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EcoMachines Incubator: Resource 2015 - Funding Options for Startups

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Presentation to accompany EcoMachines Incubator's workshop at Resource 2015 entitled 'Funding Innovation: Options for startups within the circular economy'.

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EcoMachines Incubator: Resource 2015 - Funding Options for Startups

  1. 1. ©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
  2. 2. ©2014 EcoMachines Incubator Ltd. All rights reserved Agenda Introducing EcoMachines The circular economy Circular economy case studies Funding options for startups Q&A 1. 2. 3. 4. 5.
  3. 3. ©2014 EcoMachines Incubator Ltd. All rights reserved 1. Introducing EcoMachines
  4. 4. ©2014 EcoMachines Incubator Ltd. All rights reserved 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
  5. 5. ©2014 EcoMachines Incubator Ltd. All rights reserved Sectors of Interest 01 Power Generation 02 Transport 03 Circular Economy and Resource Recovery 04 Smart City and Energy Efficiency 05 Industrial high-tech
  6. 6. ©2014 EcoMachines Incubator Ltd. All rights reserved Technologies of interest 01 Robotics 02 Materials science 03 Power electronics & controls 04 Internet of things 05 Advanced engineering
  7. 7. ©2014 EcoMachines Incubator Ltd. All rights reserved 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.
  8. 8. ©2014 EcoMachines Incubator Ltd. All rights reserved Focus: Waste & the circular economy EcoMachines is running a new initiative focused on resource recovery and the circular 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
  9. 9. ©2014 EcoMachines Incubator Ltd. All rights reserved 2. The circular economy
  10. 10. ©2014 EcoMachines Incubator Ltd. All rights reserved 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
  11. 11. ©2014 EcoMachines Incubator Ltd. All rights reserved ‘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?
  12. 12. ©2014 EcoMachines Incubator Ltd. All rights reserved 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
  13. 13. ©2014 EcoMachines Incubator Ltd. All rights reserved How dramatic could the transition be? Power Industry: 1995 Power Industry: 2015
  14. 14. ©2014 EcoMachines Incubator Ltd. All rights reserved 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
  15. 15. ©2014 EcoMachines Incubator Ltd. All rights reserved …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
  16. 16. ©2014 EcoMachines Incubator Ltd. All rights reserved 3. Circular economy case studies
  17. 17. ©2014 EcoMachines Incubator Ltd. All rights reserved Winnow? Opportunities for innovation
  18. 18. ©2014 EcoMachines Incubator Ltd. All rights reserved 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
  19. 19. ©2014 EcoMachines Incubator Ltd. All rights reserved 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.
  20. 20. ©2014 EcoMachines Incubator Ltd. All rights reserved 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
  21. 21. ©2014 EcoMachines Incubator Ltd. All rights reserved 4. Funding options for startups
  22. 22. ©2014 EcoMachines Incubator Ltd. All rights reserved The Funding Ecosystem SMEs Corporate VC VC Funds Angels Accelerators Family Wealth Offices Project Finance Public grants Crowd Funding So many more opportunities to get funding, yet in a way it is becoming more difficult…
  23. 23. ©2014 EcoMachines Incubator Ltd. All rights reserved The funding life-cycle – where are you and where will you be?
  24. 24. ©2014 EcoMachines Incubator Ltd. All rights reserved 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
  25. 25. ©2014 EcoMachines Incubator Ltd. All rights reserved 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) Risks & limitations: • 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.
  26. 26. ©2014 EcoMachines Incubator Ltd. All rights reserved 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 Risks & limitations: • 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
  27. 27. ©2014 EcoMachines Incubator Ltd. All rights reserved 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 Risks & limitations: • 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.
  28. 28. ©2014 EcoMachines Incubator Ltd. All rights reserved 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 Risks & limitations: • 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.
  29. 29. ©2014 EcoMachines Incubator Ltd. All rights reserved 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.
  30. 30. ©2014 EcoMachines Incubator Ltd. All rights reserved 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!
  31. 31. ©2014 EcoMachines Incubator Ltd. All rights reserved 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
  32. 32. ©2014 EcoMachines Incubator Ltd. All rights reserved What we want to avoid in start-ups!
  33. 33. ©2014 EcoMachines Incubator Ltd. All rights reserved 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
  34. 34. ©2014 EcoMachines Incubator Ltd. All rights reserved Ilian Iliev (CEO) London, United Kingdom (m) +44 77863 73965 (e) ilian.iliev@ecomachinesincubator.com Contact Us To 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

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