1. ©2015 EcoMachines Ventures. All rights reserved Funding Innovation: Options for Cleantech Startups Dr. ILIAN ILIEV CEO, EcoMachines Ventures 6 th May 2015 Cognicity Programme

2. ©2015 EcoMachines Ventures. All rights reserved Agenda Introducing EcoMachines Funding options for startups Some lessons from our experience Q&A

3. ©2015 EcoMachines Ventures. All rights reserved 1. Introducing EcoMachines

4. ©2015 EcoMachines Ventures. All rights reserved Focused on SMEs in advanced engineering and high-value manufacturing A seed accelerator + early-stage VC fund About EcoMachines Ventures We leverage our investment impact through strong links with industry experts, and corporations

5. ©2015 EcoMachines Ventures. All rights reserved About EcoMachines Ventures EcoMachines Ventures is an investment group that provides seed, Series A/B and growth finance. We strive to build one of the top 5 VC funds in Europe focused on industrial high- tech. We leverage the impact of our investment through co-investment and collaboration with corporations, industry expert networks, presence in key investment locations in Europe/Israel, and hands-on engagement We currently invest through a Seed/Accelerator Fund, strong links with industrialist family offices and investor network

6. ©2015 EcoMachines Ventures. All rights reserved Sectors of Interest 01 Power Generation 02 Transport 03 Circular Economy and Resource Recovery 04 Smart City and Energy Efficiency 05 Industrial high-tech

7. ©2015 EcoMachines Ventures. All rights reserved Technologies of interest 01 Robotics 02 Materials science 03 Power electronics & controls 04 Internet of things 05 Advanced engineering

8. ©2015 EcoMachines Ventures. All rights reserved Portfolio Robots to apply insulation under old houses Nanoparticles to create superior lubricants Converting mixed plastic waste into fuel Energy efficiency in industrial electrical motors Light-weight, highly efficient engines Connected car technologies Rotary EcoMachines

9. ©2015 EcoMachines Ventures. All rights reserved Accelerator Investments We help entrepreneurs transform their businesses from a startup with a proof-of-concept technology into a high-growth, investable company We are able to follow-on our investments

10. ©2015 EcoMachines Ventures. All rights reserved Follow-on investments We also invest in post-revenue high-tech companies – providing leverage through syndicated rounds with corporate and financial investors Example: Nanotech Industrial Solutions (US-Israel Disruptive nano-technology with application in industrial efficiency $22.5M invested by EcoMachines + network since 2013 Revenues grown $200k (2013)> $1.5M (2014) > $10.5M (2015*

11. ©2015 EcoMachines Ventures. All rights reserved Philip Verey Head of Business Development EcoMachines Team Dr Ilian Iliev CEO and Founder Igor Turevsky SVP Energy & Power Dr Oleg Evdokimenko Chairman Investment Committee Oliver Johnson Analyst Alexey Krenke Investment Director Oksana Hilinskaya Investor Relations Rob Snellgrove Associate Max Middleton Analyst Operational Team Harel Boren Head of Corporate Development London Moscow Prague Moscow Paris London Tel Aviv London Flora Baillie Marketing Associate London Max Middleton Analyst London

12. ©2015 EcoMachines Ventures. All rights reserved Geographic reach Coverage across Europe and Israel. Representatives in: London (HQ) Paris Moscow Prague Tel Aviv

13. ©2015 EcoMachines Ventures. All rights reserved Selection Criteria Strong & Committed Team 01 Successful teams must contain a range of expertise Key team members must be working on the startup on a full-time basis Willingness to change business model... repeatedly! Market Focus 02 We favour technologies or products with multiple possible market applications We are interested in businesses that are scalable at reasonable capital cost Technology Maturity and Type 03 We are flexible in our expectations for the level of maturity of the business and technology, but there are several broad selection criteria At least at Proof of Concept level (TRL 3+) Software and connectivity plays an increasingly important role in hardware innovation – so we’ll look at software-enabled hardware too

14. ©2015 EcoMachines Ventures. All rights reserved Selection Criteria Exciting Technology or Product 04 We are interested in disruptive innovations, rather than incremental innovation Patents or patent pipeline Credible Exit Scenarios 05 Can you demonstrate a credible exit scenario showing a) possible buyers of the company if it’s successful and b) what the drivers of an acquisition would be? Grant Co-Funding Potential 06 We are flexible in our expectations for the level of maturity of the business and technology, but there are several broad selection criteria Use our equity as leverage for more applications We are particularly interested in companies that have been awarded or are awaiting results of a grant application

15. ©2015 EcoMachines Ventures. All rights reserved 2. Funding options for startups

16. ©2015 EcoMachines Ventures. All rights reserved The Funding Ecosystem SMEs Corporate VC VC Funds Angels Accelerators Family Wealth Offices Project Finance Public grants Crowd Funding Getting funding… so many more opportunities, yet in a way its becoming more difficult…

17. ©2015 EcoMachines Ventures. All rights reserved The funding life-cycle – where are you and where will you be?

18. ©2015 EcoMachines Ventures. All rights reserved Angel investors The UK is the EU’s leading angel investment location – driven by growing experience, tax beneifts (SEIS/EIS), crowd funding platforms… and zero-interest rates To some extent Angel funding has alleviated the VC funding gap, providing startups with: Easy(er) funding source Hands on experienced investors with networks Links to follow-on investors Angel networks can now ‘handle’ £300-400k round size Risks & limitations: Constraints in terms of capital available Time and resource availability (it’s a person) Preference by many for software/capital light models Overvaluation risk due to SEIS/EIS – making later stage funding more difficult

19. ©2015 EcoMachines Ventures. All rights reserved Accelerators What is it: Programme-based hands-on approach to rapidly accelerate the growth/maturity of a business Access to large pool of mentors Investor links Halo effect (if it’s the right Accelerator) Risks & limitations: Typically focused on software/digital media companies – so is it the right model for you? Are the Mentors the right calibre? It is not a substitute for finance… it’s a step towards it London has the highest concentration of Accelerators in Europe. Accelerators provide a complementary and valuable addition to the ecosystem.

20. ©2015 EcoMachines Ventures. All rights reserved Venture capital funds Pros: Really powerful source of funding that can help companies get to the next stage, and get funded through to exit Multi-round access to financing It can really scale the funding – access to follow-on investors Very clear and powerful incentives – their investors want returns Risks & Limitations: Very difficult to get – especially if you’re in hardware High threshold/requirement of investability – requires high level of model validation and realistic exit strategy Also company must fit in VC’s investment mandate Limited investment timeframe Loss of independence by founders The UK is the EU’s largest VC market… but VC has largely focused on post-revenue companies in the energy/Cleantech/waste space

21. ©2015 EcoMachines Ventures. All rights reserved Corporate venture capital Pros: Looking beyond financial returns to strategic fit Active channel to help companies link up with parent companies A ‘super-validator’ – increasing company value and likelihood of exit Cons: High-threshold - difficult to get Possible limitations on who you can work with Possible limits on independence London is also a centre for corporate venture capital (CVC) CVC are funds owned by a corporation, tasked to identify and invest in companies that help the parent company’s ecosystem

22. ©2015 EcoMachines Ventures. All rights reserved Family wealth offices Very difficult to access/get to – but genuine alternative or complement VC funding They can provide significant amounts of investment + international networks Often – access to emerging economy markets through their founders’/principals’ networks But… unlikely to act as angel investors – typically post- revenue, looking for scalability London is also a global centre for family wealth offices.

23. ©2015 EcoMachines Ventures. All rights reserved Project finance Growing number of examples in waste-to-energy, smart metering, retrofitting, where project finance structures have led to scale-up of technology companies An alternative way of scaling for companies with mature technologies While the ‘Silicon Valley’ model is to build OEMs/global leaders… perhaps the UK model is to scale fast through service/build own operate models backed by project finance? London is a world centre for project finance and public-private financing models

24. ©2015 EcoMachines Ventures. All rights reserved And finally… Bootstrap! Pros: Retain independence and avoid dilution while you figure out your business model Focus on growing the business, instead of fund-raising It shows investors commitment – they prefer to see that you’ll do it anyway! Cons: Losing out on the expertise of other investors Slower growth trend Competitors may eat your cake For an early stage startup there are many opportunities to build some traction through grants, consultancy… and starvation!

25. ©2015 EcoMachines Ventures Ltd. All rights reserved 3. Lessons from our experience

26. ©2015 EcoMachines Ventures. All rights reserved Some lessons from our experience Promising companies: Hyperfocused on a specific easy to reach market applications Close to a Minimum Viable Product Ability to articulate pivots on current business model – (Pivot early, pivot frequently – you can do it, corporates can’t!) Deliver real and significant benefits to a real client… at the same or lower price Team with experience specific to the market application Find the low-capex model for growing the business Investors with relevant experience Business model supporting early cash flows The promise: if you get it right, investments in ‘hardware’ businesses can be highly scalable at relatively low capex, and can ‘plug-in’ to existing industry infrastructure.

27. ©2015 EcoMachines Ventures. All rights reserved Lean startup for hardware companies 1 What is the Lean Startup method ? The Lean Startup approach of ‘validated learning’ and iterative product releases has been tremendously influential as an entrepreneurial approach for Web/software companies.......Which has seen the bulk of VC investment in recent years......So hardware companies should be curious! Key elements of Lean Startup : Minimum Viable Product Continuous deployment Split testing Actionable metrics Pivot

28. ©2015 EcoMachines Ventures. All rights reserved Lean startup for hardware companies 2 Lean Startup – key elements Hardware implicationsSolutions Minimum Viable Product It takes more investment and time to build an MVP for hardware Virtual prototyping Rapid prototyping & additive manufacturing Scenario testing with clients Industry partnerships Low-cost prototyping Continuous deployment It takes more time and ££ to do iterations on hardware prototypes Split testingIts more expensive to build hardware prototypes Actionable metricsDifferent type of metrics for hardware and B2B Use deep sector expertise to identify relevant metrics PivotMore expensiveDo market-product fit testing earlier on But... Is Lean Startup appropriate for Hardware?

29. ©2015 EcoMachines Ventures. All rights reserved Valuation – the common sense checkpoint Common sense checkpoint: % new investors get from the new round – is it reasonable? Does the funding get you to the next fundable event? What happens if there’s a down-round? Is it ‘just’ to the investors? How much can this business be worth realistically – and how much will investors have in it? How does this compare to other companies we see?

30. ©2015 EcoMachines Ventures. All rights reserved Valuation – working the numbers Keep in Mind: VCs take on a portfolio of inherently risky assets (Start-ups) Even for the best VCs, a portfolio of 10 companies may only yield 1 or 2 huge successes Therefore, VCs have to look for big potential returns (5-10x) to compensate for the very high risk involved in early stage investment If the pre-money deal valuation is too high (relative to realistic exit valuation) the deal will not clear a VC’s investment committee, as returns will be limited and the portfolio becomes imbalanced …Unfortunately this means some deals that should go through do not, simply because there is a gap in expectations between the VC and start-up Takeaway: It’s important to work the numbers to understand the valuation drivers…and help you in your negotiations.

31. ©2015 EcoMachines Ventures. All rights reserved Valuation tips Do your analysis and build a decent model Look at it from the investor’s perspective You’re not unique! Your competitors here are other competitors for funding Make it easy to analyse: Do the research – look at valuation multiples in your industry, share the examples What is more valuable to you – target valuation or to move the business forward? Do not make the deal about the valuation – there’s many other structural aspects of a deal that you can use to reach a good outcome

32. ©2015 EcoMachines Ventures. All rights reserved Scaling the business Hardware and industrials can be massively scalable with the right approach Product vs. service models Funding needs: more and more VC investment or project finance? Vertical control - keeping it in-house vs. outsourcing Partnering for scale vs. independence

33. ©2015 EcoMachines Ventures. All rights reserved What we want to avoid in start-ups!

34. ©2015 EcoMachines Ventures. All rights reserved How to engage with EcoMachines We are offering mentoring slots for Cognicity startups – talk to us if you’re interested in a free investment readiness diagnostic session You can also meet the EcoMachines team during our monthly Open Office Hours, where there will be an opportunity to discuss your business plan Join our newsletter to follow our latest activities: http://tinyurl.com/mfs5b3m http://tinyurl.com/mfs5b3m

35. ©2015 EcoMachines Ventures. All rights reserved 4. Q&A Session

36. ©2015 EcoMachines Ventures. All rights reserved Ilian Iliev (CEO) London, United Kingdom (m) +44 77863 73965 (e) ilian.iliev@ecomachinesincubator.com Contact Us To find out more about EcoMachines Ventures, please contact us. ECOMACHINES VENTURES Rainmaking Loft, International House, 1 St Katharine’s Way, London, E1W 1UN, United Kingdom www.ecomachinesincubator.com @EcoMachinesUK