This article is part of a series on funding and building first-of-a-kind climate tech. Previous articles have looked at how to secure off-take agreements, how to hire the best team and how to build the right cap table.
Across Europe, startups are building first-of-a-kind (FOAK) climate tech covering a huge array of technologies, from carbon removal plants to next-generation fertiliser and greener chemicals.
These companies are a new breed of startup: unlike the software businesses that have typically made VCs their riches, FOAKs mean building and financing large physical factories and equipment.
Most begin in a lab, proving their technology works on a small scale, and then winning investor backing to scale up with a first-of-a-kind plant.
But how do they actually get shovels in the ground and build the thing?
Find an EPC firm
Most FOAK startups use experienced engineering firms, known as EPCs (engineering, procurement and construction), which are contracted to source components and build the factory.
Some FOAK companies put together a novel process (such as using hydrogen to produce steel) from existing components (like electrolysers and furnaces), in which case the EPC would be able to build out most of the site. Other FOAKs integrate a unique machine designed by the startup, which means an EPC could build all the equipment that surrounds the machine.
“My advice to any company that wanted to scale up a process would usually be, first go and speak to an EPC early and get their input on the design,” says Sam Baker, an investor at climate-focused VC Planet A.
Before working for Planet A, Baker worked as an operations manager for Arrival, a British e-van startup, which went into administration last year — but was nonetheless a good example of how to work with an EPC, says Baker. To build its factories, Arrival worked with an EPC specialised in installing Kuka robots — a widely used industrial robot.
“They knew technical things like the issues that could come up if we bolt the robot to the floor in this orientation rather than that orientation,” Baker says. “That only comes with experience, because they have bolted it to the floor in that orientation 10 times before.”
The alternative would have been hiring a staff member who had worked extensively with Kuka robots before and, often, hiring roles with that level of experience is expensive for a startup.
Find a firm that speaks the local language — and check their CVs
Henrietta Moon is founder of CarboCulture, a startup which develops biochar plants across Europe.
Moon advises using an EPCM rather than an EPC — the additional ‘M’ stands for management and means that, as well as building, the firm would manage all the staff on site.
“You wouldn’t want a first-time plant builder managing hundreds of subcontractors,” Moon says.
To find the right company, Moon says she goes through the top EPCs in the country she’s building in and then sends out the scope of the project.
“You want to work with someone who seems reliable, whose team you like and whose team has experience that’s relevant to you,” Moon says. EPCs can have thousands of employees, so Moon always asks for the CVs of the individual contractors who’ll be working on the project.
“And you want actual boots on the ground,” she says. “If it’s a Swedish factory, you want a firm with a Swedish team.”
When to get them involved
Planet A’s Baker advises getting an EPC involved as early as possible. “Go and speak to an EPC early to get their input on the design, if you’ve got the budget for it, and find one that you can stick with over time.”
Moon advises getting an EPC involved in the feasibility study — a detailed plan for the factory — which usually takes two to three months.
“You’re only contracting the first bit to start off with, and that doesn’t mean that you have to continue with the same people going forward,” she says. Moon recommends doing a bidding process with other EPCs before you enter the next stage of construction, to maintain negotiation power.
As the EPC gets to work, it’ll ask for information from the startup. You have to answer them in a certain time period, Moon says. “If anything changes in the project, like you cause a delay, or you change the scope, it’s going to get more expensive.”
The other thing to consider is hiring someone internally who can speak the language of the EPC and coordinate with them. People who’ve worked as project managers for big industrial companies are ideal, says Baker, because they will have run a variety of processes.
To find them, Baker advises giving candidates a whiteboard and telling them the challenges you’re trying to solve. Those who are willing to get stuck in and provide suggestions will do well in a startup environment, he says.
Developer-as-a-Service
As more and more startups reach FOAK stage, programmes are popping up aiming to help companies get the build up and running.
One of those is Mark1, a joint initiative between London venture studio Deep Science Ventures and the Rocky Mountain Institute, a sustainability-focused think tank in the US.
Mark1 describes itself as a “developer-as-a-service”. It plans to take on a cohort of startups and then co-develop FOAK projects with them.
“They bring the technology and the inception of the idea,” says Julian Ryba-White, who leads Mark1, “and we bring the experience of project development.”
Mark1 connects FOAKs with EPC firms, as well as law firms and insurance firms. It comes at a cost to the startup, however: Mark1 takes both a fee from the company and a success fee once the project is up-and-running.
The non-EPC route
Although most startups use an EPC, Baker says there are sometimes reasons to go it alone. Planet A portfolio company Traceless, which is producing an alternative to plastic, has done just that.
Traceless’ innovation is in the process it has composed, rather than a specific machine it’s built.
“If your innovation is in the process itself, it really makes a lot more sense to go through the pain and struggle of building that process independently of an EPC, because otherwise you miss a lot of the learning,” says Baker.
Traceless is still using EPC firms to help design specific parts of the plant, but is overseeing the wider process itself.
That said, the company has an advantage not enjoyed by all FOAK companies: its founder, Anna Lamp, is a former chemical engineer.
Do you have tips you want to share with other FOAK companies? Have you done something differently? Get in touch: freya@sifted.eu
Read the orginal article: https://sifted.eu/articles/foak-playbook-how-to-build-epc-epcm/
