Renewable energy businesses require a new way of thinking about pay
February 25, 2021
Six recent renewable energy start-ups have attracted more than £1bn in funding. It is clear to many that the development of renewable energy sources is essential for the planet. It is now also equally clear that investors are willing to put serious money behind viable renewable energy business ventures.
Start-ups don’t have a monopoly on renewable energy. Some of the large oil and gas companies have established their own venture capital operations to nurture businesses engaged in the development of sustainable renewable energy sources. Specialist private equity funds, have formed partnerships with universities to finance the development and commercialisation of new technologies, particularly in the fields of sustainable renewable energy and, not surprisingly, medicine. Indeed, it seems that the whole investment industry has become attracted to renewables.
For the big energy companies, facing challenges from environmentalists and governments, there is a strong business case for diversifying and developing interests in renewable energy. Challenges exist in other sectors, too. In the face of strong arguments for and against, planners have given a green light to proposals, which may yet embarrass the British Government at COP26 in November, to open a new deep pit coal mine in Cumbria to mine high-quality coking coal to fuel Britain’s specialist steel industry. Politics, are never far away from decisions about energy.
But forget politics, the development of sustainable renewable energy sources requires a different way of thinking about the practical issue of pay.
Running a successful corporate venturing operation requires different skill-sets to those required successfully to run the core operation. Where to find people with the requisite corporate finance and investment skills; how best to retain and motivate them; investment and return cycles; indicators and measures of success; the way the business is financed and business strategy are all likely to be different from the established corporate norms. A challenge is how to integrate pay policies for the different skill-sets within the (often listed) company and its governance framework.
A renewable energy start-up is likely to require third-party funding, if not initially then almost certainly when the technology or product is mature enough to be scaled-up to demonstrate its practical application outside the laboratory and/or to commercialise its successful development. Founders may not have taken a competitive level (or any) remuneration during the initial stages of the business.
The time at which the deal is struck with investors is also the time to ensure that the company’s remuneration policy is fit-for-purpose and suitable for the next phase of the company’s development, and that it recognises, if appropriate, any less than competitive levels of remuneration received by founders in reaching that point. In our experience, it can be hard for founders to negotiate remuneration policy with investors afterwards.
An essential point is the need to engage with investors, be clear about their objectives and timeframes and design remuneration policy which takes all that into account, whilst recognising that early-stage companies may have little spare cash to spend on pay.
MM&K advises extensively in the “mainstream” energy sector. We are also the leading independent adviser to alternative investment firms and their portfolio companies. Now, we include among our clients increasing numbers of renewable energy firms, including start-ups, more developed but still early-stage growth companies and global players, which have developed corporate venturing divisions to expand into renewables.
To learn more about our work with renewable energy businesses, please contact Paul Norris.