World Business

Energy transition start-ups shake up the business world – Clean Energy Wire

Even if Germany boasts a lively scene of start-ups feeding the energy transition with new ideas, few companies say the country offers ideal conditions.

Firstly, many start-ups complain about overburdening red tape. “Germany is enamoured of laws and regulations, which is not conducive to an environment where start-ups feel at home,” according to Thermondo’s Herwig.

This is especially true in the energy sector, according to Christian Chudoba, founder and managing director of digital “utility in box” start-up Lumenaza. “In general, energy is not a particularly friendly sector for start-ups because it’s heavily constrained by regulation,” Chudoba told the Clean Energy Wire. “That makes it difficult to find a niche, and also to grow.”

Three-quarters of green start-ups say they want less regulatory and bureaucratic hurdles.

A second problem concerns financing, which is often particularly acute for green start-ups, because many need relatively large sums to realise their ideas. On average, greentech companies put their future financing needs at 200,000 euros on average, whereas non-green start-ups only need 35,000 euros on average.

Some young companies also blame conservative investors for financing troubles. “In Germany, people want to invest as little money as possible in a safe business case and reach break-even as quickly as possible,” according to Frank Pawlitschek, who runs the e-car charging start-up ubitricity. “But the government has understood the problem and is trying to do something about it,” he adds.

One reason for the reluctance of investors is the history of Germany’s solar industry, which went from a spectacular boom in the first decade of the millennium to an ugly bust a few years later. Many investors burned their fingers, making them more reticent to invest in the sector. But a long period of extremely low returns on conventional investments has forced many investors to take larger risks again, easing the flow of capital.

“There is a misunderstanding on the investors’ side that investments in green start-ups mean lower returns,” says Frank Ackermann, co-founder of the sustainable finance platform SDG Investments.

According to ubitricity’s Pawlitschek, many start-ups can now also turn to alternative funding sources. Several Mittelstand firms “have woken up and realised that cooperation with smaller partners and early investments offer a lot of innovative potential that is not accessible for them otherwise. Even large industrial companies now realise it can be worth entering the field with early investments.”

In 2018, slightly more than half of all venture capital deals were realised by private investors, a third by public investors, such as the KfW bank or start-up funds, and 15 percent by strategic investors, such as established companies aiming for a strategic partnership, according to KPMG.

But start-ups and experts agree that financing has significantly improved in recent years, thanks partly to new government programmes, for example the economy ministry’s start-up portal “GO!,” its Energy Research Programme, the “Research Network Startups” or the government’s “Hightech Strategy 2025.” The EU also has programmes in place to foster green start-ups and small to medium-sized companies (SMEs).. For example, the European Commission’s “Green Action plan for SMEs” is aimed at “turning environmental challenges into business opportunities.” These programmes not only provide financing but also aim to foster entrepreneurship in a population often deemed overcautious when it comes to founding a company.  

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