The global energy transition is considered to be the greatest challenge of our century. Its success depends upon fundamental innovations by research institutions, the research and development (R&D) departments of established companies and also, in particular, by young growth companies or start-ups.
This White Paper takes a look at the different groups of investors that engage in funding of start-ups in the energy sector.
Key messages of the study
- So far, independent venture capital funds (“VCs”) as the traditional venture capital investors, have focused strongly on asset light business models, which promise fast growth with rather limited capital investment. For many deep tech start-ups, which are generally more capital-intensive, this results in a considerable financing gap which can be reduced by public R&D funding only to a very limited extent.
- Established energy sector companies are therefore needed as providers of venture capital, especially for the financing of hardware-focused business models.
- Such “energy corporates” play their role as providers of venture capital very differently. Those that have their own corporate venture capital units (“CVCs”), tend to see themselves as typical “exit driven” venture capital investors with a financial investment focus. Others see investments in growth companies as strategic participations, which will help strengthen their core business. There are also some which seem to be uncertain of their role, and are still trying to decide how to best position themselves.
- From a start-up perspective, energy corporates can be strong partners – also as investors. However, it may prove to be a mistake to collect “corporate money” too early. It is critical for start-ups to understand the mind-set of the particular investor and the opportunities and risks associated with established companies as investors.
- Traditional VCs often have reservations about (co-)investing with energy corporates, especially if they do not yet have an extensive track record (which is often the case). Still, it can be a “win-win” situation if the common VC rules, which are explained below, are observed.