Three Hints for Funding Clean Energy Startups

“Clean energy is a hot topic right now, but innovators and entrepreneurs shouldn’t get cocky.”

Where is the money in startups these days? Here is a clue: Look at the student-led startup teams finding favor on college campuses during investor competition season. At the Super Bowl of such competitions, held last May at the McCombs School of Business, nothing was trending faster than funding clean energy startups.

I spoke with the founders of the competition’s winning clean energy startup to identify three essential moves that will help clean energy projects find investor support.

1. Ride the clean energy momentum

Panos Adamopoulos has 11 years of consulting and strategy development experience in Hong Kong and China, but last May his attentions were focused on a team of judges sitting in a ballroom at the Global Venture Labs Investment Competition in Austin. He had reason to feel confident; his pitch team had already won the top clean energy prizes at Rice, Berkeley, and Greenville Tech, and they were about to garner one more.

Seismos Team PitchAdamopoulos, Devin Bedwell, and Stevan Slusher, all students in the Master of Science in Technology Commercialization program at McCombs, teamed up to launch Seismos, a company that promises to free up previously unreachable oil reserves while lowering carbon dioxide loss during production.

Seismos added one more notch to their belt that day, with a win of the Wells Fargo Clean Energy prize, bringing their earnings to $45,000 cash and about $100,000 in incubation and consulting services.

“There is no doubt clean energy is a hot topic for investors, with big venture capital players on the East and West Coasts interested in funding clean energy startups,” says GVLIC director Rob Warren. That investor interest is mirrored by an increase in clean energy student startups. “This year we had 2 ½ tracks with five clean energy teams each, and next year we’ll see three tracks of five. Contrast that with IT, where we barely had five teams this year, and biomedical has slowed as well.”

2. Be prepared to win over skeptics

Clean energy is broader than just alternative energy resources such as solar or wind. Given the continued importance of traditional energy (oil, gas, and coal still play a huge role in meeting energy demands) innovations that reduce the cost or environmental impact of producing traditional fuels are magnets for investor attention.

“The problem is, new energy solutions in a well-established industry face intense scrutiny,” explains Bedwell. “On the flip side, there is huge demand, so people are willing to listen, but you won’t gain traction until you have real numbers proving your technology will turn a profit and work within their operational model.”

Facing tough questions from judges, the Seismos team had to counter the perception that energy ventures require higher upfront funding and longer payouts than other types of startups. “Don’t let unspoken assumptions derail your pitch,” Bedwell says. “Particularly in the oil business, there is a lot of history you’ve got to acknowledge and get past.”

Moving beyond prototype testing with well-established oil field trials is the next credibility-building step for Seismos, along with adding deeper domain experience to their startup team.

3. Pitch to the triple bottom line

Warren sees an increasing embrace of the triple bottom line (people, planet, profit) among energy companies as they adopt a more sustainable operating philosophy for future resource development.

“Everyone knows the current system is a finite resource with positives and negatives,” he says. “There will continue to be bigger calls for solutions, and companies know they need to develop those innovations now so they have time to profitably transition from one approach to another.”

He is careful to say that startup pitches cannot appeal only to feel-good altruism. Investors want to believe they are doing something ethical and world changing, but there must be financial incentives to move forward.

“Clean energy is a hot topic right now, but innovators and entrepreneurs shouldn’t get cocky,” Warren says.

“At the end of the day, an investor seeks tangible benefits, a field-tested technology, and a startup team with what my colleague Rob Adams calls execution intelligence. Those are the three ingredients for successfully funding clean energy startups.”

Originally published in McCombs TODAY.

For more, see: Nine Steps to Become Investor-Ready

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