The Challenge of FOAK Financing
I stared at the big screen in the conference room, watching the decision on financing my FOAK lithium-ion cell plant being postponed for at least another two months. Rosatom’s Investment Committee had just ruled that before approving the $200M investment for our first gigafactory, we needed to secure approval from their Science Committee. The Investment Committee members remained unconvinced about the technological risks of the project—particularly our choice of chemistry.
It was summer, and with the August lull and everyone on holiday, it would be September before I could get the Science Committee together. If I was lucky.
FOAK (First-of-a-Kind) financing is a minefield. These projects come with a laundry list of risks: technological, engineering, execution, commercial, safety—you name it. They represent a perfect storm: unproven technology and markets combined with the need for major upfront investments in steel and cement.
To complicate matters, the investor pool is diverse, including VCs, PEs, impact funds, government agencies, family offices, and strategic investors—all with their own risk appetites and vocabularies. It’s no surprise that few startups successfully secure financing for their FOAK projects.
Aim Beyond Investor Expectations
In martial arts like boxing or karate, you’re taught to aim your punches beyond the surface of the bag to deliver a powerful, knockout strike. This philosophy applies when preparing for conversations with FOAK investors. Aim beyond their expectations. Aim for the bank.
Banks are the most risk-averse financiers. Securing a bank loan for your FOAK project is a badge of honor, signifying that you’ve evolved from a startup to an established business. While bank loans for FOAK projects are rare, they’re not impossible.
I once worked on a project that raised $1B in debt for a FOAK plant. Even then, we had to address every question about risk. Whether or not you plan to seek a loan, preparing as if you are can be a valuable exercise.
Engage Investors to Build a Risk Profile
To identify the risks relevant to your FOAK project, the best approach is to engage with potential investors. Arrange meetings to pitch your project with the sole aim of eliciting as many objections and questions as possible.
Be upfront about not providing immediate answers—this isn’t the time for debate. Record every objection and question, then head back to the drawing board.
Prioritize the Most Critical Risks
The resulting list of risks may feel overwhelming. Your job isn’t to address them all but to focus on the most critical ones for each investor. The Pareto principle applies: addressing the key 20% of risks often resolves the other 80% by default.
Pay attention to the person who remains quiet throughout the discussion, only to ask one piercing question at the end—they often reveal the true priorities.
Four Common FOAK Risks
From my experience and that of startups I’ve worked with, four risks frequently emerge as critical:
Technology risk. Your technology works in the lab, but will it become obsolete before your FOAK plant is operational?
Competition risk (a.k.a. “China risk”). How likely are competitors to replicate and scale your technology before you can secure your market?
Commercial risk. Is there a demand for your product? If so, will customers accept the price from your FOAK plant?
Execution risk. Can you complete your FOAK plant on time and within budget? What degree of error can your project tolerate before facing bankruptcy?
Each FOAK project comes with its unique risks. The four examples above represent the challenges I and other founders have repeatedly encountered.
How to Address Risks: A Case Study
Back to Moscow. After the committee’s directive to seek Science Committee approval, I got to work. My chief R&D officer and I prepared a 40-page PowerPoint presentation detailing various battery chemistries, comparing their properties, and assessing their technological and manufacturing readiness. We delivered this presentation via Zoom (COVID was still raging). After the R&D presentation, we spent the next hour and a half addressing… business and commercial risks. By the end, I had secured the Science Committee’s approval and gained unexpected training in handling questions about competition and commercial risks.
De-risking FOAK projects is an exercise in thoroughness and adaptability. It’s about understanding that each investor, from VCs to banks, has unique concerns. Your job is to anticipate these concerns and come prepared with solutions.
FOAK projects may represent the “valley of death” for startups, but with the right approach, it’s possible to emerge on the other side—stronger, smarter, and funded.
Let’s Talk
If you’re navigating the complex terrain of FOAK financing or scaling your climate tech solution, I’d love to hear from you! Share your challenges, and let’s explore how to build and scale together!