By: Chris Wedding, PhD | Iron Oak Energy Capital

“You miss 100% of the shots you don’t take.”

Depending on whether you are from the South or the North, you’ll think that quote was attributed to Michael Jordan or Wayne Gretzky. With two degrees and a professorship at UNC Chapel Hill, I’m definitely going with MJ.

Regardless, this pithy wisdom applies to our topic at hand — Innovators that harnessed blood, sweat, tears, and billions of dollars to shoot for the moon with bold battery solutions that did not work out.

The silver lining (or maybe it’s lithium) is that those were the early days. And it’s better to gamble with pennies than with gold.

Going forward through 2040, Bloomberg projects $620B to be invested in the battery sector. That’s a frighteningly large amount of capital. So we better learn lessons from those early failures and invest these dollars intelligently.

First, a review of why batteries are wonderful…

Below are three figures which tell a compelling story.

#1 – The 13 benefits that batteries can create for building owners (behind the meter), utilities (front of the meter), and grid operators (e.g., Independent System Operators) — Source: RMI

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#2 – The surprising growth of residential energy storage installation in the U.S. — Source: GTM Research / ESA U.S Energy Storage Monitor

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#3 – Areas of the U.S. where commercial and industrial energy storage can produce an attractive return on investment today, not in some distant future where Elon Musk is the next billionaire president — Source: NREL

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And now, a list of battery companies “with arrows in their backs”

The following companies were cutting edge, but the cuts went too deep. God bless them for being innovators that were too early.

A123 Systems:

Business focus : Manufacturer of rechargeable lithium-ion batteries for devices, EVs, and the grid

Founded : 2001

Bankrupt : 2012

Post-bankruptcy outcome : Bought by Wanxiang Group in 2013 ($256M); Grid unit sold to NEC in 2013 ($100M)

Alevo:

Business focus : Manufacturer of lithium-iron-phosphate grid batteries; non-flammable; with 3-4x greater life vs. other lithium batteries

Founded : 2009

Bankrupt : 2018

Post-bankruptcy outcome — IP, R&D facility, and one operating grid battery acquired by Innolith (NewCo by Alevo’s CTO and COO) in 2018. Manufacturing assets acquired by battery development consortium called Imperium3 New York ($5M, but value more than $200M)

Aquion Energy:

Business focus : Manufacturer of sodium-ion batteries for long-duration grid batteries; environmentally friendly, non-flammable, non-explosive; focused on microgrids and off-grid applications

Founded : 2007

Bankrupt : 2017

Post-bankruptcy outcome : Acquired by Juline-Titans LLC in 2017 ($9.2M), affiliate of China Titans Energy Technology Group (power electronics); will focus on China and global markets

Better Place:

Business focus : Electric vehicle network with switchable batteries

Founded : 2007

Bankrupt : 2013

Post-bankruptcy outcome : Acquired in 2013 by Sunrise Group: Company’s assets ($5M) and IP ($7M)

Fisker:

Business focus : Manufacturer of luxury plug-in hybrid electric sports vehicles

Founded : 2007

Bankrupt : 2013

Post-bankruptcy outcome : Acquired by Wanxiang in 2014 ($35.7M)

In aggregate, these companies raised more than $5B from smart, accomplished, and connected investors, such as the following:

• Bill Gates
• Braemar Energy Ventures
• Bright Capital
• ConocoPhillips
• Foundation Capital
• GE Ventures
• Gentry Venture Partners
• HSBC Holdings
• Johnson Controls International
• Kleiner Perkins Caufield & Byers
• Lendlease
• Morgan Stanley Expansion Capital
• New Enterprise Associates
• Prelude Ventures
• Procter & Gamble
• Qatar Investment Authority
• Sequoia Capital
• Shell Ventures
• VantagePoint Capital Partners
• Wanxiang Group

Sources: Pitchbook, Crunchbase, Greentech Media, PV Magazine, VentureBeat, and the New Yorker.

Finally, 10 lessons for “keeping your shoes clean in a cow field”

#1 – Focus. Focus. Focus : Some battery manufacturers tried to serve multiple markets and geographies, across both stationary (power grid) and EV (electric vehicle) sectors. You have to pick. Say no. You’ve heard it before: “If you try to please everyone, you’ll end up pleasing no one.”

#2 – Vet storage technologies the way that investors vet energy project investments : This matters because ultimately tech needs to scale into deployments. Below are six questions to ask of a battery technology and company:

• Revenue certainty — “Show me the multi-year contract.”
• Revenue diversity — “Are you able to ‘stack benefits’ now or during the life of the project?”
• Technology bankability — “Lithium is king. How will you complete?”
• Strong warranty — “How big is your balance sheet?”
• Creditworthy offtaker — “Will I get paid?”
• Scale — “Is the opportunity big enough to be worth my time?”

#3 – Apply the pre-mortem : Watch for “froth.” If all investors are in love with the company,             ask why it could fail. Once you identify the flaws, ask whether there are risk mitigation strategies, and if you believe them. Ignorance is not bliss.

#4 – Manage burn-rate like a hawk : Raising a big round, or being on a rocket ship based on confident financial projections are not excuses to spend too much. Pretend your dad was a CPA like mine. Make sure a board is in place and that they firmly hold the executive team accountable, without applying a death grip.

#5 – Compete against the giants with your eyes wide open : If the battery technology company wants to oust lithium-ion batteries from their global dominance, then get ready for a long, uphill battle. Granted, at the top of that hill, you might see a pot of gold waiting. But you may have aged a decade in the process. Or maybe instead you should just climb a different hill: Find a niche use case where lithium-ion is not the answer. Find its weakest performance parameter, innovate to excel on that same attribute, and then find the one customer segment in a specific geography that loses sleep over that problem you could solve with a non-lithium-ion solution.

#6 – Don’t depend on business-to-customer sale channels : As individuals, we are fickle, distracted buyers. Businesses are not. They seek what’s best for them and buy in large quantities. Find battery companies that make businesses happy. Then sell to them in order to reach your ultimate customer, whether it is the business or that business’ customers. For example, make the utility or auto manufacturer your friend, not your foe.

#7 – Partner with strategic investors : These guys (and gals) provide three benefits: (1) They might be more patient with their capital, allowing time to maximize company value before exiting an investment. (2) They can provide fantastic validation that the storage company has market potential and may indeed scratch their own itch. (3) They can be extraordinary customers that “make the business,” adding serious revenue through large contracts.

#8 – Raise capital before you need it : Plenty of companies run out of cash before they raise their next round. This was also true for some early stage storage startups. Don’t depend on cash flows for growth too early on in the business. Raise more than you think you need, share the pie, and earn the opportunity to watch it grow.

#9 – Prioritize capital-light business models : If the battery company wants to use lots of venture capital to build factories, run away. Far away. Instead, contract manufacturing, creative lines of credit, and supportive supply chain partners can reduce capital cost needs. In addition, it always helps to invest in the “brains” of the storage devices. Get some intellectual property, some software, and some automation.

#10 – Good looks alone won’t cut it : Cool design can’t overcome poor quality or inconvenience. That said, ugly form factors can also be recipe for inducing yawns if there is any consumer component to the sales cycle. Find the balance. But keep your eye on the target: High performance.

In conclusion…

I’ll conclude with a relevant metaphor that harkens back to my days in Kentucky…

We’re off to the races. Don’t be too late to make that bet. Pick your jockey(s). Pick your horse(s). The prize money is much more than a bucket of oats.