Britishvolt has gone into administration, marking the end of the company’s brief but controversial reign as a key startup to unlock the electric car industry for the UK. While the company had achieved some success in its short lifespan, it ultimately fell victim to a few key challenges which are not uncommon in a hardware heavy clean tech startup world.
One can of course argue that timing for Britishvolt was just bad. Investors have been cautious since the Russian / Ukraine war broke out. Not the best time to ask for cash injections. However, as investing into a manufacturing startup requires a lot of capital, de-risking the investment therefore becomes an even more crucial task to focus on – and eventually perhaps this situation could have been avoided in the first place?
The biggest currency for a startup next to hard cash are learnings and to continuously improve on those. Let us review the Britishvolt case and split some of those key learnings into the following categories:
An experienced founding team: Having a founding team that ideally understands their industry can be crucial for any startup to be successful quickly. A team that understands their industry well can bring insight, experience, and knowledge that would otherwise be inaccessible to new entrepreneurs. Certain risks can be identified and mitigated early and not only that – an experienced and well connected founding team often has direct access to potential customers who may give the startup a strong sales pipeline as well as suppliers and vendors who can give the company cost advantages while setting up a manufacturing line or acquiring product components. All in all an experienced founding team from the industry guarantees higher returns from the get go. Although a lot of money was being spent on consultants and advisors – Britishvolt’s founding team did not have a strong battery industry background and insights to potentially leverage these benefits.
The (lesser) importance of developing Intellectual Property (IP) in a seller’s market: It’s a well known fact that batteries are in high demand for years to come. The demand is driven by an accelerated electrification of the mobility sector on the one hand and a large energy crisis in Europe that is thirsty for building out renewable energy supply – which in return requires energy storage such as batteries on the other hand.
If we remember our first lessons in economics: Selling a product in a seller’s market means that the supplier has a greater advantage than the buyer as there is more demand than supply of a product or service. If a product is scarce, you can not only demand higher prices or more favourable terms and conditions which can secure higher profits, it also means that product differentiation to create a unique selling point towards a customer is of less importance to make a sale. In the Britishvolt example having focused on building out all IP including cell chemistries by themselves created not only an unnecessary red flag towards investors and higher R&D costs but also pushed a market launch date far into the future. Naturally, a seller’s market condition won’t last forever. So building up background IP will be of importance for future product iterations to secure future revenues. However, a market suffering a chronic undersupply of high performance batteries is an opportunity for suppliers to enter the market quickly and conduct a strategy to improve their product in smaller iterations after the initial launch.
A product to sell: Less pressure on product differentiation are perfect market conditions to establish what Startups can usually do best to enable accelerated innovation: being agile and customer centric by launching products into the market fast and actively learn along customer feedback. The main focus of launching a product into the market quickly to capture initial market share and show early revenues is also of significant importance in order to be taken seriously by investors and customers alike.
Not having been able to show a product prevented Britishvolt to close solid contracts with future costumers, which no doubt had raised another red flag towards investors who are looking for an off take – or in other words, a guarantee for producing revenues through a juicy sales pipeline.
Possible root cause? Again – a push by investors for strong IP and having received large investments at the start may have been contributors. We have seen this plenty of times. Receiving large investments, in particular in form of grants and subsidies may appear to be blessing but can easily turn into a curse. All resources suddenly turn inwards to spend a significant time on long product developments while the market moves on. The immediate urgency to create revenue may have disappeared and the Startup may loose touch with its potential customers to provide product feedback.
Breaking down the (CAPEX) elephant: Britishvolt initiated construction on a 3.8 billion GBP gigafactory in 2021. The plant was scheduled to be built in four phases of around 10 GWh.
Splitting up capital investments into smaller chunks could have been a smarter way to minimise risk for public and private investors. By deploying smaller production capacities into the market, investments could have been secured faster to deploy initial production capacity and provide a lower risk. It would have allowed Britishvolt to enter the market faster and create revenues against a less ambitious (but more achievable) business plan. Plus, it would have allowed Britishvolt to open up the option for self financing in the medium term rather than being heavily reliant on venture capital funding and government subsidies only.
Splitting up capital investments into smaller chunks could have helped to minimise the effect of market fluctuations and political changes. However, having invested a large sum of money into a long term project left Britishvolt exposed when the investment market took a dive in 2022.
In summary, sadly too much money was being requested by a company showing too many red flags during a time where investors had left an initial hype phase and are now carefully scrutinising every deal in search for healthy and credible revenue projections.
A key learning which should drive hearts and minds of all Startups: regardless of whether you gained a long runway, don’t loose your customers out of sight. Launch products fast, gain and act upon your customer’s feedback to steer your strategies. The biggest proof point for investors is that your product (or service) sells. Securing a pipeline, locking in future off-take is crucial to leave investors with a high level of trust to extend crucial runways. Show a credible IP strategy, but don’t think that a long line of patent registrations will guarantee interest. Think in smaller steps to reach certain milestones and funding requirements.
I hope sharing some of these insights will help you as startup or as investor to identify and mitigate risks in the hardware rich clean tech sector. After all, we can’t afford time, money and resources being lost to solve climate crisis through similar tragedies.
Applying these and other important learnings out of the Cleantech hardware sector forms the basis at NovAzure to advise our Startup clients of how to apply the right de-risking strategies within their industry. Don’t hesitate to reach out if you would like to bounce off your case with us.