Discovering FOAK: Your Essential Guide
5min FOAK Fundamentals, enough to be dangerous 💥
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What is a FOAK anyways?
It’s a First-of-a-Kind plant, facility or factory 🏭
Who came up with that term?
It comes from engineering economics, which states that the first item or generation of items using a new technology (FOAK) costs significantly more than later items or generations (NOAK, an acronym for "nth of a kind").
Why is it such a big deal in Climate Tech?
Climate impact is primarily driven by hardware companies. Doubts? Read this.
Pretty much every Climate Tech hardware startup will go through the following steps, from Prototype to FOAK:
Examples of FOAKs?
Who finances FOAK plants today?
That’s the thing. There is a significant valley-of-death. There’s decent amount of dry powder from VCs for Early-stage startups to go from TRL 3 to 7.
But there’s a real shortage of financing to build FOAK facilities capable of producing enough to demonstrate processes and unit economics before Private Equity and Infrastructure funds come into play at TRL 9.
Why is it so hard?
Because manufacturing is excruciatingly hard and cost a TON of money.
So who is going to solve this gap?
The 'valley of death' for FOAK projects also involves operational gaps. Technical expertise is needed beyond what traditional capital providers offer.
We need specialized Growth capital that fills this gap. Governments, Institutional LPs and Fund of Funds should take notice and realize that:
👀FOAK projects are unavoidable in Climate Tech for new innovation to reach global scale.
🌟 The risk profile for FOAK projects is significantly lower. TRL 7-8 generally indicate that you are three feet from gold
🤑 The ROI for FOAK projects is potentially enormous, with a payback period of 1-3 years compared to 7-10 years in early-stage VC
Until then, what solutions exist to fill this funding gap?
Leverage non dilutive capital with Grants and Debt.
Make your customers pay for future goods.
Strike a strategic alliance or production partnership with production experts (incumbents, corporates, suppliers).
Get customers or production partners on your cap table, so they share the upside and can be the first to benefit from your products.
Conclusion
Building a FOAK plant is REALLY challenging. However, companies that successfully complete the FOAK stage see a significant bump in their valuation.
They demonstrate that the technology is ready for scale and can rapidly gain market share thereafter.
Investing in FOAK stage companies can lead to amazing venture returns, despite the inherent risks involved.
📣📞 This is a call for Growth Equity, Infrastructure Funds, CVCs, or Government Organizations looking to generate substantial returns and contribute to a meaningful impact during this transition.
And if you’re looking to raise a fund. Series A is crowded, FOAK is your window of opportunity 🚀
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