I am typically asked to advise on raising equity, rarely on raising debt. That’s because early and growth stage capital-intensive clean tech companies tend to assume that access to debt will only become available once they are profitable.
This is not entirely true. Though mainstream debt-providers are still hiding under the duvet, a small number of specialist debt providers are emerging in the US and Europe, bolstered in some cases by export credit agencies. A few large corporates are waiting in the wings to provide vendor finance and/or preferential and highly ‘bankable’ orders.
My advice to clean tech companies seeking equity is that they should also explore their debt options. They might be pleasantly surprised.
NanoH2o, the Californian desalination technology company, complemented its 2012 $40m equity raise with $20.5m in what the company described as “growth capital, working capital and equipment financing credit facilities” with the working capital line backed by the Exim Bank, the US export credit agency.
NanoH20 has proven that a capital-intensive clean tech company can raise both equity and debt when it is able to show a path to profitability.
Silicon Valley Bank (SVB), a global venture debt provider with 400 cleantech clients, is growing on both sides of the Atlantic thanks to its willingness and ability to take intellectual property as security. Pop into a high street bank and ask for a loan secured against your patent-protected nanotech-enabled innovation in desalination and they will look quizzically at you and perhaps call the police. SVB takes a more broad-minded approach.
“SVB is comfortable with IP as collateral,” says Alex McCracken, its UK VP. “Mainstream banks prefer machinery and property [as collateral], which means they get stuck with project finance type work. We’re very happy to work with IP-backed companies.”
SVB, which last year celebrated its 30 year anniversary in the US and its tenth year of UK lending, has more than $10billion committed in debt facilities to tech companies. Its cleantech clients include smart grid leaders Alertme and Trilliant, and Enecsis (micro-inverters) and Bloom Energy (fuel cells).
“Venture debt can be provided to a pre-profit company with a clear route to profitability and the debt is a top up to an equity round,” explains McCracken.
“This debt can give them extra cushion for contingency and capex, which goes down well with the VCs who don’t always want to see their equity spent on equipment.”
Export credit is also seen as a means of encouraging local debt providers to lend to companies with overseas customers.
“We use the US Exim Bank working credit guarantee,” explains McCracken. “We can offer a receivables financing solution to our clients, but where there are foreign accounts receivable, then Exim Bank will guarantee a large proportion of these receivables.”
But export credit has the potential to be used more creatively and assertively for growth overseas. Endurance Wind, the Canadian turbine manufacturer and mini-utility, is backed by a CAD7m facility from Export Development Canada. This is a material advantage over its competitors when it comes to acquiring sites for wind development.
Export credit agencies in Norway, Germany, Denmark and Holland are reportedly open to clean tech, though few deals have yet been reported.
Tantalisingly, corporates are also exploring their potential role in providing or unlocking debt for clean tech companies.
“We are open to lending companies money so that they can meet our orders and provide us with the technology we need,” said one large energy corporate venturer, who preferred to remain anonymous. “Or we can provide purchase orders that a company can use to raise both debt and equity.”