Fundraising for early-stage companies is never straightforward, says James Thomas, partner at HMT Corporate Finance – plan early
What’s the deal?
The €5m (£4.3m) series A investment in advanced materials company HT Materials Science (HTMS) completed in August 2021. It was led by Saudi Aramco Energy Ventures, the corporate venturing arm of Saudi Aramco, and Progress Tech Transfer, an original investor from HTMS’s seed funding round in 2020. The nanotech company engineers heat transfer fluids that, when added to heating and cooling systems, give instant energy savings of 25% or more, helping businesses drive down costs, increase system efficiency and, crucially, meet climate change and CO2 emissions targets. The global heat transfer market is worth an estimated €100bn and the ability to retrofit means the potential is enormous.
How were you introduced to the deal?
Ed Coleman, HTMS’s COO, introduced me to his fellow founders – CEO Tom Grizzetti and CTO Professor Arturo de Risi – ahead of the seed round. We sketched out a corporate finance strategy for the next two years, covering the technical feasibility phase, commercial validation and scale-up. We determined milestones and the types of investor we might target at each stage.
What were the timescales?
When we were first involved in 2020, we contacted potential strategic investors and corporate VCs, principally to raise awareness of the company and its technology. We were playing the long game, given the time needed to establish strategic fit and buy-in of operational teams at these large companies. Once we closed the seed round, we updated the investor deck and financials, and resumed conversations with potential future investors.
The company was still pre-revenue, but it had strong IP, a very good pipeline and was targeting a huge market opportunity. As soon as we had firm strategic interest for the series A, we planned to leverage with new potential investors. Saudi Aramco quickly understood the benefits and the opportunity, but needed a co-investor. In tandem, we’d been establishing interest from a PE fund, made introductions and a syndicate was formed. Just before Christmas 2020, we had the term sheet and early in 2021 due diligence began.
What were the challenges?
HTMS is Irish, but has a management team straddling France, Italy and the US, with operations in Lecce, Italy. Because of travel restrictions, due diligence comprised a group of specialists carrying out witness testing of the tech on livestreams in Italy, Germany, Saudi Arabia and the US – complicated, but in some ways more efficient.
One of the co-investors then ran into problems with approvals. Their investment committee wanted to proceed, but one LP with a veto did not want to proceed. We had to deal with the loss of a co-lead investor and keep the syndicate together. It cost us three months. The incumbent investor, PTT, ultimately increased its contribution. The process has also helped us identify a number of funders interested in a series B raise, which will likely be of the order of £20m-£25m.
Who were the other advisers?
Legal advisers to HTMS were from Arthur Cox solicitors in Dublin, and the funders used Vinson & Elkins in London. Independent specialists were used in Italy and Germany. In Texas, Aramco used HTR Inc for benchmarking.
Were there any lessons learned?
Our original discussions never contemplated a pandemic or an investor falling away late in the day, but we adapted and kept the deal on track. The key to success was the forward planning – thinking ahead to the next round, deciding who to speak to and how to engage them, and allowing enough time to do so.
The CV
James Thomas leads the specialist technology team at HMT Corporate Finance, having joined in 2018, from BDO, where he was M&A director in the cleantech and renewables team. Prior to that, he spent 14 years working for ICON Corporate Finance. He also worked for BT as a financial analyst, having started his career in corporate finance with Deloitte in 1997.
HMT is a member of the Corporate Finance Faculty.
Recent deals
- £4.7m series A investment in Piclo Energy in May 2021
- €4m (£3.4m) series A fundraising by CameraMatics in January 2021
- Fred Olsen Group’s sale of SeaRoc to Vela
About the article
This article originates from the Corporate Financier November 2021 edition. Access this magazine as well as our extensive archive brought to you by the ICAEW Corporate Finance Faculty.
