How to Avoid the “Valley of Death” in Sustainable Tech Startups

Speaker A: Hello everyone and welcome to the Sustainable Finance Podcast. My name is Paul Ellis and I'm your host for these programs about developments in this fast growing industry. The Valley of Death has become a popular term to describe a challenging period for sustainability focused startups. Bridging this valley of death and commercialization of sustainable technologies is a key role today's guest believes her company can play for their clients. Cindy Jha is head of Sustainable Solutions Group at ING Capital. Her goal for the ING team includes accelerating adoption of sustainable technology and facilitating an easy transition between the different capital pools that are available. Today. We're going to discuss the challenges and enablers in achieving these goals and how ING has progressed. Hello Cindy and welcome to the Sustainable Finance Podcast.

Speaker B: Hi. And I'm glad to be on here.

Speaker A: Great. We're going to jump right into the questions. We've got a lot of ground to cover today and so first I'd like to have you tell our followers about the Valley of Death and why it's so hard to overcome.

Speaker B: Sure, happy to jump right into it. I think having worked at a startup myself, I experienced the Valley of death firsthand. It is really a period where a startup has had sufficient capital from founders, from government funding to build some sort of demonstration of the product, but at the same time it's not yet profitable. It hasn't generated revenue for its products and it's seeking to scale up the technology to a stage where it can start generating revenue. And it's a tricky stage to navigate because if you think of the amount of capital that's uh, required to take it to this scale up stage, the risk reward profile at such a stage, there isn't that many types of capital that are interested to take on the additional risk of scale up when you don't have any sort of revenue generation going on, but at the same time put in significant amount of capex that might be needed to get the technology to a stage where it is ready to, to start generating revenues.

Speaker A: Okay, and that's apparently a circumstance that a lot of startups run into right during their early life. How do you see ING fitting into the picture at that point? And why do you think it's so uniquely positioned to help these companies bridge the valley of Death?

Speaker B: I think there are two folds for why we are the best position in this particular space to do something about the challenge. First of all is our focus on sustainability. Um, it's one of our core differentiators. We pride ourselves on being pioneers in sustainability as an institution. Um, we have devoted significant amounts of Capital to help our clients see the benefits of sustainability and also help them realize their own sustainability ambitions. And so from that perspective, our focus on sustainability is one that allows my team and the greater ING to really rally around our clients and expand into new areas of sustainable technologies and see how we can assist this particular expanding sector. On the other hand, I think ING is very unique in that we have a very broad product offering that can be valuable to sustainable technology, uh, startups that are trying to scale and overcome this valley of death. So like many other financial institutions, our core products uh, are in the lending business, right? So we have depositors, um, from the broad ING banking base that put their capital with us to deploy and so we deploy it. And the most significant fashion of deployment is through lending products. So we can lend large capex. And we are in fact one of the largest project finance lenders globally to a number of uh, energy transition projects. So lending is one part of it, but not the only part. We also have what is called a sustainable investments platform that, that present earlier stage capital. So that includes potentially equity investments as well as junior mezzanine debt for emerging technology developers. And at the same time we also have an advisory platform um, that can help founders and startups source capital from alternative capital providers aside from financial institutions like ourselves. And they can raise capital from institutional investors, um, private, uh, equity, private credit investors who have different types of risk appetite than we do. So putting all of these together, what we can offer to our clients is a very broad product offering that covers all of these different types of capital available to help them scale.

Speaker A: So it sounds like you have three very fleshed out and operating platforms that you can support these startup companies from. Can you give us a couple of examples of where ING has already made a difference? Uh, no names but circumstances, uh, if you can.

Speaker B: No, happy to even share specific examples uh, of how we've been able to tap into our own platform and help companies scale their technologies. I think some of the ones that you guys might have seen in the news is the um, H2 Green Steel project. Now the company's been renamed to Stegra. It's one of the largest green steel projects in Sweden. Sweden, multi billion dollar project that is aiming to produce about 5 million tons per annum of green steel per year by the time it becomes operational near 2030. And this project was significant on many levels. It's one of the largest green steel projects integrating new technologies uh, in the space rather than the more traditional blast furnace technology that's being deployed uh, in steel manufacturing. This Project uses green hydrogen through uh, an electrolysis process that is integrated with direct reduction of iron for very low carbon production of steel. Um, some other examples that are closer to our home base here in the Americas were um, iset, um, is a renewable natural gas project based not too from New York City in Linden, New Jersey. Um, we financed that project uh, I believe at the end, near the end of 2023. It's expected to come online by the end of year. And that particular project, it was the first project finance um that was done for such a large scale renewable natural gas project. It is expected to convert food waste, um, such as restaurant grease into pipeline quality natural gas, um, based from uh, renewable sources. So the expected capacity of this facility is about um, 1500 tons of food waste per day to be converted into uh, approximately 30,000 uh, equivalent amount gallons of um, gasoline per day. So we're really making an impact here in terms of carbon reduction um, for the region and waste management for the region as well. Alongside these kind of project finance activities, we also been engaged uh, in advisory and uh, lending activities related to um, plastic recycling. So we helped companies like Dow and Leyendell, which are major petrochemical producers who are looking to decarbonize their operations through the production of new plastics from waste plastic so recycling advanced recycling processes. Uh, we helped Dow raise it at 1.25 billion green bond last year to facilitate their net zero cracker in Alberta, Canada. Um, the project involves a number of new technologies such as carbon capture and circular hydrogen produced using off gas from uh, their ethylene cracker. So there are many different ways that we're helping clients realize um, their sustainability ambitions and looking at how we can utilize different parts of the capital stack, whether it be our own balance sheet, whether it would be co investing together with our clients in energy transition technologies or looking at the broader capital markets, connecting them to investors, um, equity investors or debt investors across the board.

Speaker A: You know, I think what the work that you're doing in this area is so critical to all of these sectors of the economy. I want to mention especially the food waste project because what I understand from previous guests on the podcast is that up to 30% of all of the food that we produce, uh, all of the products that we produce for food, up to 30% of that ends up going to waste. Uh, so if you're able to take that much out of the process, uh, and use it for fuels, for other things, that's a terrific idea and it's a very flexible way to approach the whole Idea of agricultural waste as well.

Speaker B: Certainly I think that's one of our key areas of focus. Right. Looking at how we can do more with less, whether it will be um, circular types of systems related to food waste or industrial waste, uh, plastic waste, these are all kinds of alternative resources that we can use to produce value added products that we need on a daily basis.

Speaker A: Okay. Now where else do you think this sustainable, These types of sustainable technology solutions are especially needed at this time.

Speaker B: I think energy efficiency is another one. It's also in line with our mantra of trying to do more with less. Given that we have such a large growing part of the economy that's very much reliant on the energy. Whether um, it's electrification of industrial processes or uh, onslaught of EVs, the onboarding of EVs and the growing data center space. Right. All of these are reliant on um, increased energy production. And so how can we innovate so that energy is consumed more efficiently? If you look at um, the types of resources that are available today, I think there are many different processes that we can install to potentially increase our efficiency of energy production and energy consumption. So looking at installation of energy, um, storage systems that allow us to better match the energy consumption timelines with the energy production timelines, ways that we can improve boiler H vac systems, heating systems, cooling systems, so that for the same amount of energy that is consumed, we get more out of it. These are all types of technologies that we should be investing in so that the grid, uh, the expansion of the grid can keep pace with the growth in energy demand.

Speaker A: You know, uh, if you could just say a little bit about why ing, as an international banking system is so devoted to sustainability, whereas there are a lot of firms in the industry that are backing away from their commitments. Tell me more, a little bit more about that if you can.

Speaker B: I think the underlying thesis for us is that sustainable companies are better credits. They're um, better able to manage their risk. They are staying ahead of the curve when it comes to managing future opportunities and managing uh, many of the risks that are coming and looming closer today. Right. Looking at the various natural disasters and extreme climate events that we've seen over the past year, companies that are very proactive in their sustainability strategies are likely better positioned to manage these kind of extreme events, uh, and climate risk. And so for us, by staying ahead on sustainability and continuing to pioneer in this space, I think we stay closer to our clients who are very forward thinking on our front and we can open up new opportunities for ourselves as well, in terms of our advisory and lending capabilities.

Speaker A: Great. Well, we want to support your work and help you um, do that, expanding your role in the, in the field as much as we possibly can. Now, given the recent and anticipated changes in climate related regulation at the U.S. federal and state levels, what impacts do you think these will have on your team and your work at ing? M?

Speaker B: That's a very good question and a very timely one. Um, there's been a flux of changes recently in the US Regulatory and policy environment and, and for many, I think they see this as detracting perhaps from the rate of progress that we've been making. We take a slightly different view in that I think in many respects it takes away some of the froth that we've had in the sustainability space over the past few years where there were perhaps a number of companies rushing, uh, to claim the sustainability, uh, title without really putting more thought into what makes them sustainable in the first place. And to us, I think sustainability is not just solely focused on climate. I think it has a much broader meaning. Right. We take it at layman's terms. Sustainability means the ability to continue the pace of growth and pace of success. And for us that comes down also to the economics of innovations. I think for companies that are looking to implement sustainable practices and sustainable technologies, they need to look at how that impacts potentially their bottom line and ensure that these kind of strategies and initiatives can be successful with or without government support. And so for us this really is a time to step back, reset a little bit and take a look at what types of technologies are the most needed at the present. What types of solutions have that long term commercial potential without continual government support, and what types of solutions can add value and be accretive, uh, to the bottom line.

Speaker A: Great. Well listen, I think you and your team at ING are way ahead of the curve, uh, in terms of the industry outlook on these issues. And what I'd like to ask you now is to tell our followers where online our followers for the Sustainable Finance podcast can find out more about the Sustainable Solutions Group for the Americas at ing and how can they get in touch with you with questions about the topics that we've discussed in today's episode?

Speaker B: Sure. Happy um, to share. So we have our ING's official website, um, at www.ingwb.com for wholesale bank operations. We also have a great research platform called ing. Think that you can um, see many of our thought leadership pieces on the topic of sustainability. And for myself, um, having if you can reach out to me on LinkedIn to start a conversation on how potentially we can help you or your company advance in the sustainability space.

Speaker A: Great. Well, Cindy, if you could send us the link, or actually, we can look it up for ing. Think. I visited the site before we recorded the program, and there's so much great information there. We would definitely want to pass that link on to our followers, if that's okay with you. So thanks again very much, Cindy Jha, head of, uh, Sustainable Finance Americas at ing. And for followers of the Sustainable Finance Podcast, you can join me again next week for another episode. I'm Paul Ellis, and this is the Sustainable Finance Podcast.