Every new energy startup that pitched investors at the latest Future Energy pitch session at the ARPA-E Summit had a smart, confident spokesperson who knew his or her technology cold. Each company had slides showing how their technology worked, and how it would make everyone lots of money. Unfortunately, most of the companies needed a big pile of money from investors before they could create a finalized product or grow to a profitable size.
And that’s about all they had in common.
Seven entrepreneurs took the stage, each with a different energy solution, from ice batteries to smart backpacks to sponges made of zinc. Each technology was at a different stage of maturity, from the hypothetical to market-ready.
And most important for the VC’s in attendance, the companies making pitches varied widely in the sophistication of their business plans and their readiness to create real companies (you know, with things like customers and revenue).
At the top of the heap was Axiom Energy, which came to the pitch session with a contract in hand with Whole Foods for a pilot project to install batteries that allow a grocery store’s freezers and coolers to leave the grid during the middle of the day, when electricity is most expensive.
“I think you’re hitting on a very interesting segment,” Calhoun said. “If I were you, I would go as fast as I can.”
Especially in a sector such as energy storage, it takes these kinds of industry collaborations to succeed, said Cheryl Martin, former acting director of ARPA-E and now assisting The New York State Energy Research and Development Authority (NYSERDA) in developing new business models and partnerships for New York’s Reforming the Energy Vision (REV) strategy, as well as a fellow at Columbia University’s School of International and Public Affairs.
“I think what we’re seeing more and more is partnerships,” said Martin, pointing to Primus Power, a zinc-based flow battery company that received funding from ARPA-E and partnered with Raytheon on several defense related projects. Primus received $20 million in Series C funding in February 2014 from strategic investor Anglo American through its Platinum Group Metals Development Fund.
Near the bottom in terms of investor interest during the ARPA-E pitch event was Anthony Lochtefeld of AmberWave, whose optimistic dream of selling a flexible solar panel at high margins was hammered by investors who’ve watched a parade of similar companies fail.
“If I were running this company I would do a big gut check,” Schildhorn said. “I think it will take an insane focus and passion to get this to a place where you can achieve success.”
Even if the sheer breadth of the technologies on offer prevented the panel from giving specific insight into any particular sector or investing trend, however, the pitch session was a refresher course for investors and entrepreneurs alike on the fundamentals. In the format of speed dating, the rapid-fire pitch session had four top venture capitalist’s trying to decide: Is this a reasonable business plan to sell a finished product to real customers in the near future for actual money?
Or is it a chemistry paper dressed up in PowerPoint?
“You either need a real prototype for people to see…or you walk away from the opportunity early and hope others will mature it,” Resnick said to Michael Burrs, president of EnZinc, a startup with an intriguing zinc battery that appeared to require years of R&D before it could hope to become a saleable product.
Here are the qualities that the panelists wanted to see in a successful pitch:
1) Make A Product You Can Sell
One of the major reasons why Axiom’s system of ice batteries for grocery stores made the investor panelists so excited is that the company is already doing pilot tests of its product with Whole Foods, perhaps the most-watched company in the modern grocery industry. With an in-demand service and a top-shelf client, the only question the investors had left was how quickly Axiom can scale.
“I would go as hard as you can at Whole Foods, and then go as big as you can,” said Calhoun.
Schildhorn emphasized the need to get Axiom’s supply chain into shape, finding manufacturers who can build the units quickly and a training course for HVAC professionals around the country to become proficient in building and maintaining them.
“Who can make and install this for you really quickly?” Schildhorn said.
“I’m excited about what we are seeing in storage from the costs coming down, the number of demonstrations being done” Cheryl Martin tells CleanTechIQ.
As for other companies navigating these waters Martin pointed to Fluidic Energy, which has sold prototypes in Asian markets for its rechargeable zinc-air batteries for cell phone tower backup power. Fluidic was spun out of Arizona State University and received a $3-million grant from ARPA-E in 2010, plus $5 million from the U.S. DOE. In Sept. 2014, it raised $10 million in Series C funding from Chrysalix, a $13.8-million round in Feb. 2013 and raised $33.4 million in 2011. Inverter manufacturer Satcon and Chevron Energy Solutions reportedly invested in the company.
Other companies at Future Energy appeared much farther from the starting line. EnZinc has worked with the U.S. Navy to create a zinc sponge that can be recharged as many times as a lithium ion battery but at the low cost of lead, said President Michael Burz.
But under questioning by the VC’s, Burz said his company is more than a year and $6 million away from creating a small, half-kilowatt prototype. Especially in a sector as strewn with failure as batteries, that’s far too early for any venture capitalist to step in, the panelists agreed.
“You still need a lot of money to develop your technology and scale up,” Rensink said.
2) Find a Customer
Other companies were somewhere in the middle. They had technology that’s intriguing and mature, but they hadn’t quite figured out who to sell it to. In a recent interview, panelist Cody Nystrom of SFJ Ventures described it as “product/market fit issues,” with many of the pitchers seeming “unfocused” in terms of their commercialization strategies, perhaps trying to appeal to too large of a segment of the market. In order to receive an investment from her firm, companies need to “make a clear market case and be product ready,” Nystrom said.
Saf Cell, makers of a fuel cell that can operate at moderate temperatures, envisioned its core market as being “remote area power and military mobile power,” said co-founder Calum Chisholm, but he also wants to sell to system integrators.
Well which is it? Few venture capitalists want to invest in a company that’s operating in such a crowded space, chasing so many poorly-defined customers.
“You have a lot of different applications you want to go after,” Rensink said. “I would look very carefully at what do these people want . . . and see what you can do to deliver it.”
While chasing big domestic markets, Saf Cell may be missing their brightest opportunities abroad.
“It surprises me that I don’t see Asia on your list,” Calhoun said. “The Koreans and the Japanese are paying a lot for fuel cells.”
The VC panelists suggested an even bigger change of direction for Indoor Reality, which has a backpack with sensors that can perform rapid energy audits. The investors liked the idea of a wearable, indoor sensor platform. But with so many companies doing similar work but cheaply and by remote, why not use a backpack in an area where there’s real demand: Indoor mapping.
“While you say the backpack only costs $40,000, that’s still a big bill for an energy audit firm to pay,” Schildhorn said. “So how can you use cheaper technology? I love this idea of indoor mapping of spaces.”
This advice—identify your core audience, and target the hell out of them—applied even to the technology that seemed to have the largest possible impact at the event. SLIPS Technologies has licensed 25 patents from Harvard researchers for a lubricant film that can greatly reduce the cost of removing valuable but sticky materials from containers, said Daniel Behr, the CEO. But it can also remove barnacles and salt from ships. Or blood from medical devices. Or chemicals from each other.
“One of our biggest challenges as a company is figuring out which industry to go after,” Behr said during his presentation.
While he meant it almost as a boast, the panelists were not impressed. Nystrom noticed that SLIPS offered only components, rather than a complete system, which isn’t enough to build a company, she said. Of course, the entrepreneurs behind SLIPS can build that system only after they’ve already figured out which sector to target.
“Hone in on a specific customer segment, and describe better the customer,” Calhoun said.
3) This Ain’t No Science Fair
Jennifer Baird, the co-founder of Accio Energy, led her talk with a barrage of bold promises and big numbers.
“Our $97-per-megawatt hour LCOE is less than half the Energy Information Agency’s projection for offshore turbines in 2018,” she said. “Our advantages include 45-percent lower capex, 40-percent higher capacity factor, 25-percent lower O&M, plus compatibility with deep water and radar.”
Golly. A sector-leading low cost of energy, lower capital expenditures, and cheaper operating and maintenance costs. Sign us up!
Not so fast. The technology Baird described is exotic – it involves spraying a mist of electrically charged seawater across two metal screens, which use wind to separate the positive and negative charges and create electricity. And the pictures she used to describe the system looked highly speculative, as though the company hadn’t even soldered together a tiny backyard prototype. If this tech is really as ready to go a Baird claims, she’ll have to prove it.
“I would hire someone to show what this would really look like. The materials that you present make me believe this is very far away,” Schildhorn said.
The visuals Behr used to pitch SLIPS were fine, but he spent too much time explaining how the technology works and not enough explaining how the company works.
“You want to make investors greedy,” Schildhorn said. “So focus your pitch more on why your product matters and less on how the product works.”