The Carbon Trust's incubator programme aims to help scientists, spin-outs and small companies bring their carbon-reducing ideas to commercial fruition.
The Carbon Trust’s incubator programme aims to help scientists, spin-outs and small companies bring their carbon-reducing ideas to commercial fruition.
If the battle against climate change is to be won, the answer won’t lie solely in reducing energy usage and taking fewer flights: huge advances in technology will be required. Some of these will certainly come from big businesses, with the power to invest, but some of the most innovative ideas have always come from individuals and small businesses. And no matter how good an idea may be, bringing it to market is something that can prove overwhelmingly difficult for individual entrepreneurs. Quite apart from the cost, there is often a lack of understanding about how the real-world market works. So how can a great idea for reducing carbon usage be helped to become a commercial reality?
This problem is precisely what the Carbon Trust’s incubator programme has been designed to address. Working with four companies that run the incubators - Angle Technologies, Imperial Innovations, Isis Innovation and The Technology Partnership (TTP) - it provides up to ?60,000 of commercialisation support to help companies with genuine commercial potential to attract the big investors they need. Both spin-out and start-up companies are eligible.
’There are two broad areas where technology can help reduce carbon emissions,’ explains Mark Bornhoft, manager of the Carbon Trust incubator at Angle. ’One is alternative energy generation technologies, and the other is energy-efficient technologies. The first question to ask is whether the technology has the potential to reduce carbon emissions. If so, we look at it as a business concept - does it have the potential to reach the market? Is it cost-competitive? What are the channels to market? And a lot of early-stage companies don’t know the answers. While they might have a great idea and technical knowledge, there are often gaps in their business knowledge. Some aren’t even aware of the right questions to ask. This is where the incubation programme is designed to help.’
When choosing companies to incubate, Bornhoft stresses that the most important factor is strong technology. ’Does it work? Could it have a significant impact on carbon emissions? And is it economic? If it is a little more expensive than current technology, the market might bear that because of imminent regulatory requirements for more energy efficient processes. But if it’s going to be 10 times more expensive then it’s likely to be a non-starter,’ he explains.
Once a company with potential has been identified, it’s then a case of turning the business into one that is able to succeed. ’An incubation support service adds additional resources, and can bring in specialist expertise,’ Bornhoft says. ’Everything is considered on its merits, but it’s getting competitive - a new fuel cell technology, for example, has to be an improvement on what’s already being developed. And we’re now seeing much more than just energy technologies - everything from building efficiency and industrial processes to new materials that might take the carbon load out of the product development life cycle.’
One of the most crucial things for a company to consider is whether the market really wants what they are developing. ’We place a lot of emphasis on getting companies to talk to potential customers and end-users to find out if people will buy their ideas,’ explains Rachael Nutter, who manages the business incubator programme at the Carbon Trust. ’Feedback informs their development work so we encourage companies to have early discussions - not necessarily wait until there is a fully working prototype - there’s no point in spending another year on development if no-one will buy it. Through the Carbon Trust and our incubator partners we can get access to the right corporates - a start-up might find that difficult.’
Speaking the language
Many companies are wary of talking about their technology. Entrepreneurs often worry about patent infringement or are simply nervous about speaking to a big company. ’Most researchers are happy to phone an R&D department, but won’t phone marketing or finance as they worry about speaking the right language,’ explains Garry Staunton, who manages the Carbon Trust’s R&D operations. ’Bridging that gap is another important part of the incubator programme - bringing in someone to do it for them.’
Once it has been established that an idea is marketable, it is important to figure out the best path to that market - should a company manufacture the product itself, license it to someone else, or even set up a joint venture? And should the company sell it alone or via a distributor? ’You need a good understanding of market structure - how things are bought and sold and the criteria buyers are looking for,’ Staunton says. ’Even if you understand the market, deciding the best route for your product is not always intuitive.’
Management team building is also crucial. ’We help people understand what other experience and skills they need,’ Nutter adds. ’It might be mentors, non-executive directors who can open doors in the industry, or people who can help negotiate licence agreements and partnerships. But that can be a hard sell to someone who’s remortgaged their house to develop the technology: it can be very difficult to tell them someone else has to drive the business to give it a commercial focus. It’s a question of being realistic - do they want 100 per cent of something that might not happen, or a smaller percentage of something far more likely to succeed?’
The biggest success story from the incubation process in terms of funds raised is Oxford Catalysts. Spun out of Oxford University in 2005 and helped initially by Isis Innovations, the university’s technology transfer company, it was awarded a Carbon Trust research grant the following year. It was also accepted into the incubator programme by Angle, which proved invaluable.
The company has developed a platinum-based catalyst, enabling the production of hydrogen gas and carbon monoxide to power fuel cells, and to produce ’instant steam’. Using this catalyst, both reactions can be carried out at room temperature.
’The incubator allowed us to get work done when we had no money,’ chief executive Will Barton says. ’While we were able to progress the technical work in the university lab, on the market side we had limited resources. We were concerned that the fuel cell and biogas processing markets were extremely fragmented and, since our business model was to be a technology company working with a select number of partners, we had to make sure we chose the right ones. The market research done by Angle enabled us to do that and to put together our business plan.’
The support also helped the company to raise funds. At the end of 2005 it raised ?0.5m from university commercialisation specialists IP2IPO (now IP Group), and soon realised there was a lot of investment going into clean energy businesses on AIM - the London Stock Exchange’s ’Alternative Investment Market’, for smaller companies. ’We decided to go ahead with our IPO [initial public offering of shares], and did it very quickly - by the end of April 2006,’ Barton says. It was just in the nick of time - the market had taken a big step back by the end of May. ’If we’d delayed, we’d have been faced with the difficult decision of pulling out or accepting a reduced valuation.’ In the end, they raised ?15m before costs, giving them the resources they need to commercialise their technology.
Fuel cells are a big area for carbon reduction research, and several companies have been successfully incubated. One of these, Acal Energy, is a little different in its origins - rather than emerging from academia, the idea emerged from old industrial technology being applied to a new sector. ’Fuel cell technology has been around for a long time, but it doesn’t work commercially,’ explains commercial director Amanda Lyne. ’A big problem is that they need precious metal catalysts, usually platinum, which are extremely expensive.’
With patents pending, full details of Acal’s catalyst technology are still under wraps, but the inspiration came to technical director Andrew Creeth when he became aware of how catalysts had developed in other applications such as process synthesis and paper bleaching. He was also aware that Ford had looked at liquid catalyst systems for fuel cells in the 1980s, but the technical challenges were then insurmountable. He realised that if the same improvements in catalysts were applied to the redox fuel cell system, the cathode reaction could be mediated by a non-precious-metal catalyst.
A regional venture capital firm provided an initial ?50,000, and a few months later gave them a further ?370,000. ’Last year, we realised we needed more funding, and we got involved with the Carbon Trust incubators to help us write a business plan,’ Lyne explains. ’They helped us in practical ways like writing the profile for a CEO. We raised ?1.6m, and the next step is recruiting the CEO, and refinancing next summer.’
More than money
Lyne highlights another big advantage of the programme: support in building relationships with major investors. ’Unlike university spin-outs, we already have commercial expertise,’ she says. ’The incubator money allowed us to address issues that investors might ask, doing additional things we otherwise would not have been able to afford.’
Another start-up looking at fuel cells, CMR, is developing technology that allows the cells to become much smaller by removing the need to keep the anode and cathode reactions separate, using selective catalysts at each electrode. As much of the volume of the fuel cell is taken up by separating the reactions, this makes a smaller cell with a much higher power density possible.
’If your raw materials are 90 per cent of your costs, then the technology is not sustainable,’ engineering director Michael Evans explains. ’As the cells are smaller and have a higher power density, it will be possible to have a catalyst with a lower activity than platinum and still make a practical fuel cell.’
The venture capitalists CMR had lined up pulled out of a ?4m investment in the wake of 9/11, leaving the company without funding. At this point, the Carbon Trust stepped in, giving them a grant of ?250,000, which was matched with funding from investment firm Conduit Ventures. With the help of market research carried out by Angle within the incubator, AMR raised ?4m floating on AIM in 2005, and is now working on replacing platinum in its prototype fuel cell stack.
University of Southampton spin-out Ilika focuses on materials and, again, has technology with applications in fuel cells. The company’s method for the high-throughput development of new materials dramatically speeds up the process. It specialises in materials for energy-related sectors such as fuel cells and energy storage, as well as fields such as electronics and medical devices.
The spin-out in 2004 involved initial funding from the university seed-corn fund Sulis and the IP Group. ’When you raise seed funding, it’s not usually a great deal of money, and high-tech companies generally raise a second round of finance later,’ explains chief executive Graeme Purdy. ’It was at this point that we got involved with the Carbon Trust, as they were interested in our materials for energy applications, and they recently agreed to co-fund an R&D programme that focuses on new electrode materials for fuel cells.’
The incubator support Ilika received principally focused on market and business intelligence. ’It was very useful as we were getting investor-ready for our second round of financing. We had support in writing an information memorandum, and ensuring the investor story was coherent. We completed the second round of financing a year ago - the grant was instrumental in helping us achieve that.’
A completely different technology - another spin-out from Oxford - is being developed by EKB Technology. Its reactor technology enables the efficiency of bioprocesses to be enhanced, reducing energy consumption, waste and the time taken. Its help from the Angle incubator again focused on market scoping and research. ’The obvious question for us was how many fermentation processes are there, and which should we focus on?’ explains managing director Mike Wright. ’We used the results to focus the business, getting rid of some peripheral projects, and we’re now focused on larger volume fermentations, such as lactic acid.’
EKB got involved with the incubator in May of last year, since which time it has raised about ?175,000 of interim funding. ’We are now looking for ?750,000 to fully fund the business,’ Wright says.
Support from the Carbon Trust has provided guidance and clarity for many businesses that may otherwise have struggled to develop their ideas. For EKB, a report from Angle was invaluable - helping the company to refine its business plan and target clients more directly. ’It was very easy to join the programme, and they were good to work with,’ Wright concludes. ’The process was painless and the discussion was as much use as the report itself. It really helped clarify our thinking.’
Sarah Houlton is a freelance science writer based in London, UK
The Carbon Trust
The Carbon Trust’s aims are to help companies and public sector organisations reduce their carbon emissions, and promote the development of low carbon technologies.
Funded by Defra, DTI and the devolved administrations, it provides practical support for companies, including direct investment in R&D projects.
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