Expert blog – March 7, 2022
Radboud Dood is Investment Manager for Energiefonds Overijssel. His expertise lies in investing in innovations in the field of CO2 reduction. In this blog, he explains why new technologies and products are important for accelerating the energy transition.
Inadequate technology
We face a major social challenge: transitioning to fossil-free energy sources as quickly as possible. Innovation plays an increasingly important role in that transition, because the current state of technology is not sufficient. I sometimes say: “We don’t just need more solar panels, but better solar panels.” And that also applies to other relevant technologies that contribute to the success of the transition.
Broad support
StartGreen has the capabilities to support innovative initiatives, both financially and practically—during implementation. We can help start-up companies and energy projects make the right choices, tap into the right product-market combinations, but also with the development of the organization by putting the right people on specific tasks.
From idea to product
The type of person needed differs per development phase of the innovation. The technology comes from the so-called ‘Gyro Gearloose’ type: an inventor. A good idea is step one, but if it does not lead to large-scale implementation, it cannot be successful. Therefore, an entrepreneur is needed who, with a good team around them, further develops the idea. We support initiatives that turn a scientific discovery into a successful production company. This is a three-stage process: from technology development to using the technology in a product, and then building a successful company around it.
To give an example: Energiefonds Overijssel invests in Cooll Sustainable Energy Solutions. This company produces an adsorption heat pump that heats buildings more efficiently. The technology was developed at the University of Twente and has since been technically validated by the Fraunhofer Project Center. The pump also has a Kiwa safety certificate, so we now know for certain that the technology does what it is supposed to do. Cooll is now in the phase where their innovation is being applied, achieving market validation. The next step is setting up large-scale production.
Spreading risks
A general rule of thumb is that of the 10 initiatives invested in at an early stage, about half become successful. And ultimately, 1 or 2 of these 10 initiatives will become real hits (the so-called stars). The other 2 or 3 just tick along: we don’t make a profit on them, but we don’t make a loss either. For that reason, as an investor, you must spread your risks, as Karel also described in his blog Success lies in the mix.
An important factor for success is the people behind the innovation. Our ultimate goal is to work with them on an improved version of the original plan. That is why, during the research phase (due diligence), we look not only at how robust the plans are on a technical and financial level, but also at the team the entrepreneur has gathered or still needs to gather.
We do not just provide financing; we truly add value to the company during the development process of a risk-bearing investment. Bringing a new discovery to market is certainly not linear: it is a stubborn process that goes in fits and starts. You simply cannot calculate everything on paper. The situation can change along the way; I want to know if entrepreneurs can handle that. Whether they can adapt to the changing market. That requires sufficient flexibility and a good relationship of trust with the entrepreneur.
Changed playing field
A solar park has a much lower risk. We can calculate exactly how large the investment needs to be and then we provide a loan. It gets plugged in and then the solar park usually does what it is supposed to do; the loan is repaid and the interest can be paid. There is little else exciting about it. This enables us as a fund to also take risks in the field of innovative technologies. We naturally weigh those risks very carefully beforehand.
Ten years ago, we were one of the few parties that financed solar parks as a public investor. Now commercial parties—developers and banks—are also playing their part. This means there is less market failure there now. That is precisely why we, as a public investor, must take on a different role in this changing playing field. We can now offer our added value specifically by supporting innovations that contribute to our objective: helping to accelerate the energy transition.
'The pool of companies we can support is thus not only becoming larger, but also deeper'
A larger net
The Province of Overijssel has agreed to the broadening of our scope. This means that we will no longer focus solely on energy saving or sustainable generation, but also on circularity. In addition, the decision allows us to support innovations at an earlier stage of development: the pool of companies we can support is thus not only becoming larger, but also deeper. And if an innovation falls outside our (geographical) scope, we refer them to other funds within StartGreen: Participatiefonds Duurzame Energie Noord-Holland, Borski Fund, or Oneplanetcrowd. And if we cannot help them within StartGreen, we refer them to other funds.
To help shape this broadening of scope, we want to allocate 2 to 4 million for smaller investments; in a fairly early stage and in a relatively simple way, without too much paperwork. In doing so, we hope, of course, to be able to pick several potential stars. In this regard, the double return is very important: the investment must not only yield a good financial return but must also certainly contribute to the energy transition.
Full speed ahead
By giving impact entrepreneurs the chance to reach their full potential, we help accelerate the energy transition. Sustainability is becoming increasingly important, also for me personally. I want to leave a better world for future generations. It is my mission to shift up a gear now on technologies that are needed today. We cannot do without innovation, because with the current state of technology, we will not achieve our task.
