Understanding DevEngine and Development Capital
In the rapidly evolving landscape of climate infrastructure, DevEngine stands out as a key player providing development capital. Founded at the cusp of 2023 and 2024, DevEngine is dedicated to bridging the capital gap in early-stage projects, particularly within the energy transition sectors.
What is DevEngine?
DevEngine is a specialized financial entity that provides development capital to projects within the energy transition verticals, such as solar, batteries, EV charging, Virtual Power Plants (VPPs) and microgrids. Unlike traditional capital providers, DevEngine enters the project lifecycle at the pre-NTP (Notice to Proceed) stage, taking on greater development risk to advance projects to a stage where they can attract larger, later-stage infrastructure funding.
The Mechanics of Development Capital
Development capital is a unique form of financing tailored to early-stage projects, focusing on activities that prepare a project for construction. These activities include site identification, obtaining permits, and ensuring grid connection points. DevEngine’s approach involves a flexible three-year hold period, during which it partners closely with developers to navigate these initial stages and reduce risks associated with the projects.
The process typically follows stages:
1. Development: Identifying the site, obtaining permits, and ensuring grid interconnections.
2. Notice to Proceed (NTP): The project owner allows the contractor to proceed with construction.
3. Construction: Building the project, which requires substantial capital.
4. Commercial Operation Date (COD): The project begins operations, generates revenue, and eventually stabilizes/operates at full capacity.
DevEngine’s Distinctive Approach
What sets DevEngine apart is its operational approach to investments. The investment and operations teams are integrated, providing hands-on support to developers. DevEngine acquires assets as security and works closely with developers under a Development Services Agreement (DSA), ensuring financial alignment and a collective goal to reach NTP and subsequent project monetization.
Eligibility and Ideal Timing for Startups
DevEngine works with both technology-agnostic developers and technology providers, offering flexibility in structuring the capital. Startups should approach DevEngine when they have a clear path to project finance and understand how the capital will be catalytic in advancing their projects. Key factors for eligibility include:
• A credible and experienced team.
• A robust project portfolio with a clear plan and budget.
• Early-stage development progress, such as land identification and initial permits.
Working with Technology Companies
For technology companies, DevEngine offers a pathway to market without diluting equity. By creating joint ventures and development entities, DevEngine helps technology providers navigate the complexities of development and manage stakeholder relationships. This approach is particularly beneficial for companies that need to deploy technology in the real world as a route to market but are looking to keep development work off their balance sheets, where it can be dilutive to the corporate valuation.
The Pros and Cons of Development Capital
There is a strong case for pursuing development capital. It occupies a specific niche within the broader capital stack, and while it is more expensive than infrastructure capital, it is generally cheaper than venture capital.
Benefits of development capital include:
• Early-Stage Support: Provides essential funding during the risky early stages of project development.
• Operational Involvement: Hands-on support from an integrated investment and operations team.
• Flexibility: Can tailor capital deployment to suit specific project needs and industry dynamics.
• Bridge to Bankability: First project finance check can trigger interest from larger investors to explore the segment.
Drawbacks of development capital include:
• Expensive: Development capital looks for a higher rate of return to compensate for risk. IRRs in the high-teens (for established technologies) and above are not uncommon. Have a plan for how to recapitalize the project quickly with cheaper project finance.
• New Management: Development capital investors will expect to be closely involved in the project. Ensure alignment before closing, and work with investors who understand what it means to be a developer.
Conclusion
DevEngine is at the forefront of providing development capital to early-stage energy transition projects, playing a crucial role in advancing climate infrastructure. For startups and developers, understanding when and how to engage with DevEngine can be pivotal in successfully bringing projects from conception to operation. By bridging the early-stage project capital gap, DevEngine not only de-risks projects but also paves the way for more sustainable and scalable energy solutions.
