Blogs, Storage

Who’s investing in energy storage companies?

Do you have energy storage FOMO yet? (“Fear of Missing Out”) Given all the headlines and hype, you would be normal if you did. 

But in order for the energy storage market to realize on the somewhat insane $620B in projected investments by 2040, then we need venture capital and strategic investors to scale battery companies that reduce costs, have longer discharge duration, extend life cycles, and improve safety.

30,000-foot Trends in Distributed Energy (“Grid Edge”) Investing

First a reminder: Don’t forget your parachute. 

There are plenty of ways in which investments in storage — or any yet-to-be-mainstream technology — could not work out as planned.

OK, disclaimers aside, check out the lead image graph from Elta Kolo about the U.S. grid edge investment landscape.

2018 investment was way up from prior years, while 2019 through Q1 is off to a slow start. However, $11.6B invested over nine years is nothing to sneeze at. Also note that energy storage has played an increasingly prominent role for investors in this sector. 

For a different perspective, let’s look at the Bloomberg New Energy Finance assessment of total investment in the clean energy sector globally between 2004 and 2018.

The last five years have generated over $300B in investments to the sector. That’s worth some high fives and champagne, right? 

However, last year’s dollar amounts did take a small hit — partly because of the rapidly falling unit costs for solar and wind. (Buzzkill, or silver lining?)

Investors Who Are, or Were, in Love with Energy Storage

Below I highlight sample investors in two types of energy storage companies: 

  • Those in the present (recent) — Nine recent energy storage companies that have raised swimming pools full of dollar bills from smart, forward-looking investors

  • Those in the past — Five past energy storage companies that (gulp) ended very badly (that is, the “pioneers with arrows in their backs”)

Recent energy storage investments

M&A in the battery sector

  • Sonnen — Shell (acquirer) plus venture capital firms including GE Ventures, Munich Venture Partners, SET Ventures, Inven Capital ($169M raised)

  • Pika Energy — Generac Power Systems (acquirer) plus venture capital firms including Clean Energy Venture Group, CEI Ventures, and Maine Venture Fund ($8.5M raised)

Flow batteries

  • Primus Power — Chrysalix Venture Capital, Anglo American Platinum, Matador Capital Partners ($106M raised)

  • Vionx Energy — VantagePoint Capital Partners and Starwood Energy Group ($193M raised)

Long duration (non-flow) batteries

  • Malta — Breakthrough Energy Ventures, Alfa Lava, Concord New Energy Group ($26M raised to date) 

  • Form Energy — Breakthrough Energy Ventures, The Engine, and Prelude Ventures ($9M raised to date) 

  • Quidnet Energy — NXT Ventures, Breakthrough Energy Ventures, Evok Innovations ($8M raised to date) 

Solid state battery tech

  • QuantumScape — Breakthrough Energy Ventures, Volkswagen, Kleiner Perkins, and Khosla Ventures ($297M raised to date)

Chinese battery companies

  • Farasis Energy —  Industrial Bank Company, Dongxing Securities, China V Fund, Soochow Asset Management ($815M raised to date)

  • Skio Matrix — IDG Capital, Hua Ying Capital, Meridian Capital China, and Dingcang Capital ($307M raised to date) 

(Source: Pitchbook

Past energy storage investments

These five companies were early innovators in energy storage: 

  1. A123 Systems

  2. Alevo

  3. Aquion Energy

  4. Better Place

  5. Fisker

Together, they raised more than $5B from savvy investors, but for various reasons they ended up bankrupt.

As such, some of their investors (examples below) may be less inclined to “get sucker punched again.” 

That said, technology investors know that most early stage bets do not work out. But, importantly, a few do, and those can “make the whole portfolio,” hopefully delivering attractive aggregate returns to investors.

  • Bill Gates

  • Bright Capital

  • ConocoPhillips

  • Foundation Capital

  • GE Ventures

  • Gentry Venture Partners

  • HSBC Holdings

  • Johnson Controls International

  • Kleiner Perkins Caufield & Byers

  • Lendlease

  • Morgan Stanley Expansion Capital

  • New Enterprise Associates

  • Procter & Gamble

  • Sequoia Capital

  • VantagePoint Capital Partners

  • Wanxiang Group

(Sources: Pitchbook, Crunchbase)

To learn more about what investors and entrepreneurs might take away from these losses, I provide more details in this article: Energy Storage: 5 Failures, 10 Lessons Learned


Deciding which Energy Storage Technologies Stink

It’s tough to decipher between great technologies and “shiny objects” that allure and disappoint. Below are six perspectives investors that might use to see the difference.

#1 — Look for Extreme Focus. 

“If you try to please everyone, you’ll end up pleasing no one.”

#2 — Vet storage technologies the way that investors vet energy project investments.

Below are six questions to ask of a battery technology and company:  

  • Revenue certainty — “Will a buyer sign a multi-year contract.”

  • Revenue diversity — “Are you able to ‘stack benefits’ now or during the life of the project?”

  • Technology bankability — “Lithium is king. How will you complete via performance, cost, or niche?”

  • Strong warranty — “How big is your balance sheet?”

  • Creditworthy counterparties — “Will serious buyers come to the table?”

  • Scale — “Is the opportunity big enough to be worth my time?”

#3 — Apply the pre-mortem.

If all investors are in love with the company, maybe you should start thinking like Warren Buffett: “Beware the investment activity that produces applause; the great moves are usually greeted by yawns.”

#4 — Compete against the giants with your eyes wide open.

If the battery tech plans to oust its lithium-ion peers from their top dog spot, then they better go niche: Find lithium’s weak spot, excel on that same attribute, and get laser-focused on one customer segment in one geography with a specific problem that makes the buyers lie awake at night in a pool of sweat.

#5 — Partner with strategic investors.

These folks can provide validation (“See look, I’m not crazy”) while also serving as major customers for the battery tech (“Let me scratch my own itch”).  

#6 — Prioritize capital-light business models.

If the battery tech company plans to use lots of venture capital to build factories, please run away. Far away. Instead, creative lines of credit, contract manufacturing, and motivated supply chain partners can lower capital costs. And don’t forget to invest in the “brains” of the batteries: Get some software, intellectual property, and automation.

Conclusion

On top of the rosy projections for the growth of energy storage investment and deployment, there is more good news: Every month, the number of investors interested in this market seems to increase. Some are driven by financial returns, while others seek out environmental or social returns. (For more about mission-related investment, you can try this: Impact Investing: What does it really mean anyway?)

I’ve just scratched the surface with the investor lists above. In our normal investment banking work, we might approach about 100+ investor prospects. Needless to say, to find the right investors, you need to avoid the pitfalls of troubled energy storage companies from the past, learn from those successfully raising capital today, and do a lot of frog kissing (before you find that prince with the gold).