Demystifying Offtake Agreements

Offtakes are the secret sauce for securing the financing your first-of-a-kind (FOAK) project needs to scale. But here’s the thing: not all offtakes are created equal. From soft agreements at the prototype stage to firm, bankable contracts that attract investors, the type of offtake you pursue can make or break your project.

That’s why, during our Ripple session, we shared the Maslow Pyramid of Offtakes to help guide this journey. The pyramid is a useful framework, much like Maslow’s famous hierarchy of needs. While it may not capture all the complexity and non-linear paths, it offers a maturity roadmap to understanding where you might be in your offtake journey — starting with early, non-binding agreements and progressing toward the bankable, long-term deals that secure capital and bring your FOAK to life.

The key to progressing in the offtake climb came from hearing three crucial perspectives — startups, corporates, and investors — each offering valuable insights into navigating the stages of their commercialisation journey. Their combined experience underscored a clear takeaway: success hinges on bringing these voices together early. Engaging offtakers and capital providers from the start ensures alignment on the path ahead. The bottom line? Collaboration and understanding of each other’s requirements are essential to turning initial, non-binding agreements into the bankable contracts that drive your project’s growth. There’s plenty more to dive into, so keep reading:

1. Starting Strong: Build relationships with the right offtakers

In the early stages of commercialisation, selecting the right offtakers is critical to your long-term success. At this point, you’re still proving your technology and establishing credibility. Early agreements like LOIs or MOUs offer flexibility while building trust without locking you into rigid terms too soon. The focus should be choosing offtakers who align with your vision, as these early partnerships will lay the foundation for future growth and scalability.

Key Lessons:

• Partnerships over transactions: Offtake agreements should go beyond just being financial deals. Build long-term partnerships that foster mutual innovation and growth. The right partners will evolve with you, offering more than a contractual commitment. There are multiple ways to collaborate with offtakers across innovation, development, distribution and new market entries that benefit both sides.

• Leverage anchor customers as strategic allies: Securing key customers early gives you credibility and favourable terms, helping your project gain initial traction. However, don’t stop there — anchor customers should be a springboard for getting more traction, not your sole focus.

• Diversify for risk management: Depending too heavily on one offtaker is risky. Engaging multiple customers early on helps ensure steady progress, even if one falls through. Diversification mitigates risk and sustains momentum.
• Engage offtakers across the value chain: Move beyond targeting only your direct offtakers (Tier 1) and involve your offtaker’s offtakers (Tier 2) to tackle risk aversion and market uncertainty. This can also broaden your reach and strengthen your position in the market. Offtakers down the value chain with existing infrastructure and distribution networks can reduce scaling costs and accelerate your path to market readiness.
• Align with offtakers’ cycles: To ensure a smooth integration of your product into their operations, it’s crucial to align with your offtakers’ internal timelines, such as procurement cycles. Whether it’s long R&D cycles in industries like automotive or the seasonal patterns of agriculture, understanding their operational dynamics will help your agreements fit seamlessly.

2. Moving up the pyramid: Commit customers to more binding agreements

To secure financing for Demo plants and FOAKs, it’s crucial to strategically transition from soft commitments to more binding agreements to unlock significant capital. Rather than rushing, use tactical approaches to nudge customers towards deeper commitments while remaining flexible to manage uncertainties.

Key Lessons:

• Show what you’ve got! Invite customers to engage with your pilot plant and see the technology in action. Send them samples to enable them to do their quality checks and testing. This early involvement builds trust, makes moving from informal discussions to formal agreements easier and allows you to gather critical feedback.
• Create competitive mechanisms: In commodity markets, setting up auctions with competitive bidding can create a market-based procurement system. This allows you to award production capacity to offtakers based on their willingness to pay. By doing so, you can also convert LOIs into binding agreements.

3. Flexibility matters: Structuring offtake agreements under uncertainty

As you move towards securing binding offtake agreements, the focus should be balancing flexibility with preparedness. FOAK projects are inherently unpredictable, so your agreements must accommodate shifting realities while providing the structure necessary to move forward. Flexibility in contracts is crucial to address evolving challenges, but it’s equally important not to delay critical commitments that are essential for capital-raising and operational progress. The goal is to create adaptable agreements that account for uncertainties without stalling your momentum.

Key Lessons:

• Structure flexible contracts: Build contracts adaptable to changes in project realities. This flexibility ensures you can meet both capital-raising and operational demands while avoiding rigid terms that could limit future adjustments.
• Don’t rush into firm commitments: Avoid locking into firm agreements too early without sufficient operational experience. FOAK projects carry unique risks; overcommitting at this stage can lead to unnecessary constraints. Keep agreements flexible until you’re ready to finalise terms with multiple customers.
• Embed risk management: Proactively manage risk within your contracts. Consider how pricing, volume, and flexibility will impact your long-term viability, ensuring your project is safeguarded against unexpected disruptions.
• Clarify cost structures: Be transparent about your cost structures to build investor confidence and support financial planning. Contracts should include mechanisms to adjust for unforeseen costs, allowing room for adjustments as project realities evolve.

4. Price it right: Tailor your pricing to secure financing

Pricing is one of the most critical — and challenging — aspects of any offtake agreement. It’s crucial to be smart about it and invest the time to nail down a pricing strategy that aligns with your project’s financial and growth goals. While there’s no universal solution, we’ve gathered valuable insights from various founders who each approach pricing differently based on their unique parameters. Ultimately, it’s about finding the right strategy for your specific situation and market conditions.

Key Lessons:

• Use price discovery mechanisms: Develop joint price-setting mechanisms that benefit and hedge the risks of both parties. For example, auction-based price discovery strategies can turn price-setting into an engaging process for customers. By establishing floor prices and allowing customers to bid on volumes, you can effectively manage cost uncertainties while arriving at fair, mutually beneficial pricing. This approach helps balance customer commitment with market-driven price adjustments.
• Develop tiered pricing models: Start with smaller volumes at higher prices and offer better terms as customer commitments grow. A tiered pricing structure provides flexibility, rewarding customers for long-term loyalty while fostering deeper partnerships over time. This mixed approach aligns pricing with scale, ensuring both customer satisfaction and economic viability.
• Adopt cost-plus pricing for stability: To maintain financial sustainability, especially as you scale, a cost-plus pricing model ensures that all operational expenses (CAPEX, OPEX) are covered as well as your margin requirements and the cost of capital to provide your investors with their return expectation. This approach creates a stable financial foundation for growth, allowing you to scale your project without compromising profitability.
• Incorporate cost caps to manage risk: Implementing cost caps helps customers gradually increase their financial commitments while maintaining stable expectations. This strategy stabilises project scalability, keeping both sides — project developers and customers — aligned in the long term. Cost caps reduce financial risk, allowing customers to step in confidently without overextending.

5. The Summit: Make your agreements bankable

Bankable agreements are the most complex challenge — and the ultimate key to scaling your project. These long-term contracts provide the cashflow certainty needed to attract serious investors and unlock capital. The secret? Involve your financial stakeholders and customers from day one. Get them in the same room to negotiate so both sides understand each other’s needs. By doing this, you’ll craft agreements that meet investor criteria and position your project for long-term success.

Key Lessons:

• De-risk your agreements: Structure contracts to reduce risk for both customers and investors. Creating a clear path to profitability makes your agreements more attractive to financiers. Sitting customers and investors down together to negotiate ensures mutual understanding and smoother, bankable agreements.
• Engage financial and infrastructure partners early: Engage financial institutions and infrastructure investors from day one. Aligning project goals and reviewing key terms early ensures your contracts meet investor expectations and facilitate more accessible financing.
• Explore innovative financing: Consider non-dilutive funding options like grants or strategic partnerships to boost bankability without sacrificing equity. Innovative financing helps secure capital while maintaining control, which is crucial in the early stages.

Final recap: Climbing the Maslow Pyramid of offtakes

Offtake agreements are crucial to securing financing for your FOAK project but aren’t one-size-fits-all. As we learned from our session at The Drop, mastering a progressive offtake maturity path, as conceptualised by the Maslow Pyramid of Offtakes, is vital to progressing from early-stage customer interest to firm, bankable agreements. Let’s recap the actionable insights:

• Offtakes = Partnerships: Treat offtakers as long-term partners. Start with an anchor customer, but spread your risk by engaging multiple offtakers and leveraging their infrastructure.
• Engage early, align deeply: Involve offtakers and capital providers from the start to ensure alignment on expectations and terms. Early collaboration creates a shared vision, reduces risks, and smooths the path to bankable contracts.
• Flexibility is vital: Build flexible contracts that adapt to changing realities. Don’t overcommit too soon — leave room for adjustments.
• Show, don’t just tell: Invite customers to see your tech in action. Use competitive bidding to turn LOIs into binding agreements.
• Smart pricing wins: Use tactics like auctions and cost-plus models to ensure financial sustainability while scaling customer commitments.
• Make it bankable: De-risk your agreements, engage financial partners and customers in discussions early to understand their requirements, and explore non-dilutive funding to make your project investor-ready.

Keep climbing the pyramid. Your FOAK — and the planet — are counting on you.

###

We hope these insights help you navigate the critical steps in securing climate tech financing through offtake agreements. But there’s more! We’ll dive deeper into offtakes in our upcoming Offtake Series, exploring detailed strategies, examples, and case studies.

Feel free to reach out if you have any questions or want to learn more about specific stages of the offtake journey! We’re here to help you climb the pyramid and unlock the full potential of your FOAK project.

Special Thanks

A heartfelt thank you to our speakers Andrew Symes (OXCCU), Philip Kessler (Turn2X), Albert Luu (Heirloom), Sidd Bhat (IFM Investors), Cynthia Kueppers (Novo Holdings), Georg Reifferscheid (Rewe Group), and Mats Torring (Stena New Ventures) and all other participants for sharing their experience in this discussion.

We’d also like to extend our gratitude to The Drop for hosting this incredible conference and providing a platform for our Ripple session with HV Capital. Engaging with the climate tech community on such an important topic was a fantastic opportunity.

Further Resources

We’ve also published a database on offtake agreements to support the community further. You can explore more detailed examples here. Thank you for being a part of this journey!

‍