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Fuel Cell Industry Faces a Precipice

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Of the 63 companies that could have a commercial fuel cell product by the end of 2015, 80% are small or medium-sized companies that need some form of private equity.

The fuel cell industry is sitting on a precipice.  For our October 16 webinar, “The Fuel Cell Industry in 2012,” we constructed two scenarios for the future of the sector.  In one scenario, shipment levels do not reach a sustainable level within the next 5 years and the industry grinds to a halt.  In another, more positive scenario, the industry reaches takeoff velocity in the next 2 years, with volumes ramping up and prices falling.  Which is more likely? Right now, I believe that unless the fuel cell community re-engages the VC community and starts to act in a more cohesive fashion, it’s facing scenario No. 1: The End.

What does the VC community need to come back into the market?

Realistic business plans. It’s not rocket science, but companies must offer a genuine assessment of the addressable market for their technology and the potential pitfalls along the way.  What investors don’t need is attempts to disparage other companies developing similar products, or exercises in wishful, over-optimistic thinking.  Be clear about what you are selling and to whom.

A solid management team. Engineers are great at engineering.  Analysts are great at analysis.  And CEOs are great at being CEOs.  But it’s rare in a startup that people can move between these positions and really succeed.  In a fledgling industry, when the next 12 months are critical, you need people who are good at their specific jobs and can leverage their skill sets to the maximum.

A clear understanding of the level of investment needed to take the company into commercialization.  Realism has been sorely lacking in the fuel cell industry, and often, when a company says that it needs $1, it actually needs $10.

If the industry can get these building blocks in place, VC firms are likely to respond.  A recent conference in London, “Investing in Fuel Cells, the Resurgence” was such a success that the word on the street is that it is to become an annual event.  Nearly 10% of the registered attendees for our fuel cell webinar came from the financial industry.  At the upcoming Fuel Cell Seminar there is a special additional half-day workshop, “Investing in Hydrogen and Fuel Cells.”  Spot a trend?

Finally, the industry must become more cohesive.  This is not a call for more trade associations –we have plenty of those already.  What’s needed is a common understanding of costs, solutions, case studies, examples, and how the technology fits with other technologies.  Companies must work together, and stop focusing on negative campaigning, and highlight that fuel cells represent a technology on a spectrum of solutions.  Not the best for every application, but plenty good for many of them.

It really is do or die time in the industry.  It is up to the industry itself to decide which scenario becomes reality.