Funding Challenges Of Cleantech Start-Ups Demand New Approaches
By Sherry S. McDonald
Imagine having a compelling green technology, a streamlined and risk-mitigated business model, protected intellectual property, a product that is better and more competitive than existing products, and still experiencing challenges to find the right investors to bring in. So why is funding solid cleantech start-ups so challenging? This is the key question that executives at ArmaTerra® Georeinforcing have been asking and addressing for some time now. They have decided to take the bold step of taking matters into their own hands.
Georeinforcing products are used to stabilize earthen slopes, levees, retaining walls, marine walls, and many mining and industrial project applications.
Mike Merrill, ArmaTerra founder and Chief Technology Officer is a geotechnical engineer who has been in the earth-reinforcing (Georeinforcing) business for decades. He recognized the continuing problems with metal georeinforcements, specifically, they are expensive to produce, transport, and handle, and experience significant corrosion problems in many situations. Polymer geogrid reinforcements are not strong enough to use economically to replace metal reinforcements but are competitive in other applications. Both metal and polymer georeinforcements require the use of new natural resources, heat, and long transportation distances.
Mike also recognized issues with the disposal of the massive amounts of waste tires. Each year about 300 million waste tires are generated in the US alone. Only 50% are beneficially re-purposed. 40% end up being converted to fuel and burned. 10% still end up in landfills.1
To address these problems in two industries, Mike developed and patented a way to use whole tires, side walls, and tire treads in various configurations to replace metal and polymer based georeinforcing elements. “Engineering is primarily about recognizing problems and solving them,” said Mike.
In 2009, Mike met Sergio Nevel, a serial entrepreneur who teamed with Mike to develop a commercialization plan that would take Mike’s idea to market. Together, they developed a business plan and proved its viability. The plan takes advantage of the existing network of tire recyclers who are always looking for more constructive and more profitable uses for the waste tires they are paid to collect. By providing recyclers a more profitable alternative to selling tires as fuel or paying to take them to landfills, ArmaTerra® vastly improves the use of these tires as well as the profitability of a recycler. Mike and Sergio incorporated ArmaTerra® in 2011 and based the company in Reno, Nevada, USA.
ArmaTerra’s business model takes advantage of several opportunities. Since ArmaTerra’s GeoTire® products only minimally modify waste tires, little energy is used. GeoTire® products take advantage of the inherent strength, durability, and negative cost structure of waste tires. Tires have proven inert characteristics that are directly manifest in their ability to last a very long time. The distributed supplier model optimizes short transportation distances. GeoTire® products displace newly manufactured products, tires from being burned as fuel, and from disposal in landfills. These elements significantly improve the environmental impact of these two industries.
ArmaTerra® has proven the viability of its business model by signing its first strategic supplier/partner and by building prototype manufacturing equipment. They have analyzed the georeinforcing products market in detail, and have projected great returns for investors. And, in fact, have been in deep conversations to license their products to a large existing competitor. So, then, what’s the problem? Why aren’t they fully funded?
From the beginning, ArmaTerra® pitched several Angel and VC groups, always with positive feedback. The reasons given for not investing included one or a combination of the following:
1. ArmaTerra® is too early. You need to gain traction in the market before we will invest. (Go sell something. But ArmaTerra® needs the funds to become commercialization-ready.)
2. We only invest in HighTech. (You aren’t sexy enough).
3. Your market is not big enough. (ArmaTerra® projects its revenues within 7 years to be over $500 million; investors in Northern California and Northern Nevada want opportunities that can generate revenues of $1 billion or more.)
The real reason, however, may be that cleantech investment funds are simply scarce today. Cleantech investment funds in 2013 were down 75% from 2008 levels.2 This story is very familiar to many cleantech entrepreneurs.
As a result, ArmaTerra® executives have turned to crowdfunding in order to keep moving their company forward. Sergio Nevel, ArmaTerra® CEO stated, “We decided that our most committed supporters have to come from the growing community of people who are concerned and committed to improving the sustainability of our planet. We need to inspire a larger group of stakeholders who care not just about returns and sexy technology, but about improving the prospects of the environment.” As a result, ArmaTerra® developed and launched a crowdfunding campaign on Indiegogo with the intention of continuing to move their vision forward toward commercializing a technology that will improve the sustainability of two industries: tire recycling and georeinforcing.
In order to mitigate the shortfalls of traditional sources of investment capital and to realize their dreams, more and more companies with great ideas are moving in this direction.
ArmaTerra won the Green Building Category of the Western Division of the 2013 CleanTech Open competition.
ArmaTerra’s campaign can be found at: http://igg.me/at/ArmaTerra/x/5626835
1. http://www.epa.gov/wastes/conserve/materials/tires/basic.htm
2. http://gigaom.com/2013/10/18/cleantech-vc-investments-crater-drop-down-to-post-2006-levels/
This article was supported by ArmaTerra.
About the Author:
Sherry McDonald has an environmental engineering degree from Purdue University. She has many years experience working in solar power construction and generation, traditional power generation, energy efficiency, power transmission, and air quality. She lives in the Reno/Tahoe area and enjoys skiing, mountain biking, and hiking.
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