Today it has never been easier or cheaper to initiate an energy startup since many need little in terms of money or supplies as their ideas have gone no further than their laptops. The leap from concept to prototype to the market is when startups need to raise serious money for buy-in ability, equipment and premises.

“Bridging the gap between the idea and the prototype, that’s the hard part,” said Nicholas Flanders, CEO of Opus 12, which developed a technology for turning CO2 into useful chemicals for the industry.

In recent years a specialized energy investment community of venture capitalists, or so-called dragons, has formed. (“Dragons” is in reference to the international reality TV program “Dragons’ Den.”) But these investors, like innovators, face the challenge of detecting profitable opportunities in a market in transition. The only certainty is that demand for energy will increase but determining how is the challenge.

“Success stems from being able to envision an energy innovation’s benefits or contribution to accomplish higher productivity or provide other products and comforts that can be monetized,” said W. Ross Williams, CEO of Alfresco Group in Denver. “Basically, the marketing fundamentals apply: We don’t pay for energy, we pay for the benefits that energy provides. Energy is only one ingredient in the value chain.”

Challenges

For any startup to progress from the drawing board requires capital, and this entails being able to convince potential investors of the merits of the proposal. Startup entrepreneurs need to answer the following key questions to satisfy likely investors: Who is the customer? What is the problem? What is the solution? How does it work, and how can it be monetized?

But as Nelson Phillips, professor of strategy and innovation at Imperial College Business School in London, said, “If the startup is trying to do something truly innovative, then good information on customer wants and needs will be very difficult to come by.”

Grow Venture Capital Group CEO Valto Loikkanen said, “The more ‘deep tech’ things go, the harder it is to prove the thing works as explained or can be made to work.”

A case in point is thermal storage, where evidence for a market is lacking. Original ideas or disruptive solutions such as this find it hard to attract dragons.

In addition, investors are not only investing in the product or service but also in the leadership and the team members of the startup.

One thing is clear—having leaders with the qualities and media presence of Tesla CEO Elon Musk can help to attract investors. However, to get buy-in, the skills and experience of the team members matter just as much.

Secrets for success

For an energy startup to improve its chances of success, comprehensive preparation is vital.

For instance, Quatre Ltd., a company offering funding and insurance solutions for the decommissioning of oil and gas fields, spent three years building a multiskilled team able to deliver an investment and insurance solution that meets regulatory requirements. Afterward, “moving quickly and being willing and able to adapt and evolve is the foundation for success,” Phillips said.

Finding the right business dragon helps. Phillips noted that “many dragons provide critical access to networks, connections to potential customers and business experience that the entrepreneur may lack.”

For example, Shell Technology Ventures supplied capital and knowledge of customers in the Persian Gulf to California-based GlassPoint, a manufacturer of solar steam generators for oil and gas companies.

Innovation brings buy-in

The pressures on companies to innovate have never been greater. So for many companies outsourcing is necessary since, as Loikkanen observed, “It’s harder to come up with disruptive innovations in-house so most internal innovation is iterative.”

Therefore, an increasing number of large energy companies are taking stakes in fledgling entrepreneurial energy businesses. For instance, some of Europe’s largest energy companies, including Statoil, BP, Innogy and EDF have created venture capital funds totaling some €1 billion (US$1.2 billion) to be invested in or buying into often disruptive innovations from startups.

Large organizations have many complementary assets that are vital to a startup’s success. For instance, market knowledge and distribution channels are crucial for marketing innovative products and services. Total brings its distribution and sales ability to its interests in solar photovoltaic maker SunPower and battery company Sunverge. Outsourcing helps large energy companies stay ahead in a stormy marketplace characterized by sustainability, costs and productivity concerns.

To succeed, startups need imagination, luck and business skills. Fortunately, launching an energy startup is becoming cheaper for software- and hardware- based entrepreneurs. What is clear is that innovation can benefit not only the startup but also potential stakeholders, including energy giants and institutional and dragon investors.

SIDEBAR:

Saudi-U.S. CEO Forum Highlights Bilateral Business Collaborations

Senior executives with Saudi Aramco and numerous U.S. companies from a wide range of industries, including leading oil and gas corporations, recently met in New York City to discuss bilateral business and cooperation between the two countries as part of the Saudi-U.S. CEO Forum. A number of cooperation arrangements and prospective commercial collaborations were discussed, according to a Saudi Aramco press release.

The commercial cooperation between Saudi Aramco and 14 U.S. companies is worth more than $10 billion, according to the press release. Schlumberger; Baker Hughes, a GE company; Halliburton; Weatherford; Emerson Electric Co.; and Honeywell International are a few of the companies that participated in the forum, according to the press release. The forum builds on the success of the inaugural forum held in 2017 in Riyadh, Saudi Arabia, that resulted in the signing of agreements with GE and The Dow Chemical Co. These agreements, according to a forum press release, aligned with Saudi Arabia’s Vision 2030 to create jobs and drive economic diversification.

Have a story idea for Industry Pulse? This feature looks at big-picture trends that are likely to affect the upstream oil and gas industry. Submit story ideas to Group Managing Editor Jo Ann Davy at jdavy@hartenergy.com.

Comments