Breakthroughs: Just what does it take to make it?

Last week , we were both very surprised and disappointed to hear the news that Aquion Energy, the US battery company who ranked top in our Global Cleantech 100 Expert Panel’s summer assessments, was forced to voluntarily file for chapter 11 to provide the breathing-room to allow it to find a buyer who could take the impressive achievements of the last few years and provide the capital to scale up the manufacturing to finish the job of getting a breakthrough energy solution to its end-game.

How did this happen, what should we read into this?

We will do better than cheap swipes, kisses of death, and sensationalist “Another taxpayer-funded energy company files for bankruptcy” Fox News type headlines.

We will provide some initial reflections on what the real takeaways and questions to be answered might be.

I have had the opportunity recently to talk to Scott Pearson, the CEO who fired himself last week along with 80% of his team, and to exchange views in the last few days with investors and corporate venturers.

I am yet to find anyone – beyond the company and its board, clearly – who saw this coming. Normally, the “I told you so’s” are in full voice by this time. All I hear out there is surprise and shock – and disappointment because of the implications for other hardware players, under the notion that “if they cannot make it, what does it take?”

Yes, some challenges in manufacturing and scale-up were acknowledged at the time of the GCT100 panel assessment last summer, but all we could collectively see from the outside was a company doing all the right things.

They had successfully managed to raise about $200m to develop today’s most advanced alternative chemistry battery technology. This was a company who was achieving real commercial sales, had a top-notch management team, had scaled manufacturing to one level, and was the furthest along in terms of the ambition to be offering a new battery, cost-competitive with Li-ion, but non-flammable and with much longer duration.

The real story here is that this is apparently not enough to secure all the finance needed to complete the journey. Operationally, it was doing all the right things.

Assuming it was about two-thirds (approx. $100m, say) of the way there, as has been represented to me, the sad indictment here is that our financing  ecosystem (at least in the West) is still not set up in ways that will take the kind of hardware energy breakthroughs needed through to the end game. As such, this wasn’t the first, nor will it be the last, Global Cleantech 100 company to do the right operational things, have the potential to make significant impact within the next 5-10 years (the question the GCT100 assesses) but eventually hit the buffers, before it has made that last climb to the scale required to power down the costs.

I hope the Breakthrough Energy Ventures team will look at this case closely. If they truly wish to have impact, maybe their impact would be greatest taking some of the Aquion’s of this world over that final valley of death? That is to say, taking companies with the potential to provide real breakthroughs within 5-10 years (not 20), and providing the less risky, though larger, capital needed to scale the final heights to bring the costs down to market competitive. Nothing is more likely to spurn and encourage the next wave of potential breakthroughs than the venture community succeeding in having more than Tesla reach such maturity soon.

I hope governments look at this case closely. Had Aquion been able to benefit from the kind of leg-up Tesla benefited from (in Tesla’s case, a $465M loan), it could have got there, and the US would have another player ready for the 21st century energy industry. Aquion received no government loans at all, only a small $5M R&D grant before 2010 for which it successfully delivered all milestones on time. And yet the horror-cries of tax-payer funded grants have already begun, conveniently negating to comment on the billions of tax-payers’ money spent in every other form of energy, from subsidizing oil and gas, to making happen politically-championed CCS and nuclear plant builds, which would make no sense to private funders.

Meantime, back in the real world of future competitiveness and creating industrial greatness, China does have the mechanisms to scale companies into future industries. It already dominates wind and solar – are batteries next?

I hope strategics look at this case closely. What an opportunity there could be here to take a de-risked technology and, for an investment of say $100m in additional capex, you get the chance to bring to market a long-duration and safe alternative to Lithium-ion. Are we all going to be “poorer” if Li-ion is allowed to win out through its current strategy of market share at any costs, a long game that can only be won by very deep pockets?

Lack of deep pockets, lack of the right kind of capital at the right time, were what did for Aquion – not that it wasn’t a technology company doing all the right things, not that it didn’t have all the characteristics of a breakthrough company.

We believed it, as did the market generally.

So what does all that say about the future?