In the journey of almost every startup, there comes a time when the realization sets in that the product, the value proposition, the channel to market, or the business model is not working. Then it’s time for “The Pivot”–basically rethinking what one is trying to do and reformulating the entire business. Learning to pivot is critical to a startup’s success. 

Chris Peacock, founder of AQUAOSO, has decades of experience in water and water risk. 

Aquaoso monitors water risk

Based on listening to early feedback, Chris pivoted AQUAOSO to create a water risk analysis system, like a FICO score but for water. This is important to lenders and investing because the risk from climate change includes financial risk from extreme weather events like flooding and drought. For these extreme events, the availability or quality of water is a leading risk indicator. He could offer this as a SaaS solution and collect user fees. He has created a trademarked Water Security Score that is becoming well-recognized in the industry, as well as related water databases.

Now AQUAOSO is more of a Fintech company rather than a water-savings broker. Being able to address water risk provides value to lenders to agricultural enterprises and Chris quickly got a dozen very satisfied customers.

1. Agriculture businesses can see how the risk can affect their business, helping them make better decisions.
2. Financial institutions can use the information to mitigate risk and improve borrower relationships.
3. Insurance companies can better understand the water risk their products carry and can take action to reduce it. 
4. Investors can better understand risk and decide to responsibly increase shareholder returns.

AQUAOSO has recently raised significant funding and is beginning to grow to a meaningful scale. Their pivot was crucial to getting traction with customers and investors. Here is a testimonial from one of their customers: 

“Using AQUAOSO has helped me cut down on research time and has provided me more water information than ever before! It is now the first step in my loan underwriting process and it has allowed me to devote more time toward expanding our loan portfolio.”

The AQUAOSO website is a great example of how to present valuable information to clients and educate them on the value of the product. It is worth a look.

In the evening of June 3, we had the chance to sit down with Michelle, one of the busiest lawyers in town dealing with tech startups, and get her update on issues about which cleantech startups should be aware. She did a really good job. In case you missed it, you can view the entire session on our YouTube channel. Here are some highlights:

• There is a lot of investment interest right now and it is pushing valuations higher.  In one particular case, a valuation was likely 35-40% higher than it would have been a year ago.
• The pace of mergers and acquisitions during the pandemic didn’t really slow down and now it is increasing.
• The biggest mistake small companies are making is still in the allocation of equity to early employees.  Care should be taken in choosing the right amount of equity (founders often are too generous and unaware of the consequences that will come up later), giving it out all at once (rather than letting it vest over time, often three years) to give a chance to see whether the individual really deserves it, and assuming that shares can substitute for a cash payment.  Under California law, there is a minimum that an employee must be paid and that minimum cannot be waived by the employee.
• Special Purpose Acquisition Company (SPAC) transactions are getting a lot of attention now, but they are not really appropriate for early-stage companies.  They are for companies with substantial revenue either profitable now or close to being profitable.  They result in becoming a public company and accordingly will create a cost of $1-3 million per year in meeting reporting and audit requirements.
• Crowdfunding is enjoying a resurgence as the SEC loosens its restrictions, but it is still a perilous path to follow.  Companies can inadvertently become public companies by acquiring too many shareholders, for example.  And small investors that are not accredited (meaning they have the money to spare) can be very litigious if things go poorly for a company.  There are some structures which may mitigate some of these risks, but will not eliminate them.
• Convertible notes remain an attractive structure for initial investments, but there should be some kind of deadline when the notes convert if a subsequent financing does not occur which would trigger the conversion. The SAFE contracts have been popular, but the original SAFE language did not have the safeguard on conversion.  As a consequence the note holder could be locked-into a company for an indefinite period.

Michelle also stressed the importance of getting a periodic “health check” from your legal team just to be sure nothing is lurking in the shadows that will cause problems in a transaction, in a fundraising, or in operating your business. She can be contacted at hallstenm@gtlaw.com. 

Presenting at our May 26 MeetUp were two companies in our community that have had some recent success in fundraising and lining up customers. Kevin Wolf of WindHarvest and Janice Tran of Kanin Energy gave us insights into how they managed these important steps in the last few months.

 WindHarvest came up with a new design for a ground-mounted vertical axis wind turbine that can fit in between existing tower-mounted horizontal-axis machines and improve the capacity factor of the installation. Kevin said that he is avoiding adding to the output because that would require new contracts which are nearly impossible to get. Instead, the WindHarvest turbines can operate in the poorer near-ground wind regime that currently is untapped. This market insight has been a key to their success. Second, he was at the right place and at the right time to raise money through crowdfunding, taking advantage of some relaxed restrictions at the SEC that were ultimately adopted into revised rules. They initially were hoping to raise about $800K, but with the new rules they have ended that round and will be trying to go for a full $5 million as now allowed. In addition, they have structured the raise so that investors are putting money into a separate special purpose company that invests in and buys equipment and services from WindHarvest itself. That means WindHarvest gains only one shareholder, while the 1400+ new shareholders from the original crowdraising deal and the 4000+ more they expect only with the special purpose company. What they invested in was a loan with warrants for shares in WindHarvest. Interest is paid on the loan from the proceeds of power sales. He expects the first turbine will be operating in July.