It’s known as the first-of-a-kind (FOAK) “valley of death” — when climate startups are developing a novel product, but don’t have enough cash to build a capital-intensive factory to produce it.
But help may be on the way: there’s a new fund, run by French VC firm Axeleo Capital, specifically dedicated to the problem.
“There is a financing gap,” says Marc Lechantre, partner at Axeleo. “There is a lot of public funding for R&D and a lot of seed financing at the beginning of a startup’s journey. At the other end, there are a lot of large funds ready to fund growth with big tickets, but we have a gap in the middle.”
Axeleo is based in Lyon and was founded in 2017. The new, first-of-a-kind (FOAK) fund is its third — two prior funds focused on b2b SaaS and construction and energy tech.
The new fund has reached a first close of €125m, targeting €250m by 2026. LPs include the Révolution Environnementale et Solidaire fund, Bpifrance and the Veolia utilities group. The fund will invest at Series A and B, writing cheques from €3-10m, with money reserved for follow ons.
Solving the FOAK question
FOAK companies face different challenges from your typical software startup. They need to secure land; draw up offtake agreements (contracts arranged before a product is ready) and hire skilled engineers.
Axeleo has a network of CEOs from different sectors to help support FOAK founders through different stages of industrialisation, says Lechantre, who himself spent nearly twenty years working in the automotive industry.
The fund is also in contact with banks, Lechantre says. Many FOAKs look to raise debt from banks alongside VC equity — factories are so capital-intensive to build that funding them purely through equity dilutes a founders’ stake significantly.
“We have access to a lot of different banks and we know the public subsidies ecosystem so we can also provide them with that type of advice too,” says Lechantre.
So what are they after?
The biggest thing Axeleo is looking for is innovation — companies that are working on tech that is genuinely first-of-a-kind.
Sub-sectors the fund is interested in include new sources of renewable energy, beyond wind and solar. It recently backed French company Sweetch Energy, which is working on osmotic energy, where the salt in seawater is used to produce electricity.
Axeleo is also interested in innovative energy storage systems, biomaterials, ways to recycle materials like plastic and next-generation fertilisers.
The other thing Axeleo wants to see is that companies can, eventually, produce their product at price parity with the conventional alternative.
“There is no longer a premium for a green product, you need to be at the market price,” says Matthieu Viallard, general partner at Axeleo. “If you are above that, that’s super difficult for companies.” Startups must demonstrate their planned journey towards price parity, he adds.
The Northvolt example
Building FOAK climate tech is challenging at the best of times. In recent months, the industry’s leading light for climate hardware, Swedish startup Northvolt, has faced difficulties and sought rescue funding.
“It has a negative impact on the ecosystem,” says Lechantre, “but it’s also a good reminder.” Northvolt had an offtake agreement with BMW that was cancelled because the company was behind schedule on production.
“It’s a good reminder that any business needs to be able to produce and to be able to sell.”
You can read more Sifted coverage of FOAKs here:
- The FOAK playbook: How to draw up the right cap table
- The FOAK playbook: How to hire the right team
- The FOAK playbook: How to secure an offtake agreement
Read the orginal article: https://sifted.eu/articles/axeleo-capital-foak-fund-climate-tech-news/
