MOPO Success: UK Cleantech is Booming—So Why Do Start-ups Struggle to Scale Globally?
Traditional investors prioritize quick returns, but successfully transitioning to clean energy demands a different approach …
Wired Magazine published this article on MOPO. Read full article below:
MOPO’s headquarters, in a brick warehouse on the outskirts of Sheffield, feels like a tech startup jammed into an engineering business with a logistics company squatting in the loft.
The company works across seven African countries, selling electricity like a consumer good. Customers in sub-Saharan Africa tend to buy things in small amounts: Single-use sachets of detergent or water, or just enough petrol for one journey. The company takes the same approach to energy, operating solar charging stations where people can come to rent a paperback book-sized battery, paying in cash or mobile money. Hanging from the ceiling of the Sheffield office is a digital counter tallying up the number of times the batteries have been rented. It’s currently ticking towards 16 million.
By its founders’ admission, MOPO is a strange hybrid of a company. It runs on-the-ground rental businesses in challenging contexts, such as Sierra Leone, where nearly 60 percent of the population is below the poverty line. But it is also a software business, operating a platform that monitors every battery, charging station, and agent on its network. And it’s a battery company. Testing and product development happens in the UK, at a bank of desks in Sheffield, but its products are currently made in and shipped from Asia, far and away the global leaders in battery manufacturing. The company has an office in Asia, and the upper floor of its UK office is given over to figuring out how to source and move its hardware internationally. “We were breaking a lot of rules of investing,” Luke Burras, MOPO’s chief operating officer, says. “Hardware, Africa: Not traditionally very investable because both are hard to de-risk but we have managed to do so—the potential is now huge.”
“We were breaking a lot of rules of investing. Hardware, Africa: Not traditionally very investable because both are hard to de-risk but we have managed to do so—the potential is now huge.”
Luke Burras, chief operating officer of MOPO
But MOPO isn't all that atypical for its sector. By the nature of the business, cleantech companies often end up straddling geographies, building supply chains, working in hardware and software, and targeting nascent or unproven markets. But even where they can demonstrate a market need and prove their concept, many struggle to get access to the funds and support that they need to scale up. According to data from startup accelerator Tech Nation, the failure rate of UK energy tech startups is far higher than the average for all businesses, and just two in every ten make it from their early growth stages to scale-up.
Cleantech companies’ struggles often stem from a mismatch between investors’ expectations and the reality of building these hybrid businesses. The energy transition is a long-term, systemic shift that touches on almost every aspect of the economy. Companies working in the space typically span disciplines, from academic researchers to engineers to civil society; they are very exposed to changes in government policy; and they often have to spend years building and refining products before they can bring them to market. But institutional investors have come to expect the kinds of growth curves offered by software companies, which can scale or pivot rapidly.
“Traditional investment wants quick returns, and that is easy to do with digital things like AI,” says Alice Goodbrook, innovation lead at Innovate UK, a government agency that supports innovative British companies with grant funding and business support. “The energy sector has traditionally been seen as this dinosaur because it takes so long to change.”
“Traditional investment wants quick returns, and that is easy to do with digital things like AI. The energy sector has traditionally been seen as this dinosaur because it takes so long to change.”
Alice Goodbrook, Innovation lead at Innovate UK
Innovate UK has been trying to bridge this funding gap by offering grant funding to promising companies, giving them enough runway to get to market. Through its Energy Catalyst program, the agency supports companies—such as MOPO—that work on the transition to sustainable energy in Africa, Asia, and the Indo-Pacific region. Energy Catalyst is funded by the UK’s Foreign, Commonwealth and Development Office and the Department of Science, Innovation and Technology, and the business support is managed by the Carbon Trust.
There is a lot of potential for entrepreneurs to build high-growth businesses in the cleantech sector, Goodbrook says, but private sector investors are often hesitant to invest in pre-revenue companies, seeing it as very exposed to political and technological risks. Innovate UK’s role is to step in and use government money to bring businesses to market and de-risk them for private sector investors.
“We’re trying to create these first-of-a-kind demonstrators to prove that it can work, so the private sector will take over,” Goodbrook says.
A grant can be enough to get a company over the threshold where private investors will take a bet on them—but it’s an imperfect solution. Entrepreneurs sometimes find that there is a ceiling for grant funding and impact investment, and it can be hard to move on from that more patient money into the pure private sector.
“You’re in a tricky spot if you consider yourself an impact business, because all of a sudden, you need to go out to get other forms of investors,” says Vijay Bhopal, founder of UK-based cleantech company Inclusive Energy. “They may say they care about impact. But ultimately, it doesn’t mean that you can offer them a lesser financial opportunity. And I think that’s a really tough kind of pinch point that hits a lot of companies like us.”
“You’re in a tricky spot if you consider yourself an impact business, because all of a sudden, you need to go out to get other forms of investors. They may say they care about impact. But ultimately, it doesn’t mean that you can offer them a lesser financial opportunity.’’
-Vijay Bhopal, founder of Inclusive Energy
Bhopal started Inclusive Energy in 2018 to help entrepreneurs in Asia and Africa build off-grid clean energy businesses. Small, renewable energy systems are being rolled out across Asia and Africa, but they’re often not run particularly efficiently. Bhopal wanted to create tools to let companies and organizations that build these power systems monitor and manage their assets.
“The issue [in India] was that you’re trying to get energy services out for people, but the communications networks are bad. There’s no digitization in how energy is provided to people,” Bhopal says. “So how do we make tech that’s going to be robust enough for this very rural area, that’s going to support people with their energy services?
The business successfully applied for a grant from Energy Catalyst to build a prototype of its smart meters, which can be used by energy companies to gain insights into how a power or gas system is functioning, collect usage data, and identify leaks and faults. “From there, it’s been like a pretty horrible cycle of: Raise money, try and get to an inflection point, show traction, go back out there, do it again,” Bhopal says. “We’ve done that three times now. We’re five years down the track. A few million quid raised.”
Bhopal, like others in the UK’s cleantech sector, laments that the country lacks financing mechanisms for companies at this critical point in their growth. Some in the industry talk wistfully of the US approach to venture capital, where investors are happy to throw large amounts of money at “moonshots”—companies that are going to ascend rapidly and disrupt or dominate a market. But Bhopal says that isn’t necessarily right for the cleantech market.
“I think that going towards the American approach is not very useful for businesses that simply aren’t moonshots,” he says. “Anything that’s to do with development, or has development aims, is not a moonshot, so it doesn’t suit that type of investment environment.” Like others in the industry, Bhopal says he wishes the UK had a more developed venture debt market, which would allow companies to get access to more patient capital.
Against this background, how should cleantech founders navigate the challenge of scaling? For one, don’t be scared into taking money at any cost, says MOPO CEO Chris Longbottom. His company has turned down a lot of potential deals. The need to get money through the door and keep the lights on can lead entrepreneurs to dilute their equity in their business, lose control over its direction, or sign up for onerous terms that can lead to bad strategy.
And, he adds, many people make the mistake of seeing scaling as being a function of how much capital you can attract. The startup world is based around an “execution gap,” Longbottom explains, where founders have a vision, and then raise money to try to achieve it. But the reality for many successful cleantech businesses is that they have to do the hard yards first—in MOPO’s case that meant building out the logistics and doing the groundwork in Africa. The company began by recruiting small numbers of agents, testing the market, figuring out incentive structures and partnerships, and scaling progressively. The company’s MOPO50 rental battery business is now self-sustaining and generating decent money. It is rolling out larger MOPOMax batteries which it hopes will replace the ubiquitous small petrol generators used in homes and businesses across Sub-Saharan Africa—a multi-billion dollar business, if they get it right. At the entrance to their office, visitors are greeted by three motorbikes and a tuk-tuk, powered by MOPOMax’s. The company has just completed a fresh funding round to help expand the MOPOMax business, and found conversations with investors are much easier when you’ve already proved your ability to build products and get them to market: When you have something real to scale, that has had a tangible impact on customers and local communities, rather than making big promises on the back of theoretical future growth.
Innovate UK’s Goodbrook says that the scaling challenge in cleantech is always going to be there but she is hopeful that the situation will improve. Bringing innovation to market is hard, and “no matter how much we progress, there will never be enough money, there will never be enough support, and it’s always going to be a complicated environment to try and work in.” However, she says, in recent years there has been a shift in the market, as bigger companies and investors stop thinking about the risks of investing in cleantech, and start thinking about the risks of not doing so.
“The risk [of climate change] is too far away for people to get now. But no business will survive if it hasn't dealt with this issue,” Goodbrook says. “The way this investment needs to be seen is as one for a longer period, which takes into account the environment, and the tangible impact on customers, communities, and economies, both now and in the future.”