How to escape the Valley of Death? A case study of innovative energy technology projects in the European Union
Summary
Thousands of innovative energy technology projects are not able to obtain financing, specifically from private investors, between when they have demonstrated their technology works on a prototype scale and when they have reached a commercial scale and can enter the market. This is known as the Valley of Death (VoD). The literature provides a few reasons behind the VoD and mainly calls for considerable public intervention to solve it. The objective of this thesis is to expand this knowledge by actively searching for innovative energy technology projects stuck in the VoD in the European Union and understand which issues these innovators face. It is also to see if these issues can be parted and how to prioritise those most likely to be solved without considerable public intervention. Finally, it is to see which actions the various players should take to ease such issues.
To do so, the concept of investment community was introduced, which is made up of three relevant players: the innovator, the investor and a matching platform. The latter is an entity, public or private, that offers services to increase the successful matching between innovators and investors. By undertaking 65 interviews with innovators stuck in the VoD, innovators that made it on the market, investors and matching platforms, this thesis investigated the current situation, needs and tips for improvement for each player of the investment community.
This allowed to illustrate the characteristics of 28 innovative energy technology projects stuck in the VoD, such as their long time to positive cash flows, high capital intensity and high risk perception, among others. It made a categorisation of the issues causing the VoD possible, hence highlighting which are more likely to be solved. It lastly permitted to come up with four sets of recommendations to improve the investment community and ease as many issues as possible. The first is aimed at matching platforms and shows how to create an “ideal” matching platform. The second targets the innovator, and explains what the latter should do to become an “ideal” innovator. The third shows the innovator which investor it should “ideally” target. Finally, the fourth looks at improving the overarching ecosystem, through changes in regulation for example.
These four sets of recommendations illustrate what an investment community should look like to help energy technology innovators escape the Valley of Death in the European Union.