Rising energy prices in part related to the current Russia-Ukraine crisis may reinforce the case for why economies should have been increasing oil and gas sector investments, notes Marty Reed, partner with Evok Innovations, but it also makes the case for increasing cleantech investments ― to help get economies out of such geopolitical messes.

“From an investor perspective and from a limited partner perspective, I just continue to see more capital flowing into this space,” he told last week’s Avatar Ignite session on energy entrepreneurship. He added: “You’re seeing record capital pouring into the sector, record transactions being completed, and valuations and round sizes are all absolutely through the roof. There are a number of factors that are driving that.”

For example, Reed said during the Avatar Innovations Inc. event, so-called ‘mega funds’ are launching a lot of new funds worth many millions of dollars each in the clean technology space. Also, there are more firms moving their capital into this space at earlier stages. “Layer on top of that a lot of government funding, both in the U.S. and Canada, [which is] supporting early-stage innovation in this energy transition. It’s just making for an incredibly frothy market.”

Brett Henkel, vice-president of strategic accounts and government affairs, Svante Inc., said that his firm recently met with an oil and gas company that had postponed working with the carbon capture solutions provider. However, the company is now redoing its 2022 budget due to more available funds, in light of rising commodity prices.

“I think there are some real positives happening, actually, right now. If there’s more money to spend, then perhaps they will choose to spend it on cleantech.”

Success secrets

For most of his career, Henkel has dealt with oil and gas companies. While they can offer more help for start-ups in the cleantech space, he noted, their barriers are often greater than in other sectors. “It is harder to get credibility with oil and gas companies, as often they have experts in so many different fields that they can bring to the table, and they also in their culture believe they’re experts.”

In fact, he told Avatar participants, it can be even challenging just to navigate the internal structure of an oil and gas company to even find out who are the decision-makers. However, Henkel said, these companies have undeniable benefits also, which includes the above-mentioned expertise, as well as substantial financial resources, especially as commodity prices remain strong.

“They do have the ability to execute projects if they choose to. They do have the ability to do a lot of R&D if they choose to, and they can choose to fund that. And so, the capabilities are amazing out of oil and gas companies.”

According to Henkel, Svante is developing solid and safe materials that capture carbon dioxide while letting the nitrogen pass, which is key when dealing with flue gas of mostly nitrogen with some CO2 that requires capturing. “That’s the big challenge in front of the world right now ― how to separate that in a more cost-effective way.”

With Svante’s solution, he added, once the filter is full of CO2, it can be heated up and released as pure CO2 in a “very safe and elegant” way. “We put this filter structure into a rotating machine that has been around for a long time, called ‘air preheaters’ or ‘rotating heat exchangers’, and so they’re quite familiar to the industry, and we turn this batch process of capturing CO2 into a continuous process.”

For its part, Evok is a fund that aims to offer a unique approach to innovation, combining the pace and creativity of a Silicon Valley start-up with the experience and insight of industry insiders. Reed said when developing a start-up, it is “quite valuable” for one to have start-up experience, as start-ups are not just “small versions” of big companies.

“They are totally different beasts and entities. And so, not to worry [Avatar participants], but if you’ve been too many years at a big company, then it starts to become detrimental, because we worry as investors just what’s your ability to shift your entire approach to that of a start-up.”

He added: “It’s really important to understand your investors and what their motivations are and their interests. It’s one of the reasons I discourage early-stage companies from bringing on strategic [corporate] investors.”

Kanin’s cleantech story

Kanin Energy Inc. focuses on transforming industrial waste heat into emissions-free power, with no capital needed from the host facilities. Janice Tran, chief executive officer, said the process of starting the company could have been much harder without “really amazing” cofounders by her side. As such, she told Avatar participants, when launching a start-up, selecting the right founding team is essential.

“The other thing that I’ve realized is that you’re going to be pulled in a lot of different directions, and so getting from ‘zero to one’ really efficiently means that you have to be really focused on what your key metrics are in early days. One of the sayings, especially in our first year, was: ‘How are we just not going to die?’

“It’s about getting down to those critical pieces of what are those key metrics for customer success, key revenue metrics, investor conversations, whatever that might mean for you, and being really methodical and disciplined about what those early success points are.”

Another piece of advice, based on her experience with Kanin, would be for the entrepreneur to be clear as to what are his or her “vanity metrics” and what are the “real” ones. Further, she suggested, it is important to realize that, when hiring, it is entirely likely that around half of the people one hires initially will not work out in the company, as it takes a “very unique breed” to thrive at a start-up. “Rejection is part of the process, and so get used to it.”

However, added Tran, as stressful as being an entrepreneur in the cleantech space might be, it nonetheless has its benefits. “You do it because the lows are lows, but the highs are really high, and it’s really, really rewarding.”

Research, team and solution quality matter

Quite simply, David Bowden, senior advisor, cleantech, MaRS Discovery District, told Avatar participants that team quality matters just as much or more than an idea itself when launching a start-up. Also, he said, the proposed solution must be of “significant demonstrable value,” as a small improvement will not garner enough industry attention.

Further, Bowden suggested, launching a start-up in the energy sector, or anywhere else, takes a lot of preparation, as intimately understanding the customer’s problem when designing and refining a solution is vital. “You can have a hypothesis and an idea, but there’s a lot to learn from the customers.”

He added: “Gather the data face-to-face. You can do some with research and some with surveys, but talk to [people] ― and not just the users, but the stakeholders, experts and people all around the category. You cannot know too much about the category you’re going to change and overhaul.”