Technology Banking
innovation | 2 minute read

Incubators fill in gaps for cleantech startups

As venture capitalist investment in non-software clean technology drops, startups are turning to incubators to fulfill financing needs.

Clean technology startups have made it their mission to tackle some of the planet’s most dire issues. Through innovative technology and ideas, these companies are promising solutions to pollution, energy, the environment, and other modern-day issues. Cleantech entrepreneurs have relied heavily on financing from venture capitalists to take their innovations to market. But with non-software cleantech investment in a decline in the last few years1, cleantech entrepreneurs are turning to other, non-traditional funding sources.

Incubators connect entrepreneurs to technical validation, financing, and partnerships.

Cleantech incubators and accelerators were started just for this purpose: to help new cleantech businesses gain critical knowledge and funding. The funding gaps that prevent startups from getting to market are often called the “valleys of death.” These gaps have proven especially challenging for energy-related companies that sell to highly capital intensive, project-based markets or to regulated customers.

Many cleantech incubators have selection requirements and niche areas of focus. The popular Greentown Labs focuses on the hardware sector; the Shell Foundation Incubator specializes in helping low-income customers; Urban-X chooses to focus on innovation in city environments2. Wells Fargo’s Innovation Incubator (IN2) is a technology incubator and platform that facilitates commercialization and adoption of clean energy technologies.

Incubators and startup accelerators, such as the IN2, help cleantech companies in three main ways.

1. Technical validation. Beta-testing a technology in a real-time environment is invaluable for tech startups. This helps to ensure optimal performance and reduces risk, thereby making it easier to secure investors, and improve speed to market. The incubator also acts as a confirmation to potential investors that there is enough market for the new company to scale.

2. Financing. Obtaining non-dilutive capital, which doesn’t require repayment or sacrificing equity in the business can prove very challenging for startups. However, it is advised to secure as much non-dilutive capital first, before pursuing dilutive deals to allow the company to grow more quickly. The financing provided by programs like IN2 is often non-diluted capital.

3. Strategic partners. An incubator can help validate the technology and provide guidance on other issues that often go unconsidered, such as cyber security. Incubators are often part of an ecosystem of universities, national research organizations, and channel partners, all of which can provide valuable insight and a strong network to cleantech entrepreneurs.

In short, it takes a village to raise a cleantech startup. Incubators connect entrepreneurs to people, ideas, and ultimately capital, which allows them to focus on what matters most — the core business.

Disclosures

1. Report. Cleantech venture capital: Continued declines and narrow geography limit prospects. Brookings Institution. May 16, 2017. https://www.brookings.edu/research/cleantech-venture-capital-continued-declines-and-narrow-geography-limit-prospects/

2. The 8 Top Cleantech Corporate Incubators and Accelerators. Tech.co Aug. 21, 2017 https://tech.co/8-top-green-tech-corporate-incubators-accelerators-2017-08

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The opinions expressed in this document are general in nature and not intended to provide specific advice or recommendations for any individual or association. Contact your banker, attorney, accountant or tax advisor with regard to your individual situation. The opinions of the author do not necessarily reflect those of Wells Fargo Capital Finance or any other Wells Fargo entity.

The information in this report is for educational purposes only and should not be used or construed as financial advice or a recommendation to participate any strategy mentioned herein. Wells Fargo does not guarantee that the information supplied is complete, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. The concepts discussed in the paper require the assistance of qualified legal counsel and tax advisors, and investors should consult their own attorneys and tax advisors with respect to their own situations.

  1. Silicon Valley Top 150 2017 Silicon Valley Top 150 Public Technology Companies Rankings by Annual Revenue

Disclosures

Securities Products:

Not Insured by FDIC or any Federal Government Agency

May Lose Value

Not a Deposit of or Guaranteed by a Bank or Any Bank Affiliate

© 2019 Wells Fargo Bank, N.A. All rights reserved. Deposit products offered by Wells Fargo Bank, N.A. Member FDIC. Deposits held in non-U.S. branches are not FDIC insured.

Wells Fargo Securities is the trade name for the capital markets and investment banking services of Wells Fargo & Company and its subsidiaries, including but not limited to Wells Fargo Securities, LLC, a member of NYSE, FINRA, NFA and SIPC, Wells Fargo Prime Services, LLC, a member of FINRA, NFA and SIPC, and Wells Fargo Bank, N.A. Wells Fargo Securities, LLC and Wells Fargo Prime Services, LLC are distinct entities from affiliated banks and thrifts.

© 2019 Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Managed Account Services and Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

© 2019 Wells Fargo Capital Finance. All rights reserved. Products and services require credit approval. Wells Fargo Capital Finance is the trade name for certain asset-based lending services, senior secured lending services, accounts receivable and purchase order finance services, and channel finance services of Wells Fargo & Company and its subsidiaries.

Wells Fargo & Company conducts business outside the U.S. through various companies, including duly authorized and regulated subsidiaries and affiliates in Asia, Canada, and Latin America. In Europe, banking services are provided through Wells Fargo Bank International (WFBI), directly regulated by the Central Bank of Ireland, and Wells Fargo Bank, N.A. London Branch, authorized by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority (FCA) and the PRA. All products and services may not be available in all countries. Each situation needs to be evaluated individually and is subject to local regulatory requirements.

We provide links to external websites for convenience. Wells Fargo does not endorse and is not responsible for their content, links, privacy or securities policies.

Important notice regarding use of cookies: By continuing to use this site, you agree to our use of cookies as described in our Digital Privacy and Cookies Policy.

The opinions expressed in this document are general in nature and not intended to provide specific advice or recommendations for any individual or association. Contact your banker, attorney, accountant or tax advisor with regard to your individual situation. The opinions of the author do not necessarily reflect those of Wells Fargo Capital Finance or any other Wells Fargo entity.

The information in this report is for educational purposes only and should not be used or construed as financial advice or a recommendation to participate any strategy mentioned herein. Wells Fargo does not guarantee that the information supplied is complete, undertake to advise you of any change in its opinion, or make any guarantees of future results obtained from its use. The concepts discussed in the paper require the assistance of qualified legal counsel and tax advisors, and investors should consult their own attorneys and tax advisors with respect to their own situations.

  1. 2017 Silicon Valley Top 150 Public Technology Companies Rankings by Annual Revenue.