Financing your first climate tech project

Whether you’re deploying grid-scale storage or C&I solar, starting a project development business in climate is hard. Financing the first project can be a huge challenge, especially in terms of structuring, finding the right capital providers, and executing everything on a timeline that makes sense for you.

We sat down with Brandon Keefe, CEO and co-founder of Plus Power, to get his perspective on key learnings from their experience capitalizing their first projects. Plus is a leading US-based developer of grid-tied storage projects with active efforts in over 20 states.

100x vs 10%

Founders should quickly recognize that, outside of a few exceptions, a development business is an entirely different beast from a VC-backed startup.

One of the main premises of VC is that companies can raise more and more capital at continually higher valuations and generate a massive exit multiple for institutional investors (50%+ IRR or 50-100X for pre-Seed). Unfortunately, that doesn’t apply to the vast majority of developers of capital-intensive infrastructure where (a) upfront capital needs are dramatically higher to reach revenue/profitability and (b) overall IRR returns are closer to the high teens.

Not only that, but from the perspective of optimizing for cost of capital, developers shouldn’t seek such expensive $$ throughout the life of their project. In fact, as a development progresses, the risk profile changes materially, and capital can be accessed at much lower rates.

You may be able to source venture-type capital in your earliest days (when your development business is just an idea), but typically this will come from individuals (more below) rather than institutional VCs.

If not VC, then who?

There are two potential target groups that are often overlooked when raising $ for a first project: strategic partners (like utilities, energy companies, etc) and individual investors, specifically other successful developers. In both cases, they have deep experience with project development, can evaluate the team and pipeline effectively, and therefore have a strong grasp of the risk/return profile of their model.

As with any good fundraise (VC or not), you still need:

1. A compelling narrative around (a) fundamental economics and (b) return
2. A strong pipeline and a clear understanding of execution risk for every project
3. (ideally) Competitive advantage around execution. In the case of Plus Power, this stemmed from their proprietary site selection algorithm
4. A team with a track record of success

However, the incentives for strategics and HNWs can be quite different from VCs, and this is a key consideration for fundraising as a developer. For example, decision-makers at utility companies don’t typically get carry on investments, and their bonuses aren’t just tied to project returns. In fact, there is no one-size-fits-all incentive model for strategics, and it’s up to you as the founder to figure this out.

Frustratingly, stated incentives and real incentives are often not the same. To get the truth, follow the money: Figure out if the person you’re pitching is actually the decision-maker. Will they be approving the investment? Will they be signing the actual contract? If not, what’s their relationship with the signatory and how much influence do they have? Often, utilities and large strategics will have tens of thousands of employees, but archaic approval matrixes with few ACTUAL approved decision-makers. In the case of one utility Plus Power engaged, out of 50K employees, only 7 were approved to do business over $1M in total size.

Once you know who you’re dealing with, it’s time to dig into their motivations. How are bonuses structured at the company? What metrics impact compensation for the decision-maker? Are there performance-related metrics that might cause someone to get fired? It’s really important to get at this information through a variety of sources. Ask your counter-party, but also try to seek out and talk with other entrepreneurs in their portfolio if you can.

If you’re super early in your process and need an initial injection of capital, Brandon recommended seeking out former (or current) successful developers as angel investors. This may come at a higher cost of capital, but in the early stage of a development business capital availability outweighs cost of capital. Additionally, angels often bring the network of strategic and institutional investors you will need to go the rest of the way.

No matter the investor, Brandon believes the key to raising money as a developer is to be upfront about your past failures. Failure, big and small, is a common element of any development business (for most developers, a 20-30% success rate is common), and seasoned investors will want to see your candor about why things went wrong, how you attempted to remedy the issues, and what outcomes you were able to secure even if a project went sideways.

Timing is everything

To be a successful developer, your team and pipeline aren’t enough – you need to get your timing right. Brandon was quick to acknowledge that if he had been “the battery guy” 15 years ago, Plus Power would not have been nearly as successful.

Since none of us have a time machine, what should you do? Make sure your narrative clearly communicates the opportunity that today presents for your business. Is there a new government financing program available? Are local power companies demonstrating a growing interest in the projects you hope to build (and could be potential buyers/off-takers)? Do you have a strategic advantage for your pipeline that is time sensitive (and can inspire FOMO)?

Luckily for many of you reading this, the capital ecosystem for climate projects has never been better. According to the Climate Policy Institute, over $234B of project finance (equity and debt) flowed into the market in 2022, and that number is growing every year. With an incredible demand for decarbonization, the world will need massive deployments of everything: grid-scale energy storage, carbon removal, EV charging, indoor farms, water desalination plants, and everything in between. Will you build them?

Reading rainbow

Before parting ways, Brandon offered a few book recommendations for any aspiring developer (these are required reading at Plus):

• Principles by Ray Dalio
• Pitch Anything by Oren Klaff
• Never Split the Difference by Chris Voss

Brandon Keefe has spent the last 14 years working at the intersection of policy, politics and business to speed the deployment of renewable energy and energy storage. Prior to Plus Power, Brandon led development for Sovereign Energy Storage, an energy storage developer based in San Francisco. At Sovereign, Brandon originated and contracted for more than 350 MWh of energy storage projects with various California utilities, the vast majority of which were developed in partnership with Enel Group. Brandon graduated from the University of California, Los Angeles Honors College with a B.A. in American Politics.