Researchers help energy companies walk through the Valley of Death

When energy companies are in the startup phase, it’s fairly simple to find funding. Likewise, when they’re scaled and ready to go to market, the funding is easier to get. But the chasm between those two business phases? That’s where many energy companies – including solar companies – fail.

Researchers at Case Western Reserve University in Cleveland, Ohio, want to help bridge that gap.

Using $600,000 from a U.S. Department of Energy (DOE) grant, Anurag Gupta, the H. Clark Ford Professor of Banking and Finance at the Weatherhead School of Management and principal investigator on the grant, with help from co-investigator Joonki Noh, are hoping to develop a financing module that will attract long-term private investors to startups with potentially breakthrough technologies.

“There is an immense challenge in the new energy sector, with venture capitalists drifting away from clean technology investments in recent years, making it tougher for startups in this sector to prove their viability,” Gupta said. ““We hope this facilitates billions of dollars to flow to new energy projects at the critical scale-up stage.”

The problem, as the researchers see it, is that long-term investors investors currently shy away from renewable energy because there aren’t suitable investment products tailored to their risk-return-payout preferences.

Bringing new energy technologies often requires tens of millions of dollars and a much longer than the seven- to 10-year “exit” timeline that venture capitalists typically prefer.

“The participation of large capital providers like pension funds is critical to generating sufficient capital to finance widespread scale-up of these new technologies, since the traditional venture capital model has proved to be unsuitable for this sector, ” Gupta said.

At the end of two years, the researchers hope to  obtain actual investments using the financing mechanism developed in this study. The project is one of 11 supported by $7.8 million in new DOE grants.