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
01
Power Generation
02
Transport
03
Circular Economy
and Resource
Recovery
04
Smart City and
Energy Efficiency
05
Industrial
high-tech

Technologies of interest
01
Robotics
02
Materials science
03
Power electronics
& controls
04
Internet of things
05
Advanced
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 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

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
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…

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!
• 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

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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