EcoMachines Incubator: Resource 2015 - Funding Options for Startups

©2014 EcoMachines Incubator Ltd. All rights reserved

Funding Innovation: Options for

startups within the Circular Economy

Dr.ILIAN ILIEV (CEO, EcoMachines Incubator)

5th March 2015 Resource 2015


Agenda

Introducing EcoMachines

The circular economy

Circular economy case studies

Funding options for startups

Q&A

1.

2.

3.

4.

5.


1. Introducing EcoMachines


Focused on startups in

advanced engineering

and high-value

manufacturing

A hybrid business model:

a seed Accelerator +

early-stage VC fund

About EcoMachines Incubator

Accelerator programme

includes equity finance,

mentorship, and other

services


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


Accelerator Programme

We help entrepreneurs transform their businesses from a startup with a proof-of-concept technology into a high-growth, investable company.

Our 9-month one-on-one Accelerator programme is specifically designed for hardware & advanced engineering startups.


Focus: Waste & the circular economy

EcoMachines is running a new initiative focused on resource recovery and thecircular economy in order to:• Identify and engage with early-stage hardware companies in Europe• Support cutting edge technologies and innovative solutions for this sector

EcoMachines will advise entrepreneurs on growth strategies, connect with industry leaders, and explore investment opportunities with the

most promising of these early-stage ventures.

Design/Manufacture

Retailer

Consumer/householder/

LAs/Re-use/repair/

recycling

Recycling circular economy


2. The circular economy


What is the Circular Economy?

‘A circular economy is an alternative to a traditional linear economy in which we keep resources in use for as long as possible, extract the maximum value from them whilst in use, then recover and regenerate products and materials at the end of each service life.’ - WRAP


‘A circular economy is an industrial system that is restorative or regenerative by intention and design’ – McKinsey/Ellen MacArthur Foundation

What is the Circular Economy?


The potential impact

• Annual material cost saving opportunity at EU level for a ‘transition scenario’ based around changes in product design and reverse-cycle skills

USD 340 to 380 billion p.a.

• Annual material cost saving opportunity at EU level for an ‘advanced scenario’, involving more radical changes and greater governmental support

USD 520 to 630 billion p.a.

• Value of circular opportunities for fast-moving consumer goods sector

USD 700 billion p.a.

Source: McKinsey/Ellen MacArthur Foundation


How dramatic could the transition be?

Power Industry: 1995 Power Industry: 2015


What does the circular economy

mean for business?

• Greater resource efficiency

• Lower costs of inputs

• Protection from fluctuating commodity prices/supply

chain risk

• Improved customer loyalty and interaction

• Greater investor returns through more resilient and

efficient business models

…but also disruption in their supply chains and business

models during transition


…and for startups?

• New product and new business model opportunities

arising from the redesign of systems

• Ease of experimentation - not ‘locked-in’ to pre-existing

models

• Opportunity to use technologies proven in other

sectors/applications to address circular economy

problems

• Can move faster than incumbents to apply new

technologies/solutions


3. Circular economy case studies


Winnow?

Opportunities for innovation


Case Study 1:

Business: Warwick University

spinout that produces machinery

that converts Mixed Plastic Waste

(MPW) to PlaxOil which can be sold

or used as fuel.

EcoMachines investment in 2013.

Circular economy: A distributed solution for converting difficult to treat

plastic waste to heating or transport oil. Modular units with 7,000t p.a.

capacity that can be ‘stacked’ to solve municipal or industrial waste needs

Funding strategy highlights:

Several rounds of angel investment to get to early prototype

Pivot away from OEM strategy to Build, Own, Operate strategy opened

project finance funding option


Case Study 2: bio-bean

Business: bio-bean is an award-winning green energy company

that has industrialised the process of turning waste coffee

grounds into Advanced Biofuels. It is primarily a commercial,

cost-saving operation.

Circular Economy: Diverting waste from landfill into production

of carbon neutral biofuel for a specialised waste stream

Funding Strategy: Angel investment,

government grants, flagship UKTI

programme to increase visibility.

Commercial advantages for coffee

waste producers.

Biofuels sales.


Case Study 3:

Business: End-to-end Automated process for removing

hazardous waste materials from LCD panels and monitors, in

compliance with EU directives. Step-change in efficiency in

dismantling of LCD screens

Circular Economy: Importance of waste aggregation –

sorting/separation of waste streams to reduce cost of recycling.

Fit-for-purpose as the waste stream of LCDs increases

Funding Strategy: Use of EU

grants for prototype build, but also to

build ecosystem. Company got to

pre-commitment to purchase before

moving onto larger funding rounds


4. Funding options for startups


The Funding Ecosystem

SMEs

Corporate VC

VC Funds

Angels

AcceleratorsFamily Wealth Offices

Project Finance

Public grants

Crowd Funding

So many more opportunities to get funding, yet in a way it is 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 benefits (SEIS/EIS),

crowd funding platforms… and zero-interest rates.

Angel funding alleviates the VC funding gap, providing startups with:

• An 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)


• Typically focused on software/digital media companies – so is it the right

model for you?

• Are the Mentors the right calibre?

• Programmes are not a substitute for finance, they are 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

The UK is the EU’s largest VC market.

But VC has largely focused on post-revenue companies in the

energy/Cleantech/waste space.

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


• 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

• Company must fit in VC’s investment mandate

• Limited investment timeframe

• Loss of independence for founders


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


• 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

Pros:

• Genuine alternative or complement to VC funding

• They can provide significant amounts of investment + international

networks – acting as super-angels

• Often provide access to emerging economy markets through their

founders’/principals’ networks


• But… unlikely to act as angel investors – typically post-revenue,

looking for scalability.

• Very difficult to access.

London is also a global centre for family wealth offices.


Project finance

• Growing number of examples in waste-to-energy, smart

metering and retrofitting, where project finance structures

have led to the 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

and 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!

Risks & limitations:• 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

The promise: if you get it right, investments in ‘hardware’ businesses

can be highly scalable at relatively low capex, and can ‘plug-in’ into

existing waste industry and circular economy infrastructure

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


What we want to avoid in start-ups!


How to engage with EcoMachines

Please contribute to our Circular Economy Survey.

Link to survey available on our blog:

www.ecomachinesincubator.com/blog

• Meet the EcoMachines team during our monthly Open Office Hours

• Apply to our Accelerator Programme

• Join our newsletter to follow our activities in Resource Recovery and Circular Economy

For more information, visit our website:

www.ecomachinesincubator.com

http://www.ecomachinesincubator.com/blog

http://www.ecomachinesincubator.com/


Ilian Iliev (CEO)

London, United Kingdom

(m) +44 77863 73965

(e) [email protected]

Contact UsTo find out more about EcoMachines Incubator, please contact us.

ECOMACHINES INCUBATOR LTD.

Rainmaking Loft, International House, 1 St Katharine’s Way, London, E1W 1UN, United Kingdom

www.ecomachinesincubator.com @EcoMachinesUK

EcoMachines Incubator: Resource 2015 - Funding Options for Startups

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Transcript of EcoMachines Incubator: Resource 2015 - Funding Options for Startups