Green tech companies must overcome financing difficulties

• New Roland Berger book shows that green technologies are becoming more and more important for various applications
• Sales of German green tech companies will grow annually by approx. 20% up through 2013
• However, financing innovative technologies is proving to be difficult around the world
• Government aid and good relationships with local banks can help solve financing problems and ensure growth

Whether for e-vehicles, renewable energy or energy-efficient buildings, green technologies are becoming more and more important. In Germany alone, experts assume annual market growth of almost 20% up through 2013. However, green tech companies must tackle the key question of how they can finance their new projects. Young and innovative companies in particular have considerable difficulty in raising the necessary funds. There are two reasons for this: first, only a few companies draw upon existing government aid programs and, second, banks and investors are often hesitant to extend funds, especially to innovative companies. In his book entitled "Green tech Innovation and Diffusion", Philipp Hoff from Roland Berger Strategy Consultants explains how green tech companies can overcome financing problems.

Rapid growth of the green tech market

The market for green technologies continues to see significant growth around the world. "Targeted reduction in carbon emissions is forcing all countries to look at environmentally friendly technologies for various applications – from renewable energies and e-mobility to energy-efficient buildings," says book author Philipp Hoff from Roland Berger Strategy Consultants. To do so, many countries have set up programs designed to push green tech.

Green tech companies are enjoying major growth in Germany too. Experts expect sales in this industry to rise by almost 20% each year up through 2013. New developments and technologies in particular are driving the demand for green technologies.

Tough financing is slowing innovation

However, this positive development is being overshadowed by an important phenomenon: green tech companies – especially innovative start-ups – are having major difficulties financing their projects. For instance, about one-fourth of the German companies surveyed stated that key investments were not made due to lack of capital.

"It's critical that green tech companies have access to new capital," says Torsten Henzelmann, Partner at Roland Berger Strategy Consultants. "This is the only way they can launch new technologies on the market and continue to grow."

"Young businesses have the biggest financing problems when it comes to finally marketing a fully developed innovation," says Hoff. "This is because nascent companies still don't have a success story to win the trust of banks and investors. It's very tough for them to get good financing terms," according to Hoff.

Use government programs and establish a good relationship to banks

To overcome this credit crunch and ensure growth, green tech businesses need sound financing strategies – especially if they want to take advantage of government aid. Young companies often overlook this source, even though these programs are very diverse: in total, there are over 100 programs on the EU, national and state levels that focus on green tech or the environment. It seems that companies underestimate their chances of success in applying for aid and are not adequately informed about existing programs and financing options.

Green tech companies also need to have a good relationship with their banks in order to build trust in their technologies. By doing so, young businesses can overcome the issue of not yet having a proven success story. Furthermore, companies need to be able to position themselves correctly if they want to attract investors. This is because proving their innovative capabilities should not the main priority of green tech companies. "Businesses often want to convince lenders that they are especially creative. However, this is the wrong approach," explains Hoff. "Banks are traditionally more conservative and more inclined to finance solid and secure projects." Green tech companies need to rethink their positioning among investors in order to receive the necessary funding to grow their businesses.