Financing the Energy Transition

Bailey Morrow's bank once lent to a start-up on the strength of an offtake, and then the offtaker walked away. The start-up's only recourse was a legal fight with a global corporation, which Bailey called David against Goliath. It left Bailey, who runs the climate tech team at HSBC Innovation Banking, with a question mark over offtakes. The bank sets a loan from its own analysis and leaves the offtake out. At this Ripple on financing the energy transition, the contracts founders hope will make them bankable kept turning out weaker than they look.

Lend less, then release more

Bailey explained how a venture lender thinks. Debt has to be repaid, so it complements equity and cannot replace it. The bank lends alongside VCs who know the sector and asks how a loan gets a company faster to its next inflection point, such as an equity round, a contract or profitability. CapEx tied to customers or a pipeline suits debt. CapEx in an R&D phase is equity risk.

Founders should talk to lenders early and often, Bailey said, because trust builds when a company says what it will do and then shows it did. The worst first call is the one that says there are six months of runway left.

Sternfeld, a general partner at Nordic Ninja, asked how a lender treats a first of its kind, such as a portfolio company building large, novel satellites on a mix of grants, debt, equity and government guarantees. "For a lender, the only way you can really mitigate risk is to lend less," Bailey said. The bank would lend a couple of million at close, then release another 2 million for a customer LOI and another for a confirmed launch. Debt cannot be taken back, so the fear is over-levering too early. Export credit agencies such as UK Export Finance, EKN and KfW, which can guarantee up to about 80% depending on the scheme, let a bank lend at the top of its range. Sternfeld said the satellite company is now a little over half financed without dilution.

They don't wake up and think, hey, how are we going to make you guys billionaires?

Offtakes signed for show

Offtakes are the question companies bring to the bank most often. Bailey's answer was cautious optimism. Cash, investors, KPIs and team set how much the bank will lend, and an offtake only lets it flex at the edges. A venture debt fund that has to deploy capital to reach its IRR hurdles may take risks that a bank lending from its balance sheet will not.

An early-stage investor said a list of offtakers proves little until someone checks the terms and the buyer's motive. Some airlines signed e-SAF offtakes knowing the start-up would never meet the price, as a PR stunt. A participant working on alternative cement said small producers cannot usually sign multi-year offtakes, and asked about prepaid environmental attribute certificates instead. Sternfeld answered with the risk of concentration. A satellite imagery business can sell the same data to a long list of customers, but a cement company with one or two offtakers is badly exposed.

Where founders can negotiate, Bailey advised take-or-pay clauses, which are becoming more common, and pre-selling capacity so the contract is written in capacity, not in dollars or pounds.

Prepayments that sit in a guarantee

The newest wrinkle was the performance guarantee, which corporates signing offtakes with deep tech companies increasingly want, Bailey said. It is a common trade finance product, usually cash-secured, that returns the corporate's money if the start-up fails to deliver, and corporates now tie their prepayments to it. Prepayments are the best case and still rare, perhaps 10–20% of the contract. Under a guarantee the whole sum is cash-secured and the company gets nothing to spend.

A founder counting on LOIs to bring in cash should model that, Bailey said, because the money sits in a secured vehicle and may change how much equity the company needs to raise. Sternfeld thought guarantees suit energy retail and price optimisation businesses with customers on ten-year agreements, where the risk is execution or the market, not the technology. Bailey agreed but still called them a drain on operating cash.

The bank carries a risk of its own. If a corporate calls a guarantee, the bank must hand the money back and becomes the bad guy in the middle. Bailey imagined doing that to one of Sternfeld's companies. Sternfeld would ask to sort something out, and the bank would be legally obliged to pay anyway.

Sternfeld's caution about big partners extended to the cap table. The Nordic Ninja partner would not take early money from a utility again. A company Sternfeld built earlier took investment from utilities and scaled across 160 wind farms before it was acquired, but hit a glass ceiling. "They don't wake up and think, hey, how are we going to make you guys billionaires?" Sternfeld said. In later rounds, a small utility ticket with a real technology partnership can work. In Japan, a utility customer's investment of a few hundred thousand helped a company scale across the country.

Asked whether a corporate had ever made a prepayment and still walked away, Bailey said not so far. The bank is writing a lot of performance guarantees, but it is too soon to tell how these offtakes will play out. Until then the offtake stays at the edge of the loan, and the prepayment stays in the guarantee.

This Ripple was hosted by Bailey Morrow (HSBC Innovation Banking) and Rainer Sternfeld (Nordic Ninja) at The Drop 2026 on 16 September.