Ragmar Saksing: Special treatment vs business treatment of greentech start-ups. What’s more sustainable?

Do green technology start-ups need special treatment or business treatment? If we want them to be strong and sustainable, they should not be treated differently from others, writes Ragmar Saksing, head of green technology at Tehnopol Science and Business Park.

Estonia can showcase green technology start-ups that have been very successful in their field and good examples for others, but there could undoubtedly be more of them.

In order to create long-term value for Estonia and, in fact, for the rest of the world, it is necessary to think about how to create and support an environment where green technology start-ups could grow strongly in a sustainable way. Should we direct even more support in this area, rely on the sense of mission of entrepreneurs, or offer them something else?

Working with green companies every day, I can clearly see that many have an inner driving force to start with – the desire to do things differently, to change the world, to ensure a quality living environment for future generations. Small and irregular money situations though create learned helplessness and reduce internal strength.

Green technology start-ups need to be provided with support and knowledge on how to run and develop their business, regardless of grants or bona fide philanthropists. If we want start-ups in this area to be strong and sustainable, they should not be treated differently.

Outdated business models have no future

Experience shows that green technology companies built on subsidies close down before they can benefit society and the environment. There is really no need for special treatment, because companies with outdated business models and companies that burden the environment simply have no future. Nor do systems with too much or a single emphasis on the environment have a future, nor do businesses that focus only on profit and improving the environment, but where the social side is left behind.

For example, if a company is very successful economically and also in terms of the environment, but employs local labour as cheaply as possible and does not give anything back to the community, then it is not sustainable. A truly sustainable and circular economy-based business, from an environmental, economic, and social point of view, should be normal and basic, regardless of whether it is playing a business game in a green, red, or yellow shirt.

In any team, it is crucial to find customers and a way to move forward. Clear performance indicators must be used for all growth companies, such as revenue growth, revenue per customer, profit margin, customer retention rate, customer satisfaction, monthly recurring revenue.

Also indicators of impact on the environment and society, such as increase of biodiversity, decrease of carbon dioxide concentration in the atmosphere, saving of resources, increase of human well-being, impact on decent work, and economic growth. Growth is important because otherwise it is not a growth company. It is crucial to talk about a great vision, a goal, values and what happens when our company dominates the market. The operational goals for the next three months and knowing how to implement them must also be in place.

Special treatment vs business treatment

With some special treatment, green technology companies have turned into grant hunters. These are companies that only operate when grants are available. Instead of creating a sales network, finding paying customers, entering foreign markets, and growing a business, they start looking for the next one at the end of one grant. Green companies do not need small injections of money and grants, but long-term and strategic investments. After all, every grant could actually have a built-in business dimension and a commitment to success. Instead of just product development, develop sales, the market, and the team.

To prove the point, look at what goals companies set publicly when they have raised a more serious amount of money from investors. Most companies promise to spend on developing a product or service, building a team, promoting sales, and expanding into new markets. Why do we avoid such goals in grant funding?

One of the best funding schemes could be a mix of grants and private investment. Private investors set real business growth goals for the company. This can be amplified with public money.

Hardware with software

Most greentech companies are more sophisticated than the unicorns we know. It is much easier to escalate virtual solutions such as Bolt, ID.me, Pipedrive, Zego, or Wise. It is much more difficult to escalate hardware solutions such as Starship, Skeleton, Milrem Robotics, or Comodule.

Hardware start-ups are also developing software and need several times more investment. In the initial phase, waste products with an investment of 10, 30, or even 50,000 euros are unlikely to reach the market. This is important as a prototyping investment, but such an investment will not have an impact on the market.

Hardware-related green technology companies need different support and funding schemes. Many angel investors today are avoiding investing in hardware. This is because there is not enough money or the payback period is considered too long. Hardware-related companies need money from funds and private investors who are able to provide follow-on financing and help the company focus on business. In order for the company to find customers’ money as soon as possible.

Green companies need experienced funds who also know what the national targets are for the coming years. With such knowledge, private capital can be leveraged with the help of public capital, and companies will succeed.

The opinion article was published in Estonian in Äripäev on October 19, 2021.

Investing in green technology and the associated obstacles will also be discussed at the largest greentech conference in the Baltics, GreenEST Summit, which will take place on 27-28 October in Tallinn at Kultuurikatel.