How climate founders can build successful corporate partnerships

At this year's Climate Week NYC, Wireframe partnered with Broadscale Group to host a panel exploring the critical role of corporate-startup collaborations in scaling climate solutions. Our own Lily Bernicker served as moderator for this panel of experts including Chris Leppard from Equinor Ventures, Jamila Yamani from Salesforce, Rob Day from Spring Lane Capital, and Jason Aramburu from Applied Carbon.

The engaging discussion offered a wide range of valuable insights for both startups and corporations seeking to build mutually successful climate tech partnerships, including:

1. Picking the right corporate partner
2. Defining & designing good “offtake”
3. Tapping into corporate resources beyond capital
4. Assessing alternative financing structures

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Picking the right corporate partner

For startups seeking corporate partnership, understanding and aligning with the strategic priorities of potential partners is crucial.

The strategic priorities, capabilities, risk tolerance, and return expectations will vary across corporations. Some groups - like large tech companies - have high willingness to spend on novel technologies but limited executional resources to bring to bear, while other industry partners might offer engineering support on project deployment but require significantly more technical maturity prior to engaging.

There are two primary ways we see corporations partner with emerging climate companies:
(1) as a buyer, via offtake agreements or direct technology purchases, and/or
(2) as an investor in either the company itself or its projects.  

Large tech companies can be ideal “scope three offtakers.” These groups often have a mandate to support emerging technologies and are willing to pay a green premium. However, climate startups must be prepared to explain how an offtake commitment can unlock future financing or commercial opportunities. As Jamila explained -

‍the things that we're looking for are: how relevant is it to Salesforce? how relevant is it to global climate goals? and in particular – this is something that I think is often missed – what is the role of our offtake agreement on your scale, your ability to gain financing, to bring on other buyers or establish standards?

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Unlike big tech, industry strategics like Equinor have a different menu of options available to them when backing climate companies. In addition to equity investments through their corporate venture capital arms, they can pursue commercial agreements to integrate a startup’s technology directly into their value chain, or even participate in joint ventures at the project level. Chris called out Equinor’s work with portfolio company Standard Lithium, where they’ve invested directly into several projects through joint ventures, and are also contributing their own capabilities in subsurface and project execution.

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Defining and designing good “offtake”

Offtake agreements – where companies secure advance purchase commitments for their products – are a common way for startups to partner with a wide variety of strategics. These high-value agreements can help startups generate broader demand from other potential buyers while also de-risking the development of a facility for project level funders.

Rob called out the challenge of designing offtake agreements that are both easy for corporate buyers to say yes to, while also being firm enough for a financing partner like Spring Lane to underwrite -

‍the easiest way for you to get that customer to say yes, especially if it's a corporate customer, is to wear all the risk… and we look at that and go, that's totally not under-writeable.

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One strategy we’ve seen be successful is to combine an equity investment with an offtake commitment, as Applied Carbon did in their partnership with Microsoft. Jason explained -

beyond the validation of the offtake agreement … they also participated in our series A and that capital has been really catalyzing for us … to ultimately reduce delivery risk of the contract … in many ways their capital de-risks us so that we can take on other offtake agreements that don't come with investment.

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Jamila suggested that startup suppliers engage financing partners well in advance of discussions with potential offtakers like Salesforce to understand what risk each party really needs to be able to tolerate:

‍Having that relationship with a financing party and a supplier at the same time allows us to better understand who needs to wear which risk. Because we're not going to wear all the technology and all the execution risk as an offtaker, but we know that we'll have to tolerate some of it.

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One trend that we’ve been tracking is how startups, especially in the Sustainable Aviation Fuel and Cement industries, are stacking different types of investment and buyer relationships to create new partnership structures and distribute risk overall. We expect to see increased collaboration between offtake partners, lenders, VCs, and corporates going forward.

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Tapping into corporate resources beyond capital

As a startup transitions from technology development to deployment, there is a whole new set of capabilities they have to bring on board.

Rob describes this transition -

‍from a time when your venture capitalists have been telling you to move fast and break things, and suddenly you have to transition to a phase where the thing better not break.

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Beyond ensuring the reliability and performance of their technology, startups will also have to set up their supply chain, engage the right EPCs, establish the appropriate legal and financial structures, etc. Strategics with an expertise in engineering or construction can offer significant value to young companies who are building these capabilities for the first time.

Corporate partners may also have non-economic priorities that make them a stronger fit to fund first-of-a-kind (FOAK) facilities and deliver strategic support, compared to financial investors who are motivated solely by return on investment.

Chris explained how Equinor leverages their 1000 employee research center, their team of project developers and their expertise in O&G when approaching new energy projects:

‍we take a venture investment, where we've understood the technology risk, and do completely separate and isolated commercial negotiations with that company. We use the depth of expertise we have in house to complement the company that we're working with and make sure that they're able to grow their technology at the right speed and deliver it to the right market.

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Assessing alternative financing structures

Depending on the size and risk profile of a startup, traditional project finance or equipment financing might be available as a non-dilutive alternative to equity investments.

For Jason at Applied Carbon, cost of capital was a key consideration he took into account when starting the company. He understood the value early on of being able to tap into equipment finance for their mobile biochar production equipment.

He explained that Applied Carbon was able to take‍

...offtake agreements, which maybe we couldn't take to a bank today and get the financing, but we can take them to an equipment finance company and use that to access a larger line of equipment finance.

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‍Jason underscored that this approach can be a more accessible and less dilutive form of capital for scaling operations, particularly for startups with smaller scale or modular systems.

While a growing number of climate startups are designing their technology and strategies to tap into traditional financial products like equipment or asset finance, we’ve also begun to see new financial products emerge to bridge the estimated $150B gap between venture capital and project finance.

Panelists expressed cautious optimism for new first-of-a-kind (FOAK) financing models which combine project finance and equity investments in the same transaction, but acknowledged that we’re still early in figuring out how to best stitch together these new offerings alongside traditional financing options.

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‍Resources for founders

At Wireframe, we're committed to fostering these collaborations and supporting founders as they navigate the complex landscape of corporate partnerships, financing, and scaling. We’re eagerly tracking creative new deal structures and products that climate startups are leveraging to reduce finance and deployment risks and get to market faster. A few examples we’re excited about include:

• Recent Aviation Fuel and Cement deals that combine offtake and investment to tap into a range of corporate interest and resources
• Buyers’ alliances and pooled offtake like SABA for aviation and ZEMBA for maritime shipping
• Elemental’s D-SAFE
• Spring Lane’s hybrid project capital and Developer U

If you're a climate tech founder exploring or building creative new solutions in this space, please get in touch -  we'd love to hear from you!