Cleantech companies will require financing on a much greater scale given the billions of dollars needed for continued growth.
During the two days of the Cleantech Growth Journey, cleantech executives and industry leaders explored the following themes: capital raising, strategic partnerships and alliances and growing beyond the home market.
All of these concerns cut across cleantech industry verticals and are critical to address in strategies for the journey ahead. Some of the key takeaways from the cleantech CEO discussions follow.
Capital raising — new financing structures and processes needed
Capital raising and capital structuring are primary challenges for the industry. Even with a historic industry growth rate averaging almost 30% per year, cleantech companies will require financing on a much greater scale given the billions of dollars needed for continued growth.
To maintain the pace of growth, the cleantech industry must develop financing vehicles that allow cleantech financing transactions to scale up quickly in both size and volume without a similar scale-up in transaction costs.
Strategic partnerships — a key ingredient
Strategic partnerships and alliances enable the cleantech industry to grow. With nearly 650 joint ventures and an estimated US$8 billion in value since 2004, these partnerships provide cleantech companies critical insulation from the vicissitudes of the public markets, as well as providing sales channels, distribution networks and capital for asset expansion.
Partnerships with established companies also provide important market validation for new technologies. Participants found parallels with the pattern of partnership growth between biotech companies and large pharmaceutical companies when the number, interconnectedness and geographic distribution of partnerships grew dramatically.
At the same time, managing expectations around such partnerships is essential to the cleantech CEO for future growth, given that the nature, objectives and values of such partnerships can change over time. Partnerships involve significant hard negotiations on the part of CEOs, but also soft skills such as constant communication, managing expectations and building a network of relationships.
Government policy — find a unified message, look to the end of subsidies
As cleantech companies grow beyond their home markets, CEOs have to navigate through a complex maze of government policies around the world. Additionally, the industry is now "playing defense" — a situation cleantech CEOs are not accustomed to, given previous high-growth expectations and political support. In the wake of the global financial crisis, the golden age of government support is over, participants said.
Two predominant global issues now define the cleantech policy environment: fiscal austerity across regions and changes in energy mix in the wake of the Fukushima nuclear disaster. The competitive dynamic within sectors will likely be tempered as subsidies diminish, partnerships materialize across the energy landscape, and clean energy becomes more mainstream.
Winning over policy-makers now means a more collaborative agenda and a unified message among cleantech industry players. As the industry moves away from reliance on government support, executives and thought leaders find that developing transitional capital sources for small and medium-sized companies and having strong due diligence processes will be key priorities for bridging the short-term capital gaps.
In the long term, the industry expects a phaseout of policy incentives with a defined end date. CEOs agreed that having an end date to subsidies will actually add much needed certainty and clarity to business planning, as well as spur greater industry competitiveness.
Selling to large corporations — networking, customization and reliability are key
Selling to large corporations is essential for cleantech companies on the road ahead. Larger corporations create product demand and have the capital to buy entire companies. A larger corporation also offers valuable intangibles, such as leverage with policy-makers, access to emerging markets, new distribution channels and, above all, integration within a larger energy or industrial ecosystem.
Gaining access or closing a large deal is difficult, but CEOs pointed out that networking across the value chain, customization for the client and demonstrating the reliability of the product were all successful best practices that gained entry into a sale.
Growing beyond the home market — a risk mitigation strategy, discipline required
Cross-boundary transactions and agreements will become commonplace as the cleantech industry sees more alignment and integration across the value chain. Growing beyond the home market and competing at the global level have always presented opportunities, but now, entering different markets also offers risk mitigation.
For CEOs, entering new markets calls for a step-by-step approach that often requires dedication and discipline. The ability to grow beyond borders and niches means partnering with local companies and complementing each other's capabilities, whether for access to local policy-makers or for overseas finance.
Counter to conventional thinking, growing in a global market may not always mean scale and commoditization of a product. Rather, CEOs indicated, product customization, integration across divisions and re-verticalization were necessary strategies to grow beyond.
Innovation, disruption, transformation — different for cleantech
The concepts of innovation, disruption and transformation mean different things to the cleantech industry than to other industries. Innovation is bound by the requirements of electrical reliability, fuel consistency and water quality — all of which are societal expectations that are inherently unforgiving of failures.
Cleantech transformation may have a longterm horizon, but the change that will occur will be integrated into the largest economic markets and have massive potential for economic growth. The greatest disruption that can take place in cleantech will not be through one technological breakthrough, but rather through the changing of many conventional mindsets.
The real change will happen when incumbent industries and systems wholly integrate cleantech strategies as a new business model for resource efficiency and growth.