It isn't Easy for Green Tech Firms to Gain Funding
A group of three entrepreneurs recently started a firm known as Opus 12. It seeks to generate green energy by using carbon dioxide to produce fuel. The startup has created its first prototype and successfully obtained funding. Nevertheless, many companies in this industry find it difficult to get started.
While a new software firm might only need basic computer equipment to develop a product, green energy startups face much higher initial costs. They must use sophisticated laboratories and construct functional prototypes. The product also requires more extensive safety testing than a computer application.
As Opus 12’s CEO points out, it remains quite difficult to turn a new idea into a prototype. Many investors don’t want to risk their money on concepts that sound appealing but may not work well in reality. They have become increasingly wary of new green-energy enterprises.
The statistics reveal that investment in eco-friendly technology soared between 2006 and 2011. Investors pumped nearly $3 billion into the industry in 2007. During 2011, they supplied $4.3 billion. These funds helped numerous startups rapidly expand their businesses.
A variety of factors contributed to this investment surge. Gasoline prices continued to rise, electric cars became more common, and the government enacted laws that aimed to cut emissions. Citizens also gained more knowledge about climate change during this time period.
Unfortunately, investors often found that green energy startups failed to produce attractive returns. Venture capitalists invested more than $25 billion in five years and recorded losses in excess of 50 percent. This caused new investments to shrink; they dropped to $1.3 billion in 2015.
A major photovoltaic panel manufacturer created widespread negative publicity for the industry. In 2011, Solyndra went bankrupt after accumulating more than $520 million in debt. Investors lost almost $1 billion as a result, and the federal government incurred considerable losses as well.
Despite these challenges, some government agencies and private investors remain committed to financing clean technology startups. Former Microsoft CEO Bill Gates recently established a fund known as the Breakthrough Energy Coalition. It will provide billions of dollars to inventors.
A business incubator called Cyclotron Road has greatly benefited Opus 12. The federal Energy Department supplies funding for this Lawrence Berkeley National Laboratory program. Participants receive medical coverage and money that helps them pay living expenses while they start new companies.
The program also provides mentoring services and funds clean energy research. It enables startups to use government laboratories as they experiment with new concepts and technologies. Cyclotron Road began assisting green-tech entrepreneurs about three years ago. It allows them to focus on innovative projects without constantly worrying about the expenses.
Opus 12’s co-founders were lucky to benefit from Cyclotron Road. Each year, around 125 people fill out the application form. Only about seven or eight startups successfully gain access. Although it hopes to obtain private financing soon, Opus continues to receive the majority of its cash from nonprofits and government agencies. Many similar startups go without funding or struggle through the process of obtaining small business loans.
When green-tech startups don’t succeed in gaining this type of funding, they must bear all of the costs. They need to purchase scientific equipment and rent modern laboratories. Entrepreneurs must find ways to devote enough time to their projects while continuing to pay household bills. This delays the process and makes it riskier, reducing the likelihood that the world will benefit from new eco-friendly products.
Anne is a Senior Author for SBL. She began her career as an independent consultant for local businesses after graduating with a BA in Management. Since that time, she’s expanded to writing as well as consulting to spread helpful knowledge to small business owners across the country.