded commodities like oil or metals, you might not secure such discounts, making risk analysis even more critical. For CAPEX-intensive businesses your financing costs might be your biggest costs. You won’t be able to reduce those simply with scale at this stage. I’ll go more into financing cost in my later posts.   4. Calculate Your Output Volumes Once you know the volumes required to secure supplier discounts, apply these to your production processes to calculate your corresponding output volumes. This will help you determine how much you need to produce to start seeing cost reductions.  5. Optimize Production Processes The challenging part is now reducing other operational costs, like labor and energy. Analyze your production line operations, the layout of your manufacturing process, and the overall production flow. This is where creativity and optimization come into play. Since you’re building a FOAK plant, you have the opportunity to design processes that optimize resource and energy use. It’s unlikely that your production process is entirely novel, so seek out experts who have experience optimizing similar processes. Hiring a team or consultant with a proven track record of reducing operating costs will greatly increase your chances of success. This step is crucial for two reasons: 1. It helps you estimate your minimum possible costs. 2. It allows you to present well-founded cost projections to investors with confidence.  6. Map Your Cost Curve With a clear understanding of your production costs and supplier discounts, plot these cost points against your output levels to create a cost curve. This curve will likely slope downward as your output increases. Look for a point on the curve where costs start to drop significantly, but your capital investment (CAPEX) remains minimal. This is your FOAK sweet spot—the optimal scale that requires the least investment while still being large enough to demonstrate scalability and cost reduction. By following these steps, you can determine the right scale for your FOAK manufacturing plant, ensuring it’s set up for both immediate and long-term success. #investment #cleantech #cleantech #hardware #foak #planning #startups #manufacturing

Who do you go to for the money and when? When you're scaling up from Lab to Nth-of-a-Kind (NOAK), understanding the capital stack is crucial. The picture from the Sightline Climate FOAK guide is a useful rough guide to the funding types available at different stages: 💡 Catalytic Capital:     - Stage: Lab and Pilot     - Description: Patient, risk-tolerant, and flexible investment capital that supports high-risk, innovative technologies. 🏛️ Government Funding:     - Stage: Lab, Pilot, and beyond     - Description: Non-dilutive grants and loans, often provided by agencies like the DOE in the U.S., to support R&D and early commercialization. 🚀 VC & Growth Capital:     - Stage: Demo     - Description: Venture capital for early-stage companies and growth equity for scaling climate tech startups or acquiring significant stakes in them. 🏢 Strategic Investors:     - Stage: FOAK     - Description: Corporates, such as those in oil & gas or industrial sectors, investing directly to scale technologies that align with their business. 💰 Project Finance:     - Stage: NOAK     - Description: A mix of debt (typically 60-80%) and equity (20-40%), used to finance the large-scale rollout of proven technologies. The journey from FOAK to NOAK is about more than just technology—it's about matching your stage with the right type of capital to keep the momentum going. Get your FOAK guide here: https://www.sightlineclimate.com/foak-guide   #ScaleUp #FOAK #NOAK #ProjectFinance #ClimateTech #VentureCapital #StrategicInvestment #GovernmentFunding #CatalyticCapital

Good news at last. But progress still slow.  Morrow Batteries, founded in 2014, has finally opened its first 1 GWh factory after ten years and $206 million in investment. The factory will produce LFP batteries—nothing revolutionary, but solid progress for an EU battery industry that's been starved for good news. Unlike the fast-paced, high-risk approach of Northvolt, Morrow is taking its time—slow, deliberate steps. This first 1 GWh plant seems to be more about testing production processes and ironing out any inconsistencies in speed and quality rather than rushing to market. Morrow aims to scale up to 43 GWh by 2028. But given the company’s glacial pace, it wouldn’t be surprising if this milestone gets pushed to 2038. Here’s hoping they prove me wrong. https://www.marketscreener.com/quote/stock/SIEMENS-AG-56358595/news/Norway-s-Morrow-Batteries-opens-factory-plans-first-deliveries-by-year-end-47669976/ #Batteries #EnergyStorage #Manufacturing #ScaleUp #LFP #CleanTech #EUInnovation #MorrowBatteries #Northvolt

What you can learn from First-of-a-Kind (FOAK) projects in nuclear? A lot, it appears. I’m currently doing  an in-depth analysis of nuclear sector with some of the best experts in the field, and here is what I’ve found.  Nuclear FOAK projects are notorious for their complexity, and this is reflected in their cost overruns. The first decade of this century saw over a dosen FOAKs in building so-called Generation III/III+ reactors. Most of the nuclear reactors in operation have been built around 1970-1980’s, and are known as Generation II reactors. The latest generation came in with improved safety features.  The FOAKs of these new generation of reactors had costs overruns at least twice the budget. At the planning starge, costs would be estimated at around 2300USD per kW, but upon completion, the real costs shot up to 5300 USD/kW on average. Some, such as the EPR reactor at Flamanville in France was initially budgeted at 1,886 USD/kW, but the final cost ballooned to 8,620 USD/kW.  1. The Real Risk: Planning, Not Technology A key takeaway from nuclear FOAK projects is that, at the FOAK stage, technology risk is surprisingly low. The real challenges lie in planning and execution. In the Flamanville project, the project documentation was modified 4500 times while the construction was already going. At the same time, two similar reactors in China were built with “only” twice the planned time and 1,6 times over budget. For non-nuclear FOAKs, the lesson is clear: focus on planning from the outset. 2. The Temptation Trap: Don’t Lowball Your Estimates It’s hugely tempting to present low cost estimates to attract investors and stakeholders. However, as nuclear projects have shown, this can have disastrous consequences. Both successful and unsuccessful FOAK projects have demonstrated that lowballing costs to gain early support often leads to significant overruns later on. Take the APR 1400 in Korea—initially budgeted at 1,828 USD/kW, the final cost came in at 2,410 USD/kW, which was still one of the more successful projects. The lesson here? Underpromise and overdeliver. Be realistic in your projections and avoid the temptation to lowball. 3. Simplify Management: The Achilles’ Heel of FOAK Projects One glaring issue in nuclear FOAKs was the complexity of project management. In many cases, equipment supply agreements became too complicated, and decision-making was fragmented across multiple bodies. Contracts with equipments suppliers were overly complex. The takeaway? Keep your management structure simple and ensure there is a single, clear decision-making authority. Conclusion: Apply Nuclear FOAK Lessons to All FOAK Ventures Whether you’re working on the next generation of nuclear reactors or pioneering a new technology in a completely different field, the lessons from nuclear FOAK projects are invaluable. Remember that the primary risks are not technological but managerial and financial. Plan thoroughly, simplify management, and always aim to underpromise and overdeliver. Source: https://www.oecd-nea.org/upload/docs/application/pdf/2020-07/7530-reducing-cost-nuclear-construction.pdf   Thanks to Arkady Karneev for the help in preparing this article.  #FOAK #ProjectManagement #NuclearEnergy #Innovation #CostManagement #TechnologyRisk #Execution #Leadership #LessonsLearned #StakeholderManagement #PlanningAndExecution

Licensing, Buy-out or Project Finance?  When your startup reaches the "First of a Kind" (FOAK) stage, scaling beyond it is the next big challenge. Typically, there are three ways to take your startup to the next level: 1. Switch to a Licensing Business Model 2. Exit Through Acquisition by an Incumbent 3. Rinse-and-Repeat Through Project Finance Choosing the right path depends on several factors, starting with the existence of a market and its participants. 🔍 Licensing Your Technology If your innovation is something like a new method for making anodes or cathodes for lithium-ion batteries, licensing might be your best bet. Why? Because there are already battery manufacturers out there who are ready to adopt and apply new technologies. The licensing model has worked well for many companies in wind turbine manufacturing, allowing them to scale without the need for massive capital investment. 🏢 Exit Through Acquisition Getting acquired by an incumbent can be a solid strategy, but it usually requires more than just a FOAK. Big players will buy your business for one of three reasons: 1. Niche Expertise: Your product or service thrives in a niche market not covered by the incumbent. 2. Geographic Expansion: Your company is gaining traction in a geographic market that the incumbent hasn’t tapped into. By acquiring you, they get both a new product and a new market. 3. Eliminating Competition: You pose a threat to their existing business, and they want to eliminate you before you grow too big. 🚀 Go Big and Scale The final option is to plow ahead and grow into a big business yourself. This route is tough but can be rewarding, especially if there are no incumbents with similar technology in your market. Think of the early days of EVs—there were no established players, which allowed companies like Tesla to rise. Green hydrogen is another area where the first big companies are yet to emerge, offering a rare opportunity for new players. Which Path Will You Choose? Each path has its pros and cons, and the right choice depends on your technology, market, and long-term vision. Whether you license, sell, or scale, the key is to make an informed decision that aligns with your goals. #Startups #FOAK #Scaleup #Licensing #Acquisition #ProjectFinance #GrowthStrategy #Greentech #Innovation

What is the first question you need to ask a greentech scaleup?  When evaluating a greentech scaleup, the first question you should ask is simple: Is your greentech truly green, or just pretending? The goal here is to distinguish between business-as-usual ventures and those that can genuinely reduce CO2 emissions on a global scale. A good rule of thumb? Consider whether the technology could, in principle, reduce 500 million tons of CO2 annually. That’s roughly 1% of global emissions. Not just your specific scaleup, but if the entire market adopted this technology, could it make a meaningful impact?  Take hydrogen-powered propeller airplanes, for example (see my Saturday post for more details). Aviation as a whole accounts for over 2% of global CO2 emissions, but propeller airplanes represent only about 15% of all commercial flights. Even if every propeller plane were retrofitted with hydrogen, the impact would be minimal—reducing emissions by just 0.3%. Investing in such projects is essentially spending money, time, and talent for little to no impact. Now, I’m not saying that a scaleup falling short of the 1% criteria is a bad business (hydrogen planes aside). It just means that its primary purpose is profit, not emissions reduction. To learn more about the 1% rule, check out the book by Bill Gates “How To Avoid The Climate Disaster” in the "Book Review" section of this blog.   #Greentech #Scaleups #CO2Reduction #Sustainability #Impact #investment