Elemental Excelerator, a nonprofit investor focused on scaling climate technology for deep community impact, has officially announced the launch of Development Simple Agreement for Future Equity (D-SAFE), which is a mechanism for streamlined funding meant to support the development of climate-driven projects. According to certain reports, Elemental developed the stated mechanism in collaboration with law firm, Wilson Sonsini, and they both did so to fill the “Scale Gap” faced by climate-focused companies transitioning from early-stage VC funding to later-stage growth capital. To give you some context, a whitepaper published by Elemental and Boston Consulting Group (BCG) identified this Scale Gap to be somewhere around $150 billion. In response, modeled after Y Combinator’s Simple Agreement for Future Equity (SAFE), the D-SAFE mechanism makes a point to empower companies through the critical early stages of project development, including securing permits, project design, budgeting, contracting, community engagement and more. This way it is able to ensure that climate projects are developed, de-risked, and deployed as quickly as possible. More on the new funding mechanism will reveal how it can operate either as a loan, to be repaid at the company’s discretion, or as convertible equity like a traditional SAFE. Such duel functionality, like one might guess, makes it possible for startups to access a flexible and cost-effective source of funding, while simultaneously leaving investors with an option to secure a lucrative share in the potential rewards.
“We are thrilled to partner with Elemental on this innovative financing mechanism for catalytic climate projects. As a corporate lawyer working at the intersection of climate innovation and finance for over two decades, I am all too familiar with the funding gap highlighted in the BCG and Elemental paper, and we see the D-SAFE as an innovative way to help climate entrepreneurs and investors navigate that gap,” said Bob O’Connor, Partner at Wilson Sonsini and who has advised hundreds of entrepreneurs and investors to mobilize billions of dollars of capital toward the development and deployment of climate solutions.
Another detail worth a mention in the context of D-SAFE is its pledge to always direct the funding towards the parent company rather than single project. This, in turn, significantly mitigates individual project risks and allows investors to evaluate the strength of the management team, its track record, and whether its project portfolio will lead to success overall.
“In a catalytic funding context, D-SAFE’s likeness to the popular SAFE has the potential to deliver an efficient funding mechanism to the market for startups, investors and legal teams who require capital at a phase of deployment that is so often underfunded,” said O’Connor.
As for what makes Elemental an ideal candidate to lead such an effort, the answer resides in the fact that, over the past year alone, the company has funded eight scale up projects that used the D-SAFE and DSA structure. To give you an example, it invested in Dimensional Energy, a global leader in carbon-to-value technology, for a new facility that will convert captured carbon dioxide and water into sustainable aviation fuel (SAF) intermediaries. Interestingly enough, the funding came after it became clear that Dimensional would need to achieve certain pre-development milestones, if the company was to receive a cash injection from Seneca Holdings. Elemental’s $500,000 D-SAFE, paired with customized project financing and community engagement coaching, would mobilize 20x as much private capital.
“This project will not only accelerate our work to scale a drop-in replacement for aviation fuel – it will fulfill the mission of Seneca Holdings to diversify their portfolio and to generate wealth in Seneca Nation communities for years to come,” said Jason Salfi, CEO of Dimensional Energy.
