Structuring for Scale – Solving Scale-Up

IFM Investors liked almost everything about a waste-sorting company it looked at not long ago. Its vision software sorted landfill waste into recyclables, organics and residue. The technology checked out, IFM believed in the management and the feedstock had been tested at a smaller plant. The deal still stalled at investment committee. Adelaide Morphett, who works on IFM's growth credit platform, gave the reason in a phrase one committee member had coined. It was risk pancaking.

Two layers sat on top of the technology. The company had no control over the waste it received, and it had to pay if too much went back to landfill. A pyrolysis unit from a supplier it had never used was to treat the organics, and 20% of the project's revenue was expected from the biochar and its carbon credits. In hindsight, Adelaide said, a delayed draw that financed only the sorting might have sequenced the risk. Amy Zhao of Clean Energy Ventures said third parties can fill gaps in the evidence, from independent engineers to insurers who review six months of demo data.

The story went to the heart of the Ripple. Amy cited a recent founder survey in which most respondents called venture capital the fastest way to grow, and a similar share said it was the wrong money for the job. Debt is cheaper but harder to get, and stacked risk keeps it away.

There is nothing standard about any of these assets yet, and debt does not bend very much.

Debt does not bend

A capital-formation adviser asked when debt actually shows up for a first asset. Adelaide described IFM's growth credit, holding-company loans of $20m and more without the coverage ratios and straight-line amortisation of project finance. A company is ready when aligned equity, permits, offtake contracts and a committed management team are all in place at once.

The adviser called that the right answer, and no formula to plan against. "There is nothing standard about any of these assets yet, and debt does not bend very much," the adviser said. A property developer can pin a lender down on terms. A first-of-a-kind developer cannot. So the adviser plans on equity at project level, the first capital that is not venture, and will not bet on a financial vehicle that may not exist in time. Amy agreed that the standardisation is missing. Until it arrives, companies need support from others around the deal.

Other people's balance sheets

Amy had examples. An offtaker whose margins rose sharply thanks to a start-up gave it a corporate loan guarantee. A contract manufacturer that wanted higher utilisation lent a start-up money, credited back as it builds, and introduced it to other customers. Amy's advice was to frame the ask in the partner's own metric, which for contract manufacturers and EPC contractors is often utilisation, not dollar value.

The founder of an ammonia start-up described joint development deals in which a corporate partner guarantees the start-up's performance to customers, with no credit line behind it, and lends its engineering and commercial teams. "Of course they don't do that out of the kindness of their heart," the founder said. The price was exclusivity in a very small part of the market, kept only while the corporate performs. The partner wants the technology for plants two to a hundred. A developer can play the same role, Amy said, and pointed to DG Matrix, a maker of solid-state transformers, which develops projects with PowerSecure under a form of performance guarantee.

Project-level preferred equity is the more painful route. In one structure Amy had seen, the project passes to the investor at commercial operation and the start-up keeps only its fees. It gives up much of the economics and buys a track record that lets debt in later.

Covenants and calendars

The founder of a scale-up owned by private equity said the company had grown fast and was now held back by its covenants. Adelaide said security over IP and assets can protect a lender instead. The single covenant Adelaide prefers is an agreed annual budget. A 20% deviation in a quarter starts a six-month cure period, met with new equity or operational changes. When an IFM-backed biogas facility ran into trouble, a bank that also financed it wanted out quickly. IFM bought the bank out and has spent a year and a half turning the company around.

An alternative-protein founder named two other hurdles. Partners who would gain from a plant on their site offered to lay a pipeline and let the start-up pay for everything else. And committees that meet once a quarter, and need three discussions before a yes, can outlast a start-up. An investment committee is easier to bring along, Adelaide said, when a borrower sends updates on permits every two weeks and explains why things slip.

Other participants brought structures from further afield. One described World Bank outcome bonds, in which bond investors give up part of their return so that a contracted project can be funded without collateral. Another is trying to turn hyperscalers' demand into an advance market commitment across several hundred geothermal projects, without government, which they said would be too slow. Buyers are already asking for 20 gigawatts in three years, they said. The financial modelling that lets that demand carry a whole portfolio is still being built.

This Ripple was hosted by Adelaide Morphett (IFM Investors) and Amy Zhao (Clean Energy Ventures) at The Drop 2026 on 16 September.