Almost every founder has the same concerns. It’s about how you can ensure your startup has enough funding to deliver on its promise.
For most people, that means wooing venture capitalists early and often and trading company stock and board seats for cash to keep the lights on. For Teague Egan, that also means courting private investors.
Mr. Egan’s company, Energy According to PitchBook, EnergyX has raised more than $90 million in operating capital from traditional investors including GM Ventures, Posco, and Eni Next. But Egan said the company has also raised more than $80 million from private investors, including a $75 million offering that closed today.
The service “democratizes investing,” Egan told TechCrunch. Additionally, he added, “It takes some of the power away from traditional VCs who are always trying to beat you on terms.”
EnergyX’s offer took advantage of SEC Regulation A, which allows companies to raise up to $75 million from retail investors every 12 months. In exchange for access to non-accredited investors, companies are subject to light SEC oversight, such as filing semi-annual reports. The company remains private and the Regulation A offering is not an IPO. This means that investors cannot sell their shares on an exchange.
Regulation A has been praised for giving non-accredited investors, or those with a net worth of less than $1 million, the opportunity to invest in private companies before they go public. Therefore, if a promising startup goes public, it has the potential to make a large profit.
However, Regulation A has also been criticized for allowing small investors to bet on risky companies. For example, Aptera, a solar-powered EV startup, recently raised more than $120 million by selling stock through crowdfunding sites. But after nearly 15 years of promising to ship vehicles, the company has yet to deliver a single one to a customer.
For Aptera, crowdfunding became a lifeline when they were unable to secure traditional venture funding. In addition to its Regulation A services, EnergyX has also secured recent venture funding.
The company used the funding to develop a unique approach to direct lithium extraction (DLE), which extracts lithium from water. While many startups, including Lilac Solutions and Aepnus, are pursuing unique DLE flavors, EnergyX takes a hybrid approach, treating brine through different processes depending on the water’s origin. “These brines are all very different, and there is no one-size-fits-all technology,” Egan said.
Egan said he considered going public through a special purpose acquisition company (SPAC) at the height of the boom, but ultimately decided against it. “We need to achieve significantly positive EBITDA before going public,” he said. Instead, EnergyX struck a deal with investor Global Emerging Markets to provide $450 million in the form of a PIPE. In the case of an IPO, the company will receive warrants from EnergyX along with fees. You can also get the stock at a discount if the startup uses it.
Still, an EnergyX IPO, if it ever happens, is likely to be several years away. “We intend to do at least one more large institutional round, a Series C,” Egan said. “If that gives us enough capital to carry out the first commercial projects that start generating revenue, we can raise more capital and provide liquidity for early investors. It will be a discussion with the board whether we feel we need to go public. Or maybe we’re just hammering it hard so we can start paying dividends. Or maybe we’ll start getting takeover offers from major oil and gas companies.”
Crowdfunding and PIPEs raised through crowdfunding platform DealMaker aren’t the only hedges Egan has built into the company. EnergyX aims to sell its DLE equipment to lithium mining companies such as Posco and ExxonMobil. But Egan said, “The sales cycle is very long because it requires final investment decisions in the billions, if not billions, of dollars.” For this reason, the company also plans to mine lithium from the ground itself and sell it directly to customers. “To control our own destiny, we needed to do it ourselves and acquire the resources.”
Currently, EnergyX has a lease agreement to explore 90,000 acres in Chile, and Egan said it has filed a letter of intent to lease 15,000 acres in Texas. Mr Egan said demonstration plants capable of producing 50 tonnes of lithium per year would be operational at both sites in the first half of next year. Egan hopes the first commercial-scale plant will be operational by 2027.
The Regulation A offering will keep EnergyX open for at least two more years, Egan said. And issuing common stock would allow Mr. Egan to control his own destiny a little longer, since it would take some of the fundraising pressure off venture capitalists, who tend to demand preferred stock in exchange for their investments. He owns 47% of the company’s stock on a fully diluted basis, according to the company’s semiannual report filed in September.
“There’s a huge percentage of startups whose founding CEOs are fired because of venture capitalists,” Egan said. “That’s not where I want to be.”
