Wednesday, 17 September 2014
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Clean cash: finding funds for environmental technologies

The green-technology sector needs to access private capital in order to become more energy efficient, says Adam Workman of the North West Fund for Energy and Environmental

The clean-technology sector is the most significant growth opportunity for the UK’s engineering industry. With the economy no longer self-sufficient for its oil and gas needs, we must invest now into developing new sources of energy and becoming more energy efficient.

Although clean technology and the ’green economy’ are high up on the political agenda, over the next few years investment will be driven largely by the private sector. However, a lack of understanding of how to access capital alongside limited resources could leave the UK trailing behind.

For this transition to occur, we need to appreciate the hurdles facing energy and environmental businesses in accessing private finance. First, the clean-technology sector covers an extremely wide variety of sectors and business types, which can be confusing to generalist investors. Overlaying this with a market reliant on public policy typically places the sector in the ’too difficult’ box for all but the specialist investor.

Clean-tech

Clean-tech covers a variety of sectors and business types, including marine energy

To decrease this knowledge gap, companies seeking investment need to appreciate this information asymmetry when engaging any investor for the first time.
Second, with competition for funding becoming more intense, any business that applies for funding needs to get it right first time. Businesses need to invest in their own management teams if they are to have the best chance of succeeding in securing finance. Taking on external advisers, or even an experienced non-executive director, will help a business to make a quality proposition for funding, but also aid in strategy and positioning the firm for long-term growth.

“With competition becoming more intense, businesses that apply for funding must get it right first time”

Finally, in seeking the right type of funding, companies should consider all forms of investment. There is no one ’valley of death’ within the clean-technology sector. In reality, as a company grows, the types of funding options open to it change — and with that a new ’valley of death’ opens.

In the early development phase, grant funding is typically the most obvious source of funds. However, most companies ignore the growing number of business angels for investment. This often-overlooked source does not only provide valuable funding, but also the commercial skills to supplement a typically technical team.

As the business matures and moves into the early adopter phase, companies often fall into the traditional ’valley of death’. Here, venture funding is still the main source of funds. However, the range of funding providers is often confusing, with funding available from local, national and international sources.

Finally, as the company enters into volume sales, banking finance typically becomes available.

Unfortunately, given the capital requirements of the sector, it is unusual for a bank to provide all the capital requirements of a business. Here, growth-equity providers are required to work alongside the banks to fulfil the entire funding requirements.

By creating the solid foundations of understanding of the funding options open to a business, alongside a credible investment proposition, hopefully the UK will be able to continue to build a growing clean-technology sector.

Adam Workman

Fund manager, North West Fund for Energy & Environmental

1993-97 Cambridge University: MA, Natural Sciences; postgraduate diploma in Computer Science

1997 Joins Shell as an exploration geophysicist 2000 Investment associate at 3i, based in Birmingham

2002 Joins Carbon Trust as an investment manager

2006 Investment partner at CT Associates, the fund advisor to Carbon Trust Investments and the Northwest Energy and Environment Fund. Workman’s investments
include CamSemi, Whitfield Solar, Marine Current Turbines and Intermac


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