When freshwater meets saltwater, as in an estuary, they produce ”osmotic energy.” It’s about the salinity — the arrival of water with little or no salinity to the sea produces significant pressure. And that pressure can be harvested through a membrane and exploited to generate clean electric power.
At least, that’s the theory. While the concept was introduced in the 1950s, osmotic power plants have long been too expensive and complicated to become a reliable source of energy. Now, though, technological advances, especially in nanotechnology, have given it a new realization potential.
Sweetch Energy, for example, is working to commercialize osmotic energy. The French startup is currently building its first-of-a-kind pilot project on the Rhône River, with the goal of reaching up to 500 megawatts of power across the region over the next decade. One of Sweetch’s investors is Axeleo Capital, a European venture capital firm whose latest fund, Axeleo Green Tech Industry I, specializes in these FOAK projects. According to founding partner Eric Burdier, each is a stepping stone in a company’s development towards commercialization.
“The point is not just helping them build the first factory, but also organizing the go-to market,” he told Latitude Media. “That means moving the DNA of the company from a tech point of view to a sales point of view.”
Last month, the fund announced a nearly $130 million (€125 million) first close, with hopes to wrap up the fundraising at nearly $260 million (€250 million) next year. It aims to make up to 20 investments in renewable energy, storage, and transport electrification. Axeleo plans to invest the money in two installments, with some money reserved for a second investment in its portfolio companies.
The FOAK challenge
Financing FOAKs has always been challenging in climate tech. It’s a delicate and expensive moment in a startup’s evolution, when tech and research have to evolve into commercial production.
Rushad Nanavatty, head of RMI’s climate tech accelerator known as Third Derivative, described the gap between VC and infrastructure funding as a “chasm, an abyss, more than a Valley of Death.” Marc Lechantre, Axeleo’s partner and managing director of the green tech industry fund, says that’s partly because VC investors suffer from a gap in industry experience.
“There are not that many people [in VC] that know about industry and have real-life industry experience,” he told Latitude Media. Lechantre himself spent 16 years working in the automotive industry in Europe, most recently in the used vehicles business unit at Stellantis; those years give him the specific knowledge to assess every aspect of an aspiring FOAK project, from the minutiae of every technology involved in the process to the “often overlooked” supply chain.
For more on FOAK financing, listen to Catalyst with Shayle Kann:
Aside from financing the first project, a fundamental part of how Axeleo helps startups like Sweetch move toward commercialization is by helping it recruit people with the right industry experience. For instance, Axeleo has helped the startup hire an independent board member with energy experience.
The hands-on recruiting work requires proximity, though, which is why the fund only targets startups in Europe, even as it encourages its portfolio companies to expand to the U.S. as well. (“Sweetch has to go to the U.S. in the short term,” Burdier said.)
Axaleo isn’t alone in deciding that the FOAK challenge is the right place to focus. In the U.S., similar efforts include Mark1, a “developer-as-a-service” model backed by Third Derivative and Deep Science Ventures, and NextGen Industry Group, a nonprofit organization which is building a peer group of over 140 companies that are scaling up in order to encourage collaboration.
Axeleo’s goal is to offer investors returns similar to the ones of its other VC funds, which target software rather than hardware. It’s tricky, though. Backing FOAKs “is probably a bigger risk because you finance bigger assets,” Lechantre said. While that doesn’t make the strategy inherently more risky, he added, the risk is just “different to assess,” and these portfolio companies will probably require more active support.
But it’s far too early to say whether the strategy will make those returns.The fund is ten years long, with the possibility of two one-year extensions. “Sincerely, we don’t know [yet],” Burdier said. “See you in 10 years.”
