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Friday, 14 December 2018

Saving the world: but first, raising money

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A Virgin Atlantic flight from Orlando to London this month used a batch of special jet fuel recycled from waste gases for the first time, in a landmark step for a new firm trying to tackle climate change - and, crucially, make money and scale up.

The jet fuel was produced by LanzaTech, a company founded in New Zealand in 2005 and now headquartered near Chicago, whose modern day alchemy turns unwanted carbon monoxide into valuable ethanol.

It is one of 71 companies in a programme called Unreasonable Impact, a joint venture between Barclays and Unreasonable Group, a platform that helps entrepreneurs tackle global issues.

Like many of the firms, LanzaTech has big ambitions. It reckons if its technology is rolled out to eligible steel mills it could produce enough fuel to meet around 20% of the current commercial global aviation fuel demand.

Each company in the programme is aiming to solve challenges in society, such as climate change or healthcare, and create jobs. Being viable, profitable and scaleable are core parts.

“Our intention is to scale up growth equity companies. Each company we align with we believe can create 500 jobs in the next five years,” said Daniel Epstein, CEO of Unreasonable Group.

“Our hope is that when you look 10 years from now, a significant portion of this portfolio are truly multi-billion dollar companies that are showing you can do well and do good.”

The 71 companies in the Unreasonable Impact portfolio provide more than 18,000 jobs and on average generate about US$15m in annual revenues.

Some have raised money from private placements, private equity firms and other areas of capital markets, or are nearing that stage of their growth. The firms have raised about US$1.3bn, or US$18.6m each on average.

Barclays has worked with some of the companies on early round financing and its bankers host annual two-week accelerator programmes in London, New York and Asia.

Joe McGrath, global head of banking for Barclays based in New York, said scaling up growth companies, especially in areas that are doing social good, was part of the bank’s citizenship agenda. But there’s also a commercial aspect to the partnership: it will provide a pipeline of future clients and the opportunity to work more closely providing more banking services to them.

“I think in future years there will be the opportunity to start taking some of these companies to the public equity markets and then the debt markets,” McGrath told IFR.

In addition to interest from general investors, there were specific social impact investors to tap. “There’s a specific pool of private equity dollars that’s targeted at these types of companies,” McGrath said.

“We would anticipate that over time a bunch of companies from this cohort could have public valuations certainly in the hundreds of millions, and in the US$1bn-plus range as well,” he added.

JET FUEL TO UNDERGROUND FARMING

LanzaTech is one of the biggest firms in the programme and has raised US$244m to date, including from venture capital firms and Japanese trading house Mitsui.

It recycles waste industrial gases from steel and alloy mills and other heavy industrial processes and converts it into usable fuel such as ethanol, jet fuel and other high value chemicals. The company reckons its products reduce greenhouse gas emissions by over 60% compared with equivalent products derived from fossil fuels.

LanzaTech is working with Virgin Atlantic to supply the airline with clean jet fuel, and also has partnerships with Boeing, the US Department of Energy, ArcelorMittal and Baosteel.

There’s wide divergence in the firms in the programme: there’s a company designing cars that run on hydrogen fuel cells and another one using drones to plant 1bn trees for low cost reforestation.

One firm, D.light, provides solar lighting and power systems for households and small businesses, and has raised US$145m, including $50m in debt funding earlier this year.

It has sold more than 12m solar light products, which it said has improved the lives of 65m people in Africa, India, Asia and the United States, putting it on track to reach 100m people by 2020.

Growing Underground, meanwhile, is at the smaller end of the scale. It grows fresh micro greens and salad leaves in an air raid shelter built in 1941 below the streets of London, and using hydroponics and LED technology the farm grows crops year-round.

The company says it is only using a fraction of at least 70,000 square feet of abandoned London tunnels available, so it can ramp up on a commercial scale. It has raised US$1.5m.

 

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