An Example of Pivoting for Start Up and Scale Ups

Case Study – BioFactory

There are numerous examples of how businesses had to pivot during the pandemic. This is the story of how a fledgling Bath-based agri-tech firm quickly adapted to find a new application for its innovative Anaerobic Digestion (“AD”) solution.

It’s also a story of perseverance in the face of adversity with important lessons that will be of interest to other founder-led start-ups and SMEs seeking to diversify into new markets or unlock hard to access government grants.

The story begins in Africa and takes us to a shipping container in a farmyard in the Westcountry…

13th July 2023

In the beginning

The germ of the idea for BioFactory is rooted in Kenya where founder and CEO Eoin Sharkey spent long periods of his childhood. Fast forward to 2017, and Eoin was back in Africa working for a water engineering consultancy on a UNICEF funded WASH project that combined rainwater capture with the design of an improved toilet sanitation system. Eoin also saw first hand the lack of sanitation in refugee camps in Northern Kenya as part of another project sponsored by the UN Refugee Agency.

These experiences informed Eoin’s Bath University master’s project to develop a product-based solution for a toilet and waste processing system that could be deployed at scale for low-income communities like refugee camps and rural settlements.

Getting traction and securing funding

AD is essentially a process through which bacteria break down organic matter (such as animal manure, wastewater biosolids, and food wastes) in the absence of oxygen. The original concept was to develop a cost effective, modular toilet and waste processing system that would improve sanitation infrastructure whilst generating an alternative fuel source from the biogas that was released during the core treatment process.

A entrepreneurship grant from Bath University provided a membership of the incubator SETsquared along with access to business mentors. Eoin’s initial focus was on creating an investable proposition to start the development work needed to fully design a prototype and test it.

To attract seed funding a detailed business plan was produced and at the same time both a CCO and a CFO came on board and together they began to refine the business model and formulated a plan to apply for grant funding.

In December 2019 the team learned that they had been successful with their Innovate UK grant application for a 70% funded project totalling approx. £750k to complete the design, test prototypes and build a full-scale pilot to be deployed in Mozambique with the support of the University of the West of England and Bristol Link with Beira.

This successful application, alongside a comprehensive business model catalysed private investment into the company to form the remaining 30% of BioFactory’s costs towards the project. In total, BioFactory raised £205k of private investment from angel investors in this first fundraise, who essentially tripled the impact of their investment without dilution. The management team were able to present a detailed road map to potential investors as they had clarity on the next two years of the project linked to the grant proposal in terms of where they were going with the product and what would happen after the development phase was completed.


Eoin’s Tips on securing grant funding

Typically, just 5-10% of applicants succeed in securing grants from Innovate UK. So, when asked about BioFactory’s remarkable track record in securing government funding, CEO Eoin Sharkey shares these tips for other start-ups and SMEs:

  • We got good at writing grant applications as a company and had some great support in this area. It also helped that our CCO, Jon Blake, had previously been on the other side of the table, by delivering InnovateUK funded business support programs within the South West. To a large extent it’s all about understanding the process and what should be contained on the budgeting side.
  • Be specific in terms of what you apply for. Don’t waste resources or effort going for a grant that vaguely covers what you’re looking for. Wait until there’s a grant that specifically applies to what you’re trying to do as it needs to fit the brief.
  • Look for support. Innovate UK has a business development programme called EDGE which offers advice for start-ups. We played heavily on this aspect for the first set of grants. Also talk to incubators to get another perspective.

An existential threat

Partners were in place to help facilitate the in-country deployment and the project launched just as COVID struck in April 2020. The timing couldn’t have been worse as the world went into lockdown.

With the worldwide restrictions on movement, it became increasingly apparent that they would be unable to deploy their systems to Africa, so Eoin and his team started investigating other sectors for the technology developed. During the design phase, the lab scale prototype used cow slurry as a substitute for the treatment mechanism and they were getting some fantastic high yielding figures from the miniature digestors they had built – outperforming the industry standard by as much as 25-40%.

Another setback loomed when the project funding was put at risk as BioFactory found themselves caught up in the Overseas Development Agency budget cuts in February 2021. Just at the point they were ready to start field trials, funding was put on a warning notice that it might be pulled in four months’ time which meant that they weren’t allowed to start any new development or do anything that might extend beyond the four-month period. Circumstances seemed to be conspiring against them!

So, it was around this time that a decision was taken to pivot towards UK dairy and developing a product for that sector. There were a number of key drivers in play in that energy prices were increasing, as was the cost of fertilizer, so it made the transition easier because more farmers were invested in the idea of micro-AD solutions that weren’t readily available for smaller herds.

Suddenly, it looked feasible to reinvent AD for dairy farmers by building a cost-effective slurry-to-energy solution for small and medium scale farms that could reduce energy and operating costs whilst decreasing greenhouse gas emissions from existing slurry handling practices.

Securing shareholder buy-in (again)

Clearly there was huge disappointment around having to jettison the original idea, but the classic definition of a pivot is that it’s a lateral extension of a firm’s existing capabilities that cements its strategic intent. However, this repositioning still needed to be sold to the angel investors who had provided seed funding.

Notwithstanding the promising results from the enhanced energy output, shareholder negotiations were necessary because this wasn’t what they had originally invested in. There was the real risk that Eoin might have to wrap up the business.

Over the next few months or so there was a lot of back and forth to get them onboard. From day one, Eoin’s positioning was that he didn’t want BioFactory to be regarded as a social impact organisation and he had commercial aspirations to grow the business. So, his approach with investors was to highlight the impact benefits of AD to the dairy sector – arguing that it would have a much bigger environmental benefit and was still aligned with their investment portfolios.

Eoin comments, “Keeping the lines of communication open was really important … lots of one-to-one conversations to help our investors understand that we would be applying the same technology but to a different sector. The social aspect may have been reduced but I think this approach worked because all our angels have come back in at subsequent funding rounds.”

Getting back on track

After pivoting, the next stage was applying for Welsh Government grant funding to develop the new design, and build a full-scale prototype for development in North Wales. Another Innovate UK grant followed for the second-generation pilot based on a farm in Somerset in October 2022 which again required additional shareholder investment.

Reactors are housed in 40’ long shipping containers and easily scaled. These pilots provided an essential test bed and comprehensive operational data. They are also used as a sales demonstrator, with visits so far including key farming groups and milk co-operatives.


The importance of seeking advice

From inception BioFactory have sought external advice where appropriate. Whether that’s plugging into their shareholders’ expertise or bringing in AD specialists to conduct an independent review of the Micro AD Farm™ design before progressing to the manufacturing stage of the full-scale prototype unit.

BioFactory are fortunate to have strong in-house expertise – for example CFO, Clare Beazley, has a good understanding of what HMRC are looking for in areas like EIS and R&D tax credits but, equally, it’s important to recognise when to seek external advice too. A pair of fresh eyes is always useful too!

Eoin comments, “It’s about sensing when the right time is to get expert advice, whether that’s accountancy, tax or legal. Take Patent Box for example. Once BioFactory is turning a profit, in principle our Corporate Tax rate on profits arising from the sale of patented products will be only 10%, which is a 15% tax saving on the main Corporate Tax rate.  That’s one of the biggest hurdles to being an entrepreneur; you don’t know what you don’t know so having Old Mill around to tell us about these types of things is brilliant.”

Barriers to entry

Historically, there have been several barriers to AD in the dairy sector. AD has always been expensive, and only really viable on large scale farms. There’s also quite a big maintenance burden on the farmer which isn’t something most smaller farmers want to do as their skills are in dairy farming rather than managing a complex power plant.

Footprint can be an issue in that a lot of farms are tight for space, especially in the yard areas, so traditional Anaerobic Digestors aren’t often feasible. And there’s the design and planning phase of a project which can incur a massive sunk cost, so you have the risk of planning rejection. Some farms could be sinking £50-60k into bespoke design and planning permission without even laying a shovel into the ground.

For traditional AD units to be cost effective, typically the farm must either grow or buy in specific energy crops needed to boost the energy output to feed the grid and pay back the investment which creates complexity and additional work that doesn’t contribute to growing a herd.

Farm businesses place great importance on scalability and future proofing. However, smaller farms often encounter challenges in implementing anaerobic digestion (AD) projects due to the substantial increase in capital required when designing a system that can effectively support their business for the next 10, 20, or even 50+ years.

Ticking all the boxes

BioFactory’s Micro AD Farm™ is an innovative ultra small AD reactor that is modular, rapidly deployable and slurry only that offset existing operating costs. The system sits alongside the existing slurry management infrastructure in a shipping container unit that regularly draws off slurry which is then returned 10-13 days later having generated biogas energy for the farm to offset their existing costs. There are other benefits to on-farm AD alongside energy, including decreasing fertiliser consumption, as the resultant digestate has more readily available nutrients when compared to slurry, and decreasing slurry management costs, as digestate is easier to pump.

Its modular design means that farms can expand the number of units over time depending on their consumption needs so the product can grow with them. Also, its portable design supports rapid deployment and limits the need for expensive infrastructure investment. This aspect allows tenant farmers the opportunity to leverage the benefits of AD.

Future plans

BioFactory has built both full-scale prototypes in-house but is now looking to outsource more of the build with sub-contractors going forwards which will free up resources. The performance validation has been done verifying that the technology works as expected but there’s still a lot to do before they’re ready to go to market.

They are also on the cusp of starting the first commercial trial and then they will be ready to launch into full scale commercial production in 2025. BioFactory has already started looking at manufacturing sites where the business can install a production line.

At the same time, the team are working through the drafting of a sales contract and ensuring that the equipment meets the requirements of the Sale of Goods Act and the Machines Directive.

For what’s still a relatively young business, it’s been quite a journey so far.

COVID forced BioFactory to pivot and challenge the stigma around AD by disrupting conventional wisdom around industrial scale plants and the notion that bigger is better.

What’s truly exciting is that they appear to be pushing against an open door by democratising AD technology in the dairy sector. And farmers love it because Micro AD Farm™ ticks a lot of the boxes and makes embracing AD much easier for them.


Find out more about Biofactory.

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