A new investment company will try to solve one of the most difficult challenges for energy startups: getting to scale.
Called Broadscale Group, the New York-based company will create a network of corporate investors in the power and utilities industry who are seeking out new energy technologies.
The idea is to make it more efficient for corporate investors to evaluate outside firms and to give smaller companies access to the manufacturing, marketing, and distribution expertise of established businesses.
The first corporate investors involved are General Electric, Duke Energy, and National Grid. Private equity companies Pegasus Capital Advisors will invest in deals identified by Broadscale. Pegasus invests in companies that seek to make more efficient use of natural resources.
Broadscale developed this model because the current situation isn’t good enough, says founder Andrew Shapiro. Clean-technology startups often flounder as they transition the company from product development to large-scale commercialization, often referred to as the “Valley of Death.”
Energy, materials, and related fields are very unlike IT and Internet investing because clean technologies often require large amounts of capital to manufacture goods, they face powerful incumbents, and need to deal with complex regulations.
The scaling up situation hasn’t been helped by some venture capitalists moving out the field, making it tougher for small companies to find funding. At the same time, larger companies are becoming more active investors, partners, and potential customers.
LED lighting company Bridgelux, for example, partnered with Toshiba which will manufacture its LEDs. A123 Systems, which needed a financial lifeline, sold a controlling share to China’s Wanxiang, which should give A123 Systems access to the Chinese market. (See A123’s China Deal is the Latest Energy Controversy.)
“We don’t need to reinvent the wheel when it comes to manufacturing, marketing, and distribution. It’s a lot easier to marry the entrepreneurial drive of a (small) creative company with the scale, heft, and balance sheet of a big one,” Shapiro says.
He intends to add more power industry companies to his investment syndicate. Over time, his hope is to expand to other industries, such as buildings and real estate, using the same model.