9a Attachment Capital Landscape Study
MARITIME BLUE CAPITAL ASSESSMENT
CONSOLIDATED FINAL REPORT
SEPTEMBER 16, 2019
Supported by:
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 1
WHAT THIS DOCUMENT INCLUDES
> This deck is the full consolidated materials from Next Street's engagement with the
Washington State Department of Commerce in support of the Maritime Blue strategy
> All materials from our meetings with the project Steering Committee are presented here,
with further details included in the Appendix slides
> We have also included an Executive Summary that highlights the key findings from our
industry analysis, peer cities research, and capital landscape analysis, and the 10 illustrative
capital deals we identified
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 2
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 3
OUR OBJECTIVES AND PROCESS
Context for this work Objectives for the engagement
> The Washington Department of Commerce partnered with a > This work focused on research of potential funding structures
diverse group of stakeholders to develop and launch the to provide investment capital to support economic
Washington Maritime Blue Initiative growth of the maritime sector in Washington State
> Maritime Blue seeks to promote growth in the Blue > We completed a regional maritime capital landscape
Economy, champion maritime clean tech innovation and
scan to better understand the nature of the demand for
establish best practices, as well as seek to identify and
capital in the maritime sector
support enterprises that foster sustainable
development by increasing living-wage jobs, promoting a > Our work also analyzed whether the supply of capital
healthy environment and empowering resilient communities currently meets these demands
> Following the development of the initial strategic plan and the > Through understanding the demand, supply, and key gaps, we
creation of the Maritime Blue Advisory Committee, we began developed frameworks and strategies to fill gaps with
further research into the investment needed to grow a variety of capital sources, including public and private
the sector capital
Our Process
Interview
Visioning Industry and Program Illustrative
and Working Capital and Deal
Session Assessment Focus Inventory
Groups
> Aligned on objectives, formed > Analyzed maritime industry > Interviews and focus groups > Synthesized interview and
hypotheses of capital needs, demand cluster data, created with local stakeholders in the focus group learnings and
and conducted literature capital inventory and mapped of Blue Economy, relevant capital developed illustrative deals
review capital providers, identified gaps providers, and national
relative to known needs stakeholders who have
successfully supported maritime
economies
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 4
Full industry analysis found on
pages 81-94
BLUE ECONOMY INDUSTRY ANALYSIS: KEY FINDINGS
Our quantitative analysis of Washington's Blue Economy used NAICS industry codes to identify the
characteristics and trends relevant to small businesses in these industries
Key Takeaways
1 The Blue Economy is a small, but important, element of the State of Washington's economic landscape,
accounting for 3.0% of small businesses in the state (or roughly 5,232 small businesses as of 2016)
While the vast majority of both core maritime and non-core maritime small businesses are clustered in the
2 Seattle-Tacoma-Bellevue MSA, some industries have substantial secondary clusters (e.g., Other Logistics in inland
cities) or are geographically dispersed (e.g., Commercial Fishing & Seafood, Energy); consequently, the Dept of
Commerce's industry and geographic priorities will substantially influence each other
While businesses across core and non-core maritime industries tend to be small, variation in specific size,
3 average revenue, and wages of these small businesses suggests a broad range of capital needs;
however, some segments that are predominantly comprised of microbusinesses (<4 employees) may
lack appetite or appropriate resources to scale
All core and non-core maritime industries have low representation of people of color and women; it is
4 important to determine the extent to which lack of capital access is a factor in this gap through
further conversations with stakeholders close to these groups
The highest-growth areas for small businesses appear to be non-core maritime industry segments (which
5 tend to be more technology-focused) and some aspects of water transportation and shipping; this
may increase the attractiveness of prioritizing investment opportunities in these industries
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 5
Full industry analysis found on
pages 81-94
BLUE ECONOMY PEER CITIES ANALYSIS: KEY FINDINGS
We researched trends in 4 key maritime cities Boston, Oslo, Rotterdam, and San Diego to
understand opportunities and challenges that may be relevant to Washington's Blue Economy
Maritime cluster organizations are responsible for coordinating across stakeholder groups to
support small and medium-sized businesses (SMBs): Several successful maritime sector initiatives in
1 the peer cities, ranging from blue tech incubators to maritime-focused investor conferences, were made
possible through coordination of multiple stakeholders across the Blue Economy, highlighting the need for a
central industry partnership or organization to drive collaboration
Government initiatives and grants are essential support for SMBs: In each of the peer cities,
2 maritime-specific government grants and business support programs provide key funding and services for
SMB in the maritime economy, allowing early-stage SMB to develop without venture capital and creating
partnerships between SMB and larger traditional maritime and/or tech corporations
Blue Economy incubators and accelerators help attract investment: In Rotterdam and Boston,
3 investors have cited incubators and accelerators as a key pipeline for identifying investable opportunities in
Blue Tech; these incubators provide SMBs the opportunity to develop from proof of concept through early
customer acquisition on a longer timeline often required for maritime technology companies.
Traditional clusters are adapting to the Blue Economy: Industries of historical strength in San Diego,
4 Boston, and Oslo (e.g., submarines, shipping and ship repair, and oil and gas) are finding new markets and
applications for traditional maritime technology, evolving to succeed in the Blue Economy and provide for
sustainable maritime solutions
Investors seek out opportunities in sectors that are familiar to them: In the U.S., the maritime
SMBs that are successful in raising equity investments are typically those with broader tech applications, as
5 there is a robust tech investment ecosystem that investors understand. However, in Norway, there is much
more equity and private investment in sectors like shipping and energy, as those are the sectors that
investors understand best.
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 6
Full capital landscape analysis
found on pages 24-45
BLUE ECONOMY LOCAL CAPITAL LANDSCAPE:
KEY FINDINGS (1 OF 2)
Through interviews and focus group conversations with maritime economy stakeholders both in
Washington and internationally, we identified key trends and lessons related to capital access and
activity in Washington's Blue Economy
Venture capital is not seeking out maritime investments: In our interviews, we repeatedly heard that venture capital providers
are either uninterested in or unfamiliar with maritime technology, and those that demonstrated interest shared that even if they wanted
1 to invest, traditional tech and industry would likely receive priority. The complexity and development timeline of maritime tech is a
challenge for investors.
There is a particular need for early-stage capital, especially in core maritime: Maritime SMBs, especially those in core
sectors, have long development timelines between proof of concept and profitability. In some maritime economies both domestically
and internationally, accelerators and incubators provide support for maritime SMBs to develop to a point where investors are more
2 comfortable providing capital. Additionally, maritime SMBs with technology that can be applied to other industries are prioritizing those
use cases to seek capital from funders who have industry focuses beyond maritime in order to receive funding that can help them
survive through the early-stage capital "valley of death".
Government initiatives can help catalyze SMB development: In Norway, the government provides development funding for
Innovation Contracts partnerships between a startup and a large corporation to create and launch an innovative product, typically in
transportation or energy. This model provides upfront capital for the startup, reduces risk for the corporation, and stimulates
3 developments that can then attract investors at scale. In the U.S., there are Small Business Administration-type loan funds that could be
helpful for maritime SMBs, but few maritime businesses are in the pipeline for these loans. Other large, national grant programs support
major research initiatives, and it maybe possible for SMB to participate or support this research through their developing technology
and take advantage of this capital
Foundations and philanthropic grant capital can play a critical role in de-risking investment: Foundations that have
maritime or maritime-adjacent program areas are overwhelmingly focused on conservation (often internationally) or educational
4 programs. To further extend this capital to support maritime SMBs, foundations could help capitalize loan-loss reserves or support
additional R&D and development competitions that would identify emerging maritime SMBs, providing those businesses capital to
develop to a maturity that would attract more traditional investment.
Source: Maritime Blue Interview Program
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 7
Full capital landscape analysis
found on pages 24-45
BLUE ECONOMY LOCAL CAPITAL LANDSCAPE:
KEY FINDINGS (2 OF 2)
Additional conversations with capital landscape stakeholders and business owners helped us further
develop an understanding of the local capital landscape for businesses in the Blue Economy
Building appropriate capital stacks: Because of the reticence for local traditional equity providers to support
5 maritime businesses at scale, each direct-to-SMB investment will require creativity and intentionality to build the right
capital stack that includes first loss capital or credit enhancements from more flexible, patient providers; this is also true
for public infrastructure to properly incentivize private investment to fill gaps in public financing
Bridging to non-local funding: In order to configure the right capital stack, projects and enterprises will likely need
6 to look outside of Washington State / Pacific Northwest to other national or international funders for financing,
especially given that the local Maritime-based investment is limited, and the Seattle impact community is small
Influences of local policy on investment options: Many potential maritime deals could benefit from public support,
7 but will need to consider and work around public sentiment and policies to develop structures like public-private
partnerships and work around limitations to direct investment in small businesses
Culture of self-funding: Several of the core maritime businesses, especially those that own 'lifestyle businesses,'
8 alluded to a trend in Seattle of self-financing business launch and growth leveraging personal resources or access to
friends and family capital, instead of seeking external capital
Importance of technical assistance alongside capital: Local stakeholders revealed the need for additional
support alongside capital, including awareness of and navigation support of small businesses to available capital sources,
9
education of policymakers on financial services, culture building for POC communities around opportunities in
Maritime, as well as breaking down systemic barriers to lack of access for those communities
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 8
Full capital landscape analysis
ILLUSTRATIVE
found on pages 24-45
BLUE ECONOMY LOCAL CAPITAL LANDSCAPE: ECOSYSTEM
Through interviews, focus groups, and desk research, we developed an understanding of providers
serving the local Blue Economy capital landscape from venture stage to business maturity
Traditional Bank Loans / SBA Loans
Equity Debt Grant
Revenue Profit
Business Revenues / Profit ($) Venture Capital
Alternative Lender Loans
(CDFIs, CDCs, Gov't, Credit
Unions, Microlenders)
Angel Investors
Incubators / Accelerators
Grants
Business Size Examples within each category reflect a
representative sample of active capital providers
Startup Early-Stage Growth Mature
Availability of Capital for
Core Maritime SMBs
Availability of Capital for
Non-Core Maritime SMBs
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 9
Full capital landscape analysis
found on pages 24-45
BLUE ECONOMY CAPITAL LANDSCAPE GAPS
Our research into the local Blue Economy capital landscape identified key gaps in the availability of
capital for small businesses
1 Low ceiling on loans (~$750k) available to early-stage businesses that are not yet bank ready
Lack of flexible, responsible loan capital offered by CDFIs due to limited CDFIs presence and a
2
gap in offerings above $100k or less than $1m
Very few equity providers are focused on maritime they are either not knowledgeable or
3
interested because of government regulations and concern about scaling and exit potential
Funding at the proof-of-concept / testing stage is especially hard to find for maritime-tech
4 businesses; often maritime businesses do not want to test new technology on active sites and desire
funding for test sites, which can be costly and have a long-term ROI
5 Unlike in other maritime economies, very few local corporations are partnering with SMBs and there
is little funding to de-risk collaborations between these players
There is limited marketing of maritime-specific products across the capital spectrum from
6 grant to equity, making it difficult for small businesses to navigate what resources may be available to
them
Few options for "no-cost capital", like R&D grants or prize competitions targeted at maritime,
7
which would allow start-ups to prove concept and attract additional investment
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 10
Full illustrative deals analysis
found on 47-79
SUMMARY OF ILLUSTRATIVE DEALS
We have identified 10 illustrative capital deals to support the development and expansion of
Washington's Blue Economy
Opportunity prioritized by Maritime Blue Steering
Type of Deal # Deal Detail Committee in July 30th working session
> Investment in the retrofit of 2 existing ferries, commission 5 new
1 Electrification of ferries
hybrid power ferries, and create and install shore power
Public > Investment to rebuild aging critical port infrastructure (e.g.,
Infra- structure 2 Port rebuilding in rural communities
breakwaters, docks) in rural communities
Commercial
3 > Investment in small fishing vessels by catalyzing loans between
Core Maritime Increasing small vessel loans
$500k - $1m
Transitioning to low emission marine > De-risk investment in small business to convert vessel engines
4
engines into environmentally sustainable engines
> Direct investment in MER Equipment to support R&D into more
5 Funding MER Equipment
sustainable energy solutions
> Direct investment in Numurus to commercialize technology and
6 Funding Numurus
Maritime
demonstrate applications in industries other than Maritime
> Direct investment in Olis Robotics to enable them to develop
Tech 7 Funding Olis Robotics software for land-based industrial robots and fund their
development for the next 5 years
8 Support for robotics and automation > Catalyze innovation in robotics and automation for shipping
technology for shipbuilding companies by developing a research lab
> Investment in a loan loss reserve fund that de-risks financing
Establishing loan loss reserve fund
Change Drivers 9 from CDFIs into businesses owned by women and people of
for CDFIs
color
> Investment to de-risk partnerships between small businesses and
10 Setting up innovation contracts
large corporations to promote innovation
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 11
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 12
PROJECT OVERVIEW
Interview
Visioning Industry and Program Illustrative
and Working Capital and Deal
Session Assessment Focus Inventory
Groups
> Align on shared objectives > Analyze maritime industry > Conduct up to 20 targeted > Synthesize interview and
and develop a clear vision for demand cluster data, including interviews with local focus group learnings with
Key Activities the work workforce and establishment stakeholders in the Blue capital markets research
> Surface hypotheses about trends, size and stage of Economy, relevant capital > List illustrative deals, surfaced
capital needs business, illustrative needs providers, and national through research into
> Perform review of literature > Creation of capital inventory stakeholders who have completed transactions,
concerning the regional Blue and mapping of capital providers successfully supported maritime current capital needs, and
Economy in general > Gain perspective on capital economies perceived opportunities
providers and flows, highlighting > Conduct 3-4 focus groups with
gaps relative to known needs, business owners participating in
with a particular focus on the Blue Economy
segments of opportunity
> Alignment around broad > Inventory of capital providers in > Synthesis of takeaways from > Presentation of illustrative deals,
Key Outputs outcomes and change WMB Excel interviews and focus groups including deal size, terms,
seeks to achieve > PowerPoint presentation with key > Greater understanding of local and financial return, potential
> Synthesis of 8-10 reports on insights related to maritime national maritime economy needs, impact, and strategic alignment
the Blue Economy, especially clusters of demand, capital market dynamics, and potential with WMB priorities
local and national capital flows, providers, and capital markets opportunities and illustrative
to serve as the grounding for our analyzed transactions
market analysis
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 13
INTERVIEW PROGRAM: KEY INFORMANTS
We conducted conversations with 26 local, national, and international stakeholders to gain a range
of perspectives on capital availability and needs in the Maritime industry
Local Stakeholders Capital Providers Nat'l / Int'l / Peer Cities
> Ryan Vogel & Stefano Equity Investors Debt Investors Philanthropic Investors > Gro Eirin Dyrnes,
Mazzilli, ED & Partnerships & > Eric Berman, > Tim Lennox, Seafood > Tim Crosby, Principal, Regional Director for the
Technical Strategy, PureBlue President, Element 8 Group Head, Key Bank The Thread Fund Americas, Innovation
> Kyle Mannis, Project Manager, Norway
> James Newall, Partner, > Roland Chaiton, SVP / > Sayer Jones, Director of
Vigor Voyager Capital Sr. Loan Officer / Director Mission-Related Investing, > Greg Murphy, CEO, Blue
> Dan Berentson, Director, > Ben Rush, Business of Strategic Initiatives, Meyer Memorial Trust Economy Strategies (San
Skagit County Public Works Diego)
Associate, Pioneer Business Impact NW > Carol Dahl, President,
> Frank Paganelli, Chair of Square Labs > Chuck Depew, West Lemelson Foundation > Mark Huang, Managing
Startups & Emerging Companies, Director, SeaAhead (Boston)
> Tim Porter, Partner, Team Leader, NDC > Fabiola Greenawalt,
Lane Powell Madrona > Curtis "Arne" Program Officer, Russell > Anders Mikkelsen,
> Jodie Toft, Deputy Director, Arnesen, Commercial Family Foundation Director of Business
Puget Sound Restoration Fund Market Leader Development, DNV GL
Maritime, Peoples Bank > Melissa Fischel, Education
WA & Workforce Development,
> Joe Silver, VP Finance, Maritime Alliance (San
Lighter Capital Diego)
> Chuck Depew, West Team
Leader, National
Development Council
> Merijn Zondag, Director,
PortXL (Rotterdam)
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 14
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 15
Full industry analysis found on
pages 81-94
INDUSTRY ANALYSIS: OUR APPROACH
Using sector classifications from the North American Industry Classification System (NAICS),we
conducted a quantitative analysis of both "core" and "non-core" maritime industries, including only
the most relevant subsectors within non-core industries
Core Non-Core
Our Process
Ship and Boat Environmental
Building, Repair & Services Definition of Key Industry Segments
Maintenance > Identified types of industry segments and businesses that should be included in
the analysis of the maritime sector
> Grouped industry segments into "Core Maritime" and "Non-Core Maritime"
Energy
Commercial categories for ease of analysis
Fishing & Seafood
> Mapped NAICS codes that correspond to each industry segment / sub-segment
Products
Industry Analysis (Leveraging Census Bureau & ArcGIS Data)
Naval Architecture
> Determine each maritime industry segment's size, in terms of number of small
Passenger Water businesses and number of employees
Transportation
Naval Science & > Analyze small businesses' share of total firms in each segment
Technology (S&T) > Map and analyze the geographic distribution of small businesses in each industry
and R&D segment across the state of WA
Maritime Logistics > Analyze key other key firm metrics in each industry segment (e.g., average
& Shipping wages relative to local living wage, average revenue per firm)
Other Logistics > Calculate and compare growth rates for each industry segment
> Determine the demographic breakdown of business ownership in each industry
Recreational segment and evaluate segment's representativeness, relative to the state's
Boating & Boat overall population breakdown
Other Manufacturing
Building
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 16
Full industry analysis found on
pages 81-94
BLUE ECONOMY INDUSTRY ANALYSIS: KEY FINDINGS
Our quantitative analysis of Washington's Blue Economy used NAICS industry codes to identify the
characteristics and trends relevant to small businesses in these industries
Key Takeaways
1 The Blue Economy is a small, but important, element of the State of Washington's economic landscape,
accounting for 3.0% of small businesses in the state (or roughly 5,232 small businesses as of 2016)
While the vast majority of both core maritime and non-core maritime small businesses are clustered in the
2 Seattle-Tacoma-Bellevue MSA, some industries have substantial secondary clusters (e.g., Other Logistics in inland
cities) or are geographically dispersed (e.g., Commercial Fishing & Seafood, Energy); consequently, the Dept of
Commerce's industry and geographic priorities will substantially influence each other
While businesses across core and non-core maritime industries tend to be small, variation in specific size,
3 average revenue, and wages of these small businesses suggests a broad range of capital needs;
however, some segments that are predominantly comprised of microbusinesses (<4 employees) may
lack appetite or appropriate resources to scale
All core and non-core maritime industries have low representation of people of color and women; it is
4 important to determine the extent to which lack of capital access is a factor in this gap through
further conversations with stakeholders close to these groups
The highest-growth areas for small businesses appear to be non-core maritime industry segments (which
5 tend to be more technology-focused) and some aspects of water transportation and shipping; this
may increase the attractiveness of prioritizing investment opportunities in these industries
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 17
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 18
PEER CITY CASE STUDIES: OVERVIEW
> As part of this engagement, we created four case studies of other cities with major
maritime economies
> The objectives of these case studies were to:
Understand maritime economy activity in other cities to help inform opportunities for
Washington State and Maritime Blue
Identify key challenges and best practices to be considered as we develop our capital
assessment and illustrative deals
> Similar to the capital landscape assessment, these case studies were a culmination of
interviews with key stakeholders, desk research, and our team's collective
experience supporting SMB ecosystems across the country
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 19
Full peer cities analysis on pages
96-107
PEER CITY CASE STUDIES: HOW WE CHOSE CITIES
We identified 4 peer cities to be the focus of our case studies
Selection Criteria
Maritime economies
> Each of these cities has a robust and
diversified maritime economy, with economic
activity distributed across a wide range of
maritime industrial clusters
Investment activity
> Preliminary desk research identified maritime
investment activity in each of these cities, and
our case studies revealed additional
investment activity that can serve as a model
for illustrative deals proposed through our
work
Access to stakeholders
> Through our interviews, we spoke to key
maritime and capital stakeholders that
provided essential context and information to
inform our case studies and help develop our
research
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 20
Full peer cities analysis on pages
96-107
BLUE ECONOMY PEER CITIES ANALYSIS: KEY FINDINGS
We researched trends in 4 key maritime cities Boston, Oslo, Rotterdam, and San Diego to
understand opportunities and challenges that may be relevant to Washington's Blue Economy
Maritime cluster organizations are responsible for coordinating across stakeholder groups to
support SMBs: Several successful maritime sector initiatives in the peer cities, ranging from blue tech
1 incubators to maritime-focused investor conferences, were made possible through coordination of multiple
stakeholders across the Blue Economy, highlighting the need for a central industry partnership or
organization to drive collaboration
Government initiatives and grants are essential support for SMBs: In each of the peer cities,
2 maritime-specific government grants and business support programs provide key funding and services for
SMB in the maritime economy, allowing early-stage SMB to develop without venture capital and creating
partnerships between SMB and larger traditional maritime and/or tech corporations
Blue Economy incubators and accelerators help attract investment: In Rotterdam and Boston,
3 investors have cited incubators and accelerators as a key pipeline for identifying investable opportunities in
Blue Tech; these incubators provide SMBs the opportunity to develop from proof of concept through early
customer acquisition on a longer timeline often required for maritime technology companies.
Traditional clusters are adapting to the Blue Economy: Industries of historical strength in San Diego,
4 Boston, and Oslo (e.g., submarines, shipping and ship repair, and oil and gas) are finding new markets and
applications for traditional maritime technology, evolving to succeed in the Blue Economy and provide for
sustainable maritime solutions
Investors seek out opportunities in sectors that are familiar to them: In the U.S., the maritime
SMBs that are successful in raising equity investments are typically those with broader tech applications, as
5 there is a robust tech investment ecosystem that investors understand. However, in Norway, there is much
more equity investment in sectors like shipping and energy, as those are the sectors that investors
understand best.
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 21
PEER CITY CAPITAL ACTIVITY: ILLUSTRATIVE DEALS
> In 2018, the Massachusetts Technology Collaborative announced a new grant initiative that would allocate up
to $500,000 for innovation in seaport communities; the grant program is accepting a wide range of potential solutions,
including those related to fisheries, shipping, and renewable energy
> Boson-based Sea Machines Robotics closed a $10m Series A round in 2018; the round was led by Accomplice
Capital, a Cambridge-based venture firm, but included investors from across the U.S.
> In 2018, Shell's New Energies division partnered with EDP Renewables on a $135M bid to develop wind farms
offshore of the Boston harbor
> In 2017, Innovation Norway's export credit program helped fund the conversion of a Danish container ship to hybrid power
with a guaranteed $1m loan; Norwegian Electric Systems provided the batteries for the ship, which were then
installed at a shipyard in the Faroe Islands
> In 2018, Longship, an Oslo-based private equity firm, acquired 100% of Nofitech, a Norwegian small business
that develops aquaculture technology; in 2017, Nofitech had approximately $10M in revenue and 6 employees
> Several shipping companies, including some based in Oslo, joined together in 2017 to build a $150m fund to provide
alternative financing to shipping companies both in Norway and around the world
> Dutch bank ING and the European Investment Bank have each contributed 150m to support projects with a
"green innovation element" in Europe's maritime sector; one early investment was 110m to a Dutch shipping company to
retrofit 42 ships with exhaust gas cleaning systems and ballast water management systems
> Over the past 2 years, Mainport Innovation Fund, a Dutch fund investing in logistics and transport, has invested
more than 7m in seed and Series A funding for Netherlands-based maritime technology firms
> A German maritime technology investment firm, TecPier, announced earlier this year that they will explore
investments between 200k and 250k for companies that have completed Rotterdam-area accelerator programs
> In 2016, the Port established the Blue Economy Incubator to remove "barriers to ocean entrepreneurs and provide
key assets and services focused on pilot project facilitation"
> Ocean Aero, which designs unmanned vehicles that operate both on the ocean surface and underwater, closed a multi-
million Series B in 2018 and has several corporate investors, including Teledyne and Lockheed Martin
> In 2018, BlueNalu, a startup developing technology to grow seafood directly from fish cells, closed a $4.5m
seed round just 2 months after announcing their launch; the round was led by New Crop Capital, a NYC-based food
science venture fund
> Aquacycles, a recreational water-borne bicycle company, was able to raise funding through the 2018 Blue Tech Week
pitchfest
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 22
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 23
Full capital landscape analysis
ILLUSTRATIVE
found on pages 24-45
BLUE ECONOMY LOCAL CAPITAL LANDSCAPE: ECOSYSTEM
Through interviews, focus groups, and desk research, we developed an understanding of providers
serving the local Blue Economy capital landscape from venture stage to business maturity
Traditional Bank Loans / SBA Loans
Equity Debt Grant
Revenue Profit
Business Revenues / Profit ($) Venture Capital
Alternative Lender Loans
(CDFIs, CDCs, Gov't, Credit
Unions, Microlenders)
Angel Investors
Incubators / Accelerators
Grants
Business Size Examples within each category reflect a
representative sample of active capital providers
Startup Early-Stage Growth Mature
Availability of Capital for
Core Maritime SMBs
Availability of Capital for
Non-Core Maritime SMBs
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 24
Full capital landscape analysis
found on 24-45
BLUE ECONOMY LOCAL CAPITAL LANDSCAPE:
KEY FINDINGS (1 OF 2)
Through interviews and focus group conversations with maritime economy stakeholders both in
Washington and internationally, we identified key trends and lessons related to capital access and
activity in Washington's Blue Economy
Venture capital is not seeking out maritime investments: In our interviews, we repeatedly heard that venture capital providers
are either uninterested in or unfamiliar with maritime technology, and those that demonstrated interest shared that even if they wanted
1 to invest, traditional tech and industry would likely receive priority. The complexity and development timeline of maritime tech is a
challenge for investors.
There is a particular need for early-stage capital, especially in core maritime: Maritime SMBs, especially those in core
sectors, have long development timelines between proof of concept and profitability. In some maritime economies both domestically
and internationally, accelerators and incubators provide support for maritime SMBs to develop to a point where investors are more
2 comfortable providing capital. Additionally, maritime SMBs with technology that can be applied to other industries are prioritizing those
use cases to seek capital from funders who have industry focuses beyond maritime in order to receive funding that can help them
survive through the early-stage capital "valley of death".
Government initiatives can help catalyze SMB development: In Norway, the government provides development funding for
Innovation Contracts partnerships between a startup and a large corporation to create and launch an innovative product, typically in
transportation or energy. This model provides upfront capital for the startup, reduces risk for the corporation, and stimulates
3 developments that can then attract investors at scale. In the U.S., there are SBA-type loan funds that could be helpful for maritime
SMBs, but few maritime businesses are in the pipeline for these loans. Other large, national grant programs support major research
initiatives, and it maybe possible for SMB to participate or support this research through their developing technology and take advantage
of this capital
Foundations and philanthropic grant capital can play a critical role in de-risking investment: Foundations that have
maritime or maritime-adjacent program areas are overwhelmingly focused on conservation (often internationally) or educational
4 programs. To further extend this capital to support maritime SMBs, foundations could help capitalize loan-loss reserves or support
additional R&D and development competitions that would identify emerging maritime SMBs, providing those businesses capital to
develop to a maturity that would attract more traditional investment.
Source: Maritime Blue Interview Program
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 25
Full capital landscape analysis
found on 24-45
BLUE ECONOMY LOCAL CAPITAL LANDSCAPE:
KEY FINDINGS (2 OF 2)
Additional conversations with capital landscape stakeholders and business owners helped us further
develop an understanding of the local capital landscape for businesses in the Blue Economy
Building appropriate capital stacks: Because of the reticence for local traditional equity providers to support
5 maritime businesses at scale, each direct-to-SMB investment will require creativity and intentionality to build the right
capital stack that includes first loss capital or credit enhancements from more flexible, patient providers; this is also true
for public infrastructure to properly incentivize private investment to fill gaps in public financing
Bridging to non-local funding: In order to configure the right capital stack, projects and enterprises will likely need
6 to look outside of Washington State / Pacific Northwest to other national or international funders for financing,
especially given that the local Maritime-based investment is limited, and the Seattle impact community is small
Influences of local policy on investment options: Many potential maritime deals could benefit from public support,
7 but will need to consider and work around public sentiment and policies to develop structures like public-private
partnerships and work around limitations to direct investment in small businesses
Culture of self-funding: Several of the core maritime businesses, especially those that own 'lifestyle businesses,'
8 alluded to a trend in Seattle of self-financing business launch and growth leveraging personal resources or access to
friends and family capital, instead of seeking external capital
Importance of technical assistance alongside capital: Local stakeholders revealed the need for additional
support alongside capital, including awareness of and navigation support of small businesses to available capital sources,
9
education of policymakers on financial services, culture building for POC communities around opportunities in
Maritime, as well as breaking down systemic barriers to lack of access for those communities
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 26
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 27
DEBT LANDSCAPE: KEY TAKEAWAYS
While there are several potential debt capital sources for small maritime businesses, capital-
intensive startups and more established businesses that are seeking larger loans, but still building
credit, face challenges
Key Findings
> Maritime businesses can look to a wide variety of lenders for financing, but it is rare to find lenders that
have specifically branded maritime products or programs
Most lenders have industry-agnostic offerings, though some community banks (e.g., Peoples Bank) and CDFIs (e.g.,
Craft3) have special maritime-focused teams or lending initiatives
> While lenders currently offer a wide range of loan sizes from microloans through multi-million-dollars
loans there appears to be a low ceiling on the amount of capital available to startups and low-
collateral businesses
Alternative lenders (e.g., CDFIs) that serve early-stage businesses in LMI communities tend to offer microloans and
other small loans (e.g., Business Impact NW's median loan size is $49K), while banks will more routinely make larger
loans of several hundred thousand dollars or more
There may be significant challenges for entrepreneurs in capital-intensive maritime sub-sectors that need higher-dollar,
longer-term loans to start or sustain their businesses
Consequently, "handoffs" or graduation from one type of lender to another (e.g., from CDFIs to commercial banks) may
be difficult
> There also appears to be a limited number of alternative lenders that can cater to smaller, less
established businesses, which further exacerbates this gap
> Lenders that offer larger loans especially commercial banks tend to have the most stringent
credit and track record requirements and the lowest level of focus and expertise in the maritime
industry
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 28
ILLUSTRATIVE
LOCAL MARITIME DEBT PROVIDER LANDSCAPE: UPDATED
Local debt providers offer loans up to $1m or more, but there are fewer providers offering the
smaller loans ($50k and below) that small businesses may need
Banks
$1M
$500K
Non-Bank Lenders
Average Loan Size ($) $250K
$100K
$50K
$25K
Most Flexible Least Flexible
Underwriting Flexibility (e.g., Minimum FICO Score, Collateral)
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 29
NATIONAL BANKS
National commercial banks offer a wide range of industry-agnostic small business loan products that can be applicable for
maritime businesses, but their stringent underwriting (especially compared to other lenders) place their loans out of reach for
many startups and business owners without established / strong credit history or collateral
Relevant Players
Illustrative Term loans
Products Lines of credit
Equipment loans
Industries Core Maritime Non-Core Maritime
Served X X
Stage of Business Startup Early Growth Mature
Served X X
Key Takeaways
> Large national commercial banks tend to offer several productized small business loans targeted toward different business
needs, but these tend to be industry-agnostic
Banks may offer both secured and unsecured versions of their term loans and lines of credit, in addition to equipment loans
Some banks (like KeyBanc Capital Markets) have maritime practice areas, these are focused on large companies ($20M+ EBITDA)
looking for investment banking and advisory services; smaller companies looking for financing rely on standard, industry-agnostic
loan products
> While these banks can offer larger loans than other lenders, they also tend to have more stringent requirements around credit
scores and years in business especially on their more versatile loan products
Case Wells Fargo's Advancing Term Loan (a line of credit that converts its balance to a loan after a set period of time) is
Example catered toward businesses with $2M to $5M in annual sales
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 30
COMMUNITY BANKS
Community banks are smaller, locally- or regionally-focused lenders that tend to offer industry-agnostic loan products, but may
also have specialized practice areas or teams that focus on important industries in their areas
Relevant Players
Illustrative Term loans
Products Lines of credit
Industries Core Maritime Non-Core Maritime
Served X X
Stage of Business Startup Early Growth Mature
Served X X X
Key Takeaways
> Community banks rooted in the Pacific Northwest appear more likely than major national commercial banks to have
explicit / marketed maritime lending practices
> Community banks also offer general, industry-agnostic small business loans that may be more suited to non-core
maritime businesses (e.g., those that look more like technology companies than traditional maritime businesses)
> However, community banks tend to have collateral and track record (e.g., years in operation) requirements that can make
it difficult for startup businesses and LMI / under-collateralized business owners to attain loans; they also are sometimes reluctant
to make microloans or other small loans
"The challenge is small scale anything under $100K is barely worth the free coffee in the lobby, from the lender's point of view"
> Peoples Bank has a commercial lending team that is devoted specifically to maritime lending and is located
Case near the Fisherman's Terminal and the North Pacific Fishing Fleet
Example The team offers a wide variety of loans, including: boat loans, fishing quota and permit loans, equipment financing,
shipyard financing, operating lines of credit, etc.
In 2017, Peoples Bank financed over half a dozen new vessels
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 31
ALTERNATIVE LENDERS
Community development financial institutions (CDFIs) are the most flexible lenders in terms of requirements around credit,
collateral, and years in business; however, they are often more capital-constrained than large banks and have lower upper-bounds
on loan size
Relevant Players
Illustrative Term loans
Products Lines of credit
Industries Core Maritime Non-Core Maritime
Served X X
Stage of Business Startup Early Growth Mature
Served X X
Key Takeaways
> Maritime lending is not an explicit priority for local CDFIs, as these lenders tend to focus more on reaching traditionally
underserved business owners (e.g., people of color, women, LMI) and early-stage businesses in general
Maritime likely represents a relatively small fraction of CDFIs' lending; for example, 2/3 of Business Impact NW's lending is in the
service industry, followed by retail
However, maritime is certainly among their practice areas; earlier this year, Craft3 signed on to help originate and service loans
for the Local Fish Fund a loan program for small fishing businesses in Alaska
> These lenders' deep ties to tribes, communities of color, and women entrepreneurs could make them natural
partners for increasing maritime investment in business owners with those backgrounds
NDC also manages 3 loan funds in smaller counties with high maritime presence and could help increase maritime lending in these
communities
> These CDFIs often work with borrowers with fewer years in business, lower credit scores, and less collateral than community and
commercial banks, but they tend to make relatively small loans, which can create challenges for non-bankable
businesses with higher capital needs
While CDFIs can lend across the continuum (e.g., Craft3 markets loans up to $3M), they tend to deploy microloans and small
loans (e.g., Business Impact NW's median loan is $49K)
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 32
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 33
EQUITY LANDSCAPE: KEY TAKEAWAYS
Equity investment in maritime industries is very limited, but some alternatives to traditional equity
(e.g., revenue-based financing) could be more feasible and attractive investment avenues
Key Findings
> Washington-based venture capital firms have little familiarity with maritime industries, which limits
potential deal flow
Significant education on potential maritime opportunities is needed before venture investors would consider this sector
Technology companies that have products with other non-maritime use cases sometimes attract investment, but usually
predominantly on the merits of the non-maritime applications / markets
> However, even those with more knowledge of maritime industries often express concern about small
businesses' ability to scale within their exit timeframes and return targets, as well as the fact that
revenue and innovation are often driven by regulatory pressures
> While direct investment from large, established corporations that could benefit from small companies'
offerings could theoretically fill this gap, it is rare for large, local maritime corporations to have
venture arms
This trend appears to be more pronounced in Washington than around the globe (e.g., in Singapore or Norway), and it
may be more pronounced in shipbuilding than in shipping or other more commercial or tech-enabled businesses
> Some investment firms / groups are piloting alternatives to traditional equity (e.g., revenue-based
financing and convertible debt), which could be more aligned with maritime market dynamics
However, maritime is not a major focus area for these businesses, so alternative financing for maritime businesses is
likely still relatively rare
> There are also some players in the more traditional local equity landscape, including Carlyle (via
acquisition of Vigor), Endeavour Capital, and 3x5 Partners
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 34
ILLUSTRATIVE
BLUE ECONOMY EQUITY INVESTOR ECOSYSTEM
Our research identified the following local equity investors across the spectrum of business capital needs
Firm Growth
Time
Typical Financing Pre-seed (<$250k) Seed ($250-750k) Series A ($750k- $3M) Series B+ ($3M+)
Core
Avail. Of Capital
Non-Core
Startup Early Stage Growth Mature
Incubators /
Accelerators
Angel / Seed
Venture
Capital
Private Equity
Family
Saltchuck Fiona Banniester Walton Wilburforce
Offices
West Stolte Russell Family Wild Lives
Corporates
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 35
VENTURE CAPITAL
Washington is home to several VC firms that invest primarily in early-stage technology-focused companies. However, VC firms
have very little footprint in the maritime industry, and equity investment in maritime small businesses is rare even in maritime
technology
Relevant Players
Illustrative
Equity investment
Products
Industries Core Maritime Non-Core Maritime
Served X
Stage of Business Startup Early Growth Mature
Served X X
Key Takeaways
> With the exception of specialized, mission-driven funds (e.g., Salmon Investment Fund), WA-based venture capital firms tend not to
have maritime portfolios
> This is due, in large part, to the fact that the growth trajectory for maritime industries especially in the core industries, but also in
non-core maritime do not align well with venture capital firm's exit timelines and target returns
"I question the suitability of traditional maritime for VC funding it's the wrong type of capital"
"Very few maritime technologies can scale to $1B+ in 7-8 years, which is the typical VC target"
> While some non-core maritime (especially software/tech) could be attractive to VC firms, concerns and lack of awareness of
opportunities, market dynamics, and demand remain important barriers to deal flow
"One of the challenges is lack of visibility and understanding of maritime"
"Regulations drive much of the maritime innovation, and it's hard to build an 8-year revenue curve when you can't predict
regulations"
"We do not have much knowledge of global maritime investors and partners"
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 36
CORPORATIONS
Unlike in some industries, in which it is common to see large corporations establishing venture arms and incubators to help grow
and leverage startups aligned with their market strategies, major corporations in maritime industries appear to do so infrequently
Relevant Players
Illustrative
Venture capital
Products
Industries Core Maritime Non-Core Maritime
Served X X
Stage of Business Startup Early Growth Mature
Served X X
Key Takeaways
> While there are some major multinational maritime corporations that have or have historically had venture arms, there is little
evidence of large Washington-based firms incubating or investing directly in small businesses
BW Singapore (the world's largest shipping company) has a VC arm and uses its fleet as a test-bed for new technology; DNV GL
spun out a venture firm several years ago
However, a representative of a local shipbuilding company noted: "I don't see corporations investing in small businesses or doing
R&D agreements.I'm familiar with other industries doing that, but it's on a much, much smaller scale in the maritime industry"
> Large-scale shipbuilding leaders especially in naval shipbuilding seem less likely than more commercially-oriented shipping firms to
invest in small businesses, largely due to factors related to risk management
"This [shipbuilding] is an old-school industrythere isn't a lot of tech that people do. It's also a risk-averse industry"
"If there were a way we could work collaboratively with someone and de-risk the investment, some sort of collaborative R&D
could be attractive.being able to do the work on test pieces would be helpful so we aren't testing new tech on a Navy
destroyer"
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 37
ALTERNATIVE "EQUITY" PROVIDERS
Alternative "equity" providers are firms / funds / investor groups that offer investments that are more flexible than traditional
equity (e.g., revenue-based financing and convertible debt). While no identified firms have large maritime portfolios, their more
flexible approach may lend itself more readily to the growth profile and needs of maritime businesses
Relevant Players
Illustrative Revenue-based financing
Products Convertible debt
Industries Core Maritime Non-Core Maritime
Served X X
Stage of Business Startup Early Growth Mature
Served X X
Key Takeaways
> Alternatives to traditional equity are likely more suited to the needs and growth potential of maritime businesses
"We are still experimenting, and where I think we'll find some interesting models is doing more profit-sharing types of things"
"It's a function of capital needs and return potential and scalabilitythat makes alternative investment strategies more attractive"
"The idea is to provide a high-probability way for investors to get a return and still get some participation in the event of a
success"
> However, identified alternative investors do not appear to be making high-volume investment in maritime
"A small amount of our business is focused on maritime.directly, under 10% of the investment we do is in
maritime.indirectly, this number is higher (e.g., because of clean water)"
"We work exclusively in clean tech.we have seen some plays around renewable energy using waves / tidal energy"
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 38
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 39
FOUNDATIONS
Foundations offer philanthropic capital through program- and mission-related investments in addition to grants, but philanthropic
capital in the maritime space is largely focused on education and sustainability, and only a few players have program areas specific
to maritime opportunities
Relevant Players
Illustrative Program-related investment
Products Mission-related investment
Grants
Industries Core Maritime Non-Core Maritime
Served X X
Stage of Business Startup Early Growth Mature
Served
Key Takeaways
> Limited number of foundations have maritime-specific program areas beyond clean-up and conservation education
The Schmidt Family Foundation (Schmidt Martine Technology Partners), Russell Family Foundation (Puget Sound, Puyallup
Watershed Initiative), and the Packard Foundation (Ocean) are among the only foundations identified that have maritime-specific
program focuses
> Foundations are generally focused on maritime education and sustainability efforts
Several foundations researched provide grants to schools, communities, and other civic organizations for environmental and
watershed cleanup, school-based environmental education programs, and other sustainability efforts
These funding efforts are not primarily focused on funding emerging blue tech solutions
> Foundations have an opportunity de-risk investments from other capital providers
Foundations could make key contributions to funding CDFIs or capitalizing a loan-loss reserves in an effort to provide maritime
capital without directly funding for-profit businesses
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 40
GOVERNMENT GRANTS AND LOANS
A small number of maritime-specific government grant programs exist, but they are focused on a narrow set of use cases; while
this can help support traditional maritime industry, research institutions such as the APL, and more established SMB, there is
limited funding available for early-stage maritime businesses
Relevant Players
Illustrative Grants
Products Loans
Industries Core Maritime Non-Core Maritime
Served X X
Stage of Business Startup Early Growth Mature
Served X X X
Key Takeaways
> Some grants are available to small business for certain specific uses across both non-core and core maritime
The Washington State Department of Commerce Export Voucher Program provides some support for SMB doing international
business; however, funding is limited to $5k, and is only offered to firms that have been in business for at least a year and
"demonstrate export readiness"
The US DOT Maritime Administration offers up to $20M a year through the Small Shipyard Grant Program; shipyards must be
based in a single geographic location and use the funds for improvement projects or employee training
> Identified government loan programs have structure and requirements similar to SBA loans
The Skagit County Revolving Loan Fund is an SBA-loan type program that provides up to $500K for equipment or real estate or
working capital
This loan fund is only available to business with at least 2 years in operation and who meet loan eligibility criteria (including
sufficient revenue to cover the debt), making it difficult for startups to take advantage; it also does not have a strong track record
of funding maritime businesses
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 41
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Ga ps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 42
AVAILABILITY OF CAPITAL BY INDUSTRY
Our analysis found that capital is available for mature maritime businesses, but startups in both
maritime technology and traditional maritime companies struggle to find investors who understand
or are interested in this sector
Type of SMB Capital options Availability of capital
> These more established companies are seeking
Mature maritime > Traditional banks larger loans from banks and SBA for equipment
SMB > SBA loans or working capital
> Family and friends > Often have the business history and revenue
(non-tech) stability to be eligible for larger loans
> CDFIs > Banks and other lenders, especially regionally, are
> Community banks familiar with traditional maritime sectors;
however, many startup businesses lack the track
Start-up maritime > Credit unions record to access this capital
SMBs (non-tech) > Federal research grants > Research grants can help support and sustain core
> Family and friends industries, but business are not always familiar
with how to navigate them
> Traditional equity investors (e.g., VC and PE) are
> Angel investors generally not interested in new maritime tech
Start-up maritime > Companies with other use cases beyond
tech > Incubator funding maritime may be able to access low-cost equity
> Federal research grants capital
> Research grants may be available to support and
sustain core industries, but business are not
always familiar with how to navigate them
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 43
Full capital landscape analysis
found on 24-45
CAPITAL LANDSCAPE ANALYSIS: IDENTIFIED GAPS
Our research into the local Blue Economy capital landscape identified key gaps in the availability of
capital for small businesses
1 Low ceiling on loans (~$750k) available to early-stage businesses that are not yet bank ready
Lack of flexible, responsible loan capital offered by CDFIs due to limited CDFIs presence and a
2
gap in offerings above $100k or less than $1m
Very few equity providers are focused on maritime they are either not knowledgeable or
3
interested because of government regulations and concern about scaling and exit potential
Funding at the proof-of-concept / testing stage is especially hard to find for maritime-tech
4 businesses; often maritime businesses do not want to test new technology on active sites and desire
funding for test sites, which can be costly and have a long-term ROI
5 Unlike in other maritime economies, very few local corporations are partnering with SMBs and there
is little funding to de-risk collaborations between these players
There is limited marketing of maritime-specific products across the capital spectrum from
6 grant to equity, making it difficult for small businesses to navigate what resources may be available to
them
Few options for "no-cost capital", like R&D grants or prize competitions targeted at maritime,
7
which would allow start-ups to prove concept and attract additional investment
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 44
ILLUSTRATIVE
INVENTORY OF LOCAL PROVIDERS
As part of our work, we created an Excel-based inventory of local capital providers across the
debt, equity, and grant landscapes
Information documented includes (where available):
> Location of Institution > Typical investment size
> Organization Type (e.g., CDFI, Commercial bank, Foundation, > Eligible uses of investment
etc.) > Investment terms
> Type(s) of capital provided > Financial return expectations
> Other services provided (e.g., technical assistance) > Underwriting criteria (e.g., collateral requirements)
> Products > Industry focus
> Target business size / stage > Geographic focus
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 45
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 46
WHAT IS A "DEAL"?
> For purposes of this engagement, we are defining a "deal" as a potential investment in an
enterprise (direct to small business), project, or intermediary
> We have identified 10 deals across four key categories with diverse capital sources required,
ranging from corporate investment to public-private partnerships
Investments in large scale projects to build or rebuild key maritime infrastructure (e.g., ports)
Public Infrastructure that will enable small businesses to operate more effectively and / or have direct impacts on
environmental sustainability within the Maritime industry
Investments in Maritime-based small businesses that fall into "core" maritime segments (e.g.,
Commercial Core ship and boat building, repair and maintenance, commercial fishing and seafood products,
Maritime passenger water transport, maritime logistics & shipping, and recreational boating and boat
building)
Maritime Technology Investments in Maritime-based small businesses that have technology applications (e.g.,
robotics, sensors)
Change Drivers Investments in funds or projects that aim to increase inclusivity and / or innovation within the
Maritime sector
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 47
SUMMARY OF ILLUSTRATIVE DEALS
We have identified 10 illustrative capital deals to support the development and expansion of
Washington's Blue Economy
Opportunity prioritized by Maritime Blue Steering
Type of Deal # Deal Detail Committee in July 30th working session
> Investment in the retrofit of 2 existing ferries, commission 5 new
1 Electrification of ferries
hybrid power ferries, and create and install shore power
Public 2 > Investment to rebuild aging critical port infrastructure (e.g.,
Infra- structure Port rebuilding in rural communities
breakwaters, docks) in rural communities
3 > Investment in small fishing vessels by catalyzing loans between
Core Maritime Increasing small vessel loans
Commercial $500k - $1m
Transitioning to low emission marine > De-risk investment in small business to convert vessel engines
4
engines into environmentally sustainable engines
> Direct investment in MER Equipment to support R&D into more
5 Funding MER Equipment
sustainable energy solutions
> Direct investment in Numurus to commercialize technology and
6 Funding Numurus
demonstrate applications in industries other than Maritime
Maritime > Direct investment in Olis Robotics to enable them to develop
Tech 7 Funding Olis Robotics software for land-based industrial robots and fund their
development for the next 5 years
8 Support for robotics and automation > Catalyze innovation in robotics and automation for shipping
technology for shipbuilding companies by developing a research lab
> Investment in a loan loss reserve fund that de-risks financing
9 Establishing loan loss reserve fund
Change Drivers from CDFIs into businesses owned by women and people of
for CDFIs
color
> Investment to de-risk partnerships between small businesses and
10 Setting up innovation contracts
large corporations to promote innovation
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 48
PUBLIC INFRASTRUCTURE
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 49
ILLUSTRATIVE DEAL: ELECTRIFICATION OF FERRIES (1 OF 3)
Overview of Deal Opportunity
> Retrofitting 2 existing ferries with electric power
> Commissioning 5 new hybrid-power ferries
> Creation and installation of a shore power system able to charge ferries in 15 minutes
Key Details Value Proposition
> Hybrid potential mix includes state
Capital Type funding, corporate or private investment, > This is a major infrastructure initiative for a
and impact philanthropy For key piece of Washington's maritime
Investors economy; substantial cost savings on fuel
and repair vs. diesel-burning ferries could
Investment Size > $500M or more lead to strong return on investment
> Opportunity to be a part of key
> Depends on funding model pursued, see
Expected Return infrastructure project(s) for Washington
next slide for additional detail For SMBs State, which will enhance notoriety and
revenue streams from contracts
> Capital stack may include public funds, > Position SMB for additional business via
Capital Stack
government bonds, debt, and revenue-based related projects
Components
investment
> State of Washington, The Port of Seattle, > Electrification of the ferry system will
Vigor, DNV GL; may also include additional For significantly reduce reliance on diesel
Potential Funders corporate investors who are interested Maritime fuel and lead to a commensurate
helping to develop shore power (e.g., Blue reduction in carbon emissions
Cochran Marine)
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 50
ILLUSTRATIVE DEAL: ELECTRIFICATION OF FERRIES (2 OF 3)
Deal Structure
Funding Structure Details Capital Flows
> Via this model, a share of the savings realized over
1 State funding,
diesel-burning ferries (see Denmark example below) investors, and joint
would be returned to investors and industry 1 corporate efforts
Pay for Success (PFS) partners (for both ferry construction and shore combine to fund
State funds Investors Corporates electrification and
model power installation) to provide financial return shore power
> Additional opportunity, already discussed, for the
state to issue bonds coming from fuel savings for Electric ferries
additional revenue 2 collect fees and
generate savings
> Through the P3, retrofitting and construction could versus diesel ferries
Ferry and shore
begin, paid for with apportioned state funds power In PFS model,
(transportation budget, VW mitigation funds) a construction investors receive
shipbuilder, Vigor, has a contract to retrofit current performance-based
boats and build new electric ones return from
3 government, with
> Funds may also be used to help subsidize the
Public-private Electric ferry performance
installation of a suitable shore power system, 2 verified by a third
partnership (P3) operation
developed through a joint industry effort party on the
> Private investment and corporates would be paid 3 4 contract
returns through a portion of port fees collected In P3, port
> This has thus far proven politically unviable due to
4 operation fees will
legislative resistance to using public funds for private provide return on
payments investment
Electrification of Denmark's Ferries:
> A Siemens study from 2016 concluded that 7 of 10 ferries converted to all-electric or hybrid power would be more profitable
Examples > Savings would be generated through reduced maintenance costs, stabilized costs of electric power vs. volatility of fossil fuels, and lighter, more
Case efficiently-operating ship
> In 2018 and 2019, Denmark commissioned all-electric ferries, paid for through a 94B EU scientific research fund
Shore Power at Port of San Diego
> $11.4m invested (via Capital Improvements Program, funded by Port revenues) by the Port, to install 2 systems, with an additional $2.4M
provided via state grants from the Carl Moyer air quality improvement program
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 51
ILLUSTRATIVE DEAL EXAMPLE: ELECTRIFICATION OF FERRIES (3
OF 3)
Due Diligence Questions / Follow-Up
> What are the potential new legislative paths that can avoid the previous resistance?
> What role can the state and the identified shipbuilder (Vigor) play in putting together a potential joint industry deal
to build out the remaining ferries and develop a suitable shore power system?
> What would be estimated returns of the Pay for Success model be? How much data is there to model the cost
savings of the electric ferries for PFS investors?
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 52
ILLUSTRATIVE DEAL: PORT REBUILDS IN RURAL COMMUNITIES (1 OF
3)
Overview of Deal Opportunity
> Rebuild aging critical port infrastructure (e.g., breakwaters, docks) in rural communities to support Maritime-based small businesses
Deal Structure
Funding Structure Details Capital Flows
> Given that rural port infrastructure is often an undercapitalized public Other Gov 4
good, public-private partnerships (P3s) could be promising solutions (e.g., fed)
> Under a P3, both the public authority (e.g., port authority, municipal or
state government) and a private company (e.g., construction company) Public Private
would invest funds into the port construction project Authority Company
> The port would remain under public ownership, but would be leased 2 1
to the private company under a long-term contract (~40 years)
> The private company would operate the port, charge fees, and return 3
some of that revenue to the public authority in the form of rent Port Rebuild
> As an additional incentive to the private player, the contract may allow
Public-private
the company to develop additional revenue-generating operations
partnership (P3) Operations
in the port (e.g., concessions, rentals, etc.)
> A critical key to success is ensuring sufficient public funding Public authority and private company contribute
Past attempts at P3s (e.g., 2011 assessment of potential P3 for Anacortes 1 to cost of construction project
ferry terminal) failed to launch due to insufficient state funds, despite There may be other grants (e.g., from federal
multiple interested private companies 2 agencies) to reduce the burden on local/state
> Federal grants could help fill shortfalls in state funding government and the private partner(s)
DOT BUILD Grants provide $1M-25M for infrastructure (including in The private company receives revenue from the
3
ports) in rural areas operation of the port infrastructure
US Fish & Wildlife Service Boating Infrastructure Grants (BIG) provide The private company pays lease to the public
4
up to $200K/year for port/marina infrastructure serving transient vessels authority that retains ownership of the port
infrastructure
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 53
ILLUSTRATIVE DEAL: PORT REBUILDS IN RURAL COMMUNITIES (2 OF
3)
Sampson & Seneca Lake State Parks, NY
> Project: Rehabilitation of aging marinas in 2 state parks & investments in camping grounds
Case Examples > Total Cost: $7.5M total ($4M for marinas)
> Deal Structure: A local, family-owned business (SamSen) was awarded a 40-year lease contract to manage improvements to and
operation of marinas; the contract involved the option to develop and operate other revenue-generating businesses at the park
(e.g., cabin rentals, RV campground)
> Funding: $2M in state parks funding (from State of NY), $1.5M investment commitment from SamSen; funding for additional
amenities was through a regional EDC and a grant through a state senator
Key Details Value Proposition
For
> Mix of public grants and direct private Investors > Long-term and exclusive revenue stream,
Capital Type
investment in project opportunity to develop additional revenue-
(private generating operations at port
companies)
> Other rural port/marina projects suggest
Investment Size rough order of magnitude cost of $4M per
project
For SMBs > Access to functional, modern infrastructure
that otherwise may not have been rebuilt
> Depends on port revenue and terms of
Expected Return
lease agreement
For
Maritime > Promoting continued viability of rural
State of WA, federal grants (e.g., DOT, USWFS),
Potential Funders maritime communities
private construction companies Blue
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 54
ILLUSTRATIVE DEAL: PORT REBUILDS IN RURAL COMMUNITIES (3 OF
3)
Due Diligence Questions / Follow-Up
> What rural communities might be particularly amenable to P3s for port infrastructure?
> Are there any companies that could be especially strong private partners?
> How much revenue (and what level of rent) would a project have to include to be enticing to private businesses?
> Where could the State of WA locate funding in its state budget to support P3s? How much funding could it make
available?
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 55
COMMERCIAL CORE MARITIME
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 56
ILLUSTRATIVE DEAL: INCREASING SMALL VESSEL LOANS (1 OF 3)
Overview of Deal Opportunity
> Capital provider interviews revealed a gap in loan availability for small maritime businesses looking for $500K-$1M (e.g., for small fishing
vessels) from either small lenders (e.g., CDFIs) or banks
> There is an opportunity to incentivize banks to make smaller dollar loans to small businesses looking to refurbish or build their fishing
fleet(s)
Deal Structure
Funding Structure Details Capital Flows
> To fill this gap, the State of WA needs to incentivize lenders to make
smaller loans to small businesses; this is not just a matter of risk it 2
is also a matter of capital availability and returns Lenders State
> One low-risk incentive the State of WA could offer lenders is an
increase in state treasury deposits the lenders receive, which
would be proportional to the volume of loans they make in the 1
target range / to target business types 4 3 4
The State of WA would designate a certain amount of treasury funds
that it will deposit at participating lenders
Sm all Broader
Movement of For every qualifying loan that a lender makes, it would receive a state Businesses pool of
State Deposits as deposit of equivalent value borrowers
Incentives For types of loans that the State particularly wants to incentivize, the
matching rate could be more attractive (e.g., 2:1 state deposit-to-loan
value) 1 Lenders make qualifying loans to small businesses
> This approach could be feasible and generate widespread interest in WA
due to the high number of lending institutions already authorized 2 The State of WA makes deposits in lenders in
proportion to their qualifying loans
to receive state deposits (and, therefore, eligible for such a program)
3 New deposits enabler lenders to increase their
There are 64 banks and 15 credit unions in WA that are authorized to overall lending
accept public deposits
> Such a program has the advantage of not requiring additional 4 Lenders receive interest payments on their loans
funding, as it simply shifts existing treasury deposits
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 57
ILLUSTRATIVE DEAL: INCREASING SMALL VESSEL LOANS (2 OF 3)
State of Rhode Island's BankLOCAL Program
Examples > Deal Structure: RI State Treasury initiative launched in 2017 that designated $30M in state deposits that can be shifted to lenders
Case that make loans to small businesses; there is a 2:1 state deposit-to-loan value ratio for loans to person of color-owned, womenowned
, and veteran-owned small businesses
> Total Cost: N/A (shifting existing deposits)
> Funding: Existing state treasury funds
Key Details Value Proposition
> Little to no additional investment required
> (shifting existing funds), low risk (not
Capital Type State treasury deposits For State of
investing directly in small businesses), does
WA not violate constitutional prohibitions on
investing public funds in private enterprise
> Flexible; depends on how many funds the
Investment Size state treasury is willing to designate as
subject to the program > Increase in deposits allows lenders to
For Lenders increase their lending by an even greater
amount, thereby increasing their revenue
> N/A (moving existing state deposits across
Expected Return
pre-approved financial institutions)
For
Maritime > Increasing loans to small maritime businesses
Potential Funders State of WA that otherwise struggle to obtain capital
Blue
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 58
ILLUSTRATIVE DEAL: INCREASING SMALL VESSEL LOANS (3 OF 3)
Due Diligence Questions / Follow-Up
> How many treasury funds would the State of WA be willing to designate as movable through this program?
> What parameters would the State of WA want to put on "qualifying loans" (e.g., loan size, industry sub-sector, etc.)?
> If loan size is a parameter, could there be an adverse consequence of incentivizing banks to push borrowers to take out
loans for more or less than they really need?
> What other opportunities exist to fill the gap of capital from $500k - $1m (e.g., CDFIs funding larger size loans or
giving borrowers a cut of interest rates if they undergo an innovation audit)?
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 59
ILLUSTRATIVE DEAL: LOW-EMISSION MARINE ENGINES (1 OF 3)
Overview of Deal Opportunity
> The Maritime Blue Strategy aims to make shipping more sustainable by reducing its carbon footprint, but even businesses interested in
making their vessels more environmentally friendly may lack funds to invest in new, low-emission marine engines
> Through this deal, the State can leverage tax credits for small businesses to convert their engines
Deal Structure
Funding Structure Details Capital Flows
> The State of WA's constitutional prohibition on investing public funds in private
enterprise likely precludes direct subsidies of small business owners' purchase of
low-emission engines State
> However, tax credits for retrofitting vessels with low-emission engines
or including low-emission engines in new-builds could be a viable work-
around 2 4 3
> The State of WA could add eligibility requirements that would generate
Vessel
additional economic benefit for the state and ensure that the state owners
captures environmental benefit
Potential eligibility requirements include: 1
Tax Credits Retrofits or new-builds must be done in WA, thereby supporting Engine sellers,
retrofitters, shipyards
WA shipyards and maritime jobs
Vessel owners purchase new low-emission
Vessels must operate a certain percentage of the time in WA waters 1 engines to retrofit existing vessels or to be
or demonstrate that a certain minimum portion of their emission installed in new-builds
reductions accrues in WA (this may be challenging, though, given that
fishing vessels often have to operate outside of WA waters in order 2 State grants tax credit to vessel owners
for their businesses to be financially viable) Tax revenue from companies that install the
> This program would build on existing efforts by the Puget Sound Clean 3 engines and from WA jobs
Air Agency, which has historically leveraged several funding/federal grant supported/retained
sources to finance clean marine engines (most recently, an EPA grant to replace 4 Tax revenue generated from vessel
engines on 6-8 harbor vessels) operations in WA
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 60
ILLUSTRATIVE DEAL: LOW-EMISSION MARINE ENGINES (2 OF 3)
State of CA's Carl Moyer Program: Marine Vessels
> Project: State of CA Air Resources Board engine replacement subsidy program administered through local air pollution control
Examples districts, which shape eligibility requirements for their areas; the program is focused on incentivizing vessel owners to upgrade
Case engines to exceed legal requirements for emissions
> Total Cost: Avg. $71.K/engine (1998-2017)
> Deal Structure: Depending on type of engine upgrade, program will cover up to 85% of the cost of low-emission engines for
various types of vessels (e.g., fishing, tugboat, ferry, barge, etc.); some air pollution control districts (e.g., Santa Barbara County)
require vessels to operate 100% of the time in their coastal waters, ensuring they capture environmental and economic benefits
Key Details Value Proposition
Capital Type > N/A (tax credit)
For State > Incentivize maritime economic activity in the
of WA State of WA (e.g., shipbuilding, retrofitting)
> Flexible; depends on what percentage of
Investment Size costs the State of WA is willing to cover
through tax credits
Expected Return > N/A
For
Maritime > Increasing loans to small maritime businesses
that otherwise struggle to obtain capital
Blue
Potential Funders State of WA
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 61
ILLUSTRATIVE DEAL: LOW-EMISSION MARINE ENGINES (3 OF 3)
Due Diligence Questions / Follow-Up
> How much of the engine cost should be recoverable via a tax credit to incentivize businesses to invest in new, lowemission
engines?
> What data is available to model the revenue offset for the tax credit from local production?
> What eligibility requirements would the State of WA want to put on these incentives?
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 62
ILLUSTRATIVE DEAL: MER EQUIPMENT (1 OF 2)
Overview of Deal Opportunity
Company
> MER Equipment is a marine equipment supplier primarily focused on power generation, distribution, and management, primarily
supporting the fishing and tugboat industries in the Pacific Northwest
> MER Equipment was founded in 1964 by a fisherman, Ivan Fox, and is now in its 3rd generation of leadership
Investment
> MER Equipment is branching into R&D for more sustainable energy solutions (e.g., hybrid power; this investment would allow them to
commit to that R&D more fully without threatening cash flow
Key Details Value Proposition
Capital Type > Equity preferred; other capital possible > MER Equipment has a stable and successful
core business and long history of doing
business in the Washington maritime
> For economy
MER Equipment is seeking $2m in equity
Investment Size
investment Investors > The size of investment is relatively small, but
has the potential to generate returns
Expected Return > Potentially 2-3x original investment
> Capital stack may include equity and/or
Capital Stack
convertible notes > Sustainability: Increases sustainability through
Components
> Revenue-based loans also possible For the scaling of a hybrid-power solution that can
be applied to entire Fishing and tug boat fleets
Maritime > Economic development: Supports the growth of
Additional funders may include family offices and
Potential Funders Blue a locally-owned, hardware-focused SMB with
angels interested in more patient capital for SMB between 11-50 employees
growth
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 63
ILLUSTRATIVE DEAL: MER EQUIPMENT (2 OF 2)
Financial Details Relevant Trends
Estimated revenue: > MER Equipment's interest in innovating for sustainable energy
> More than $10M (2018) solutions in fishing, driven in part by customer demand, is part
of larger worldwide trends to make the fishing supply chain
> Revenue is up more than 20% over the last 3 more sustainable
years > While aquaculture and sustainable harvesting are well-known
> Additional details needed for investor priority areas for sustainability, investment in MER Equipment
conversations and diligence would help create sustainable solutions further up the value
chain
Previous financing: Case Examples
> Have taken friends and family and personal > Quadrofoil, a Slovenian startup producing all-electric vessels
loans over 55-year history; amounts for all water surfaces, completed a 3M Series A in 2018
undisclosed led by Swiss investor AlpVent; funds will be used to expand
manufacturing capacity and quickly scale sales and marketing
> Additional details needed for investor
> Pure Watercraft, a Seattle-based electric propulsion company
conversations and diligence
designing and building electric powered recreational
watercraft, raised $2.1M in debt financing in 2016
(details on funders and specific uses are unknown, but
interviews with the founder from that time indicate the money
was used to product prototypes that would attract venture
investors)
Due Diligence Questions / Follow-Up
> Typical VC due diligence
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 64
MARITIME TECHNOLOGY
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 65
ILLUSTRATIVE DEAL: NUMURUS (1 OF 2)
Overview of Deal Opportunity
Company
> Numurus, founded in 2017 by a team of robotics engineers, offers Internet of Things products and services focused on data
processing, robotics, and fleet inspection solutions; these offerings have a wide variety of maritime applications that support smarter,
more sustainable use of resources and energy
Investment
> With this growth investment, Numurus will commercialize their technology to demonstrate applications in industries other than
maritime and attract additional future investment
Key Details Value Proposition
Capital Type > Equity preferred, other capital possible > IoT applications in maritime sectors are part
of a larger technological trend for smart,
more sustainable maritime operation and
> systems
Numurus is seeking $2M in equity For
Investment Size Investors > Globally, there is increased demand for IoT
investment
solutions across a variety of industries;
investment in Numurus would help them
demonstrate these varied applications and
Expected Return > Potentially 2-3x original investment expand returns
> Capital stack may include equity and/or
Capital Stack
convertible notes > Sustainability: Reduces energy consumption
Components
> Revenue-based loans also possible For through application of smarter fleet
management tools
Maritime
> Economic development: This investment will
Additional funders may include family offices and
Potential Funders Blue help commercialize leading technology from
angels interested in more patient capital for SMB
a local maritime SMB
growth
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 66
ILLUSTRATIVE DEAL: NUMURUS (2 OF 2)
Deal Structure Relevant Trends
Estimated revenue: > In 2017, venture capital funding into U.S.-based IoT
startups was $1.4B, up 216% from the $461.7 million
> Between $500,000 and $1m (2018) raised in 2013
> Revenue is up more than 20% over the last 3
> An Inmarsat study from 2018 found that adoption of and
years
spending on IoT in maritime sectors exceeds that of other
> Government product and service contracts are industries as maritime stakeholders focus on energy
roughly 80% of revenue; remaining 20% is efficiencies and cost reduction
additional product sales
> Additional details needed for investor Case Examples
conversations and diligence > Traxens, a French supply chain data company, closed a
20M Series C round (led by investment bank Bpifrance)
Previous financing: that will allow them to launch a global large-scale sea-
> $250,000 equity investment for working capital land fleet of IoT tracking solutions
and R&D (2018) > In response to global trends in IoT adoption, in 2018,
> $150,000 line of credit established for R&D British telecom company Inmarsat launched Fleet
funding (2018) Data, which will enable ship owners and managers to access
and analyze real-time onboard data
Due Diligence Questions / Follow-Up
> Typical VC due diligence
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 67
ILLUSTRATIVE DEAL: OLIS ROBOTICS (1 OF 2)
Company Overview of Deal Opportunity
> Olis's robotics platform and machine learning software supports robotic dexterity, precision, and efficiency to reduce downtime and
costs
> Olis's CEO, Don Pickering, is a successful serial entrepreneur in both the maritime and technology space. Mostly recently, in 2010, he
launched OneOcean (now ClipCard) dedicated to cloud software and data exchanges for sea floor data, raising $8M for the company
Investment
> Olis is moving into development of software for land-based industrial robots; this Series A will help fund that development and support
growth for the next 5 years
Key Details Value Proposition
Capital Type > Equity > Olis has already gone through several
rounds of diligence, raising (in previous
rounds) $3.6M in grant capital, including
For $770k from the National Science
Investment Size > Olis is raising a $12M Series A-1 Investors Foundation, with and additional $1.5M in
matching capital from investors like Alliance
> of Angels and SeaChange fund
Olis is targeting a $500M exit > Olis is targeting a broad customer base in a
Expected Return estimated timeline is at least another 5 wide variety of industries, creating
years opportunity for multiple revenue streams
Capital Stack > Capital stack may include equity and/or > Sustainability and Research: Olis's autonomy
Components convertible notes
For software for remote robotic systems has a
Teledyne wide range of applications in subsea
Maritime research and navigation
Potential Funders Blue
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 68
ILLUSTRATIVE DEAL: OLIS ROBOTICS (2 OF 2)
Deal Structure Relevant Trends
Estimated revenue: > Across all industries, machine learning will move from
> Between $500,000 and $1m (2018) emerging technology to mainstream adoption with in the
> Revenue is up more than 20% over the last 3 next 3-5 years
years > Just as with the Internet of Things, machine learning will be
> Additional details needed for investor a critical part of the Blue Economy as maritime sector
conversations and diligence stakeholders look for energy and cost efficiencies
Previous financing: Case Examples
> $3.6M in grant capital raised between 2016 and > San Diego's Ocean Aero, which designs unmanned vehicles
2018 that operate both on the ocean surface and underwater,
> $1.4M Series A raised in 2017 closed a Series B in 2018 and has several corporate
investors, including Teledyne and Lockheed Martin
> Venture round in 2017 (amount undisclosed)
> Boson based Sea Machines Robotics closed a $10m
> Additional details needed for investor Series A round in 2018 led by Cambridge-based
conversations and diligence Accomplice Capital with participation from Eniac
Ventures
Due Diligence Questions / Follow-Up
> Typical VC due diligence
Source: Garter Reports, Nautilus Labs
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 69
ILLUSTRATIVE DEAL: R&D GRANTS FOR SHIPPING TECHNOLOGY (1
OF 3)
Overview of Deal Opportunity
> The idea of support for R&D was frequently raised in conversations with investors, who are looking for maritime tech that can move
beyond proof of concept and generate revenue
> SMB owners in focus groups also articulated the need for more R&D funding that is not specifically tied to customer orders
> Financial and operational support for shipping technology R&D could be provided through a federally- and state-funded research lab,
perhaps as part of the planned maritime accelerator
Key Details Value Proposition
> Hybrid potential mix includes federal
Capital Type funding, corporate or private investment, > Early-stage investment in emerging
and impact philanthropy For technologies and ownership of valuable Blue
Investors Economy IP; influence over application and
use of technology
Investment Size > $20M-50M fund as initial investment
> > Opportunity to develop technology with
Limited financial return, but opportunity for
Expected Return financial and operational support from
valuable returns in the form of IP For SMBs accelerator and opportunities to collaborate
with corporates who are participating
Capital Stack > Capital stack may include federal funds and partners of the R&D lab
Components philanthropic or corporate grants
> NOAA, NSF, DOE, MARAD, relevant
For > Promotes innovation and small
corporates (DNV GL, Teledyne, Lockheed), business development while attracting
Potential Funders various philanthropic investors focused on Maritime investment dollars and interest,
science and innovation (e.g., Lemelson, Blue demonstrating national leadership
Packard, others)
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 70
ILLUSTRATIVE DEAL: R&D GRANTS FOR SHIPPING TECHNOLOGY (2
OF 3)
Deal Structure
Funding Structure Details Capital Flows
> Just as DOD has provided funding for Manufacturing 4 Federal grants and/or private
USA Institutes, funding for shipping technology R&D 1 investment are used to fund R&D
and the associated lab might be provided NOAA, Federal Private grants through the maritime
NSF, DOE, MARAD or other agencies to support grants investment accelerator
this
The maritime accelerator accepts
Federal grants > Grant funding would be provided to a maritime
1 2 innovative SMBs with R&D goals
accelerator (idea already in concept in collaboration
that can support Maritime Blue
with WeWork Labs) to provide technical assistance
and capital to small businesses and projects working R&D facilities
at maritime SMBs develop their innovations,
on technology relevant to research interests of accelerator with corporates and industry
these agencies 3 members typically helping to run
2 projects; SMBs go to market with
> In additional to federal grant money, angel investors, innovations
Corporates Small
foundations (e.g., Lemelson, Packard), and other and businesses
IP and/or a portion of revenues
Private investment private investors interested in emerging technology industry from innovative products or services
could provide R&D investment for some portion of members 4
are returned on investment and
IP ownership fund additional grants
Innovations 3
MxD (formerly UI Labs)
> Established in 2015 as a digital manufacturing program and applied research lab through an initial $70M grant, and ongoing grants of $50M
from the Department of Defense
Examples > DOD supports digital labs and testing for development of new supply chain systems, with priority on relevant IP developed through use of
MxD's labs, manufacturing workfloor, and demonstration spaces
Case > MxD has also attracted more than 300 partners across 35 states, including Dow Chemical, Lockheed Martin, and Siemens; these corporate
clients provide technical and operational assistance to projects at MxD and support development of new technologies; corporates pay for
participation, generating additional revenue
Innovation and R&D grants from Innovation Norway
> Innovation Contracts, detailed on slide 42-44, are a key pipeline for Innovation Norway's R&D grants, as two parties (frequently a corporate
and a SMB) may receive R&D funding to develop a solution to a technological problem if a current solution does not exist
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 71
ILLUSTRATIVE DEAL: R&D GRANTS FOR SHIPPING TECHNOLOGY (3
OF 3)
Due Diligence Questions / Follow-Up
> What would be the specific mechanics and terms of IP ownership?
> How would SMBs be evaluated for eligibility/fit based on their product developments and fit for the accelerator/R&D
grants?
> How would R&D funding be kept separate from other accelerator funding?
> How would governance be established to allocate federal dollars to priority industry projects?
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 72
CHANGE DRIVERS
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 73
ILLUSTRATIVE DEAL: LOAN LOSS RESERVE FUND (1 OF 2)
Overview of Deal Opportunity
> Create / catalyze loan loss reserve fund to incentivize local CDFIs (e.g., Craft3, NDC, Business Impact NW) to fund more maritimebased
businesses owned by women, native communities, and people of color
Deal Structure
Funding Structure Details Capital Flows
> The State of WA and/or philanthropic organizations could set aside a pool
of funds to cover a percentage of defaulted loans made by CDFIs or other
entities that traditionally lend to underserved populations; this would serve Lenders State Foundations
to de-risk investments to perceived "riskier" borrowers (e.g., women or
people of color) and make lenders more willing to expand their
lending 1 2
Examples of foundations the State of WA could approach as potential
partners include Lemelson, Packard, Russell Family Foundation 3
Small
While these foundations do not appear to have a history of investing in LL R
businesses
the maritime sector beyond education and environmental clean-up, a
Grants to Loan
loan-loss reserve fund focused on underserved communities could be a
Loss Reserve Fund
strong, mission-centered opportunity to expand their engagement in the 4
maritime sector
> The total cost to cover losses up to 5% of total portfolio value for the 1 Lenders make loans to small businesses
above-mentioned lenders (i.e., Craft3, NDC, Business Impact NW) would
be $6.5M State and/or foundations make deposits to loan loss
2 reserve
> Launching the LLR would require identifying and establishing agreements
with CDFIs or other local lenders that have strong ties to native
3 In some programs, lenders and borrowers may also
communities, communities of color, and women entrepreneurs (e.g., make deposits to the LLR (a small % of loan size)
Craft3, Business Impact NW, Certified Native CDFIs like the Lummi CDFI
4 In the event of losses, lenders can draw up to a set
in Bellingham, etc.) % of their losses from the LLR
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 74
ILLUSTRATIVE DEAL: LOAN LOSS RESERVE FUND (2 OF 2)
California Capital Access Program for Small Businesses (CalCAP)
> Project: A loan loss reserve fund administered by the State of CA's Pollution Control Financing Authority (CPCFA) that de-risks
small business loans and supports environmental sustainability
Case Examples > Total Cost: Variable with loan volume and amount; in 2018, CalCAP lenders enrolled $377.6M of loans and paid roughly $16.9M
(about 4.5% of the enrolled amount) from the loan loss reserve fund
> Deal Structure: Any eligible lender (e.g., CDFI, bank, credit union) in CA that makes loans to CA-based small businesses (<100
employees) can enroll their loans in the CalCAP program; when a loan is enrolled, CPCFA makes a deposit into a loss reserve
account for the lender, and for some loans lenders and borrowers also contribute a small percentage (2-3.5%) of the loan
value to the fund; in the event of default on the loan, the loss reserve fund will cover up to 100% of the lender's losses
Key Details Value Proposition
Capital Type > Grants
For State /
Investment Size > ~$6.5M Philanthropic
Contributors
and > Support and help grow currently
Expected Return > N/A Maritime underrepresented demographics in the
maritime sector
Blue
Potential Funders State of WA; foundations
Due Diligence Questions / Follow-Up
> Which foundations or family offices would be willing to contribute to the loan loss reserve?
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 75
ILLUSTRATIVE DEAL: INNOVATION CONTRACTS (1 OF 3)
Overview of Deal Opportunity
> Through Innovation Contracts, Washington State would provide financial incentives that would encourage innovation and cooperation
between large corporates and smaller, innovative maritime businesses by providing funding to help subsidize the development of new
maritime technology
Key Details Value Proposition
> Opportunity to fund potentially disruptive
> Hybrid potential mix of state grants and and high-growth innovation in the maritime
Capital Type loans (pass throughs of federal grants) and For economy
philanthropic impact capital Investors > For the state, this is an opportunity to spur
innovation and economic development,
positioning Washington as a leader in Blue
Investment Size > $5-10M pilot, with opportunity to scale Economy innovation
> 3%-5% return on loans issued as part of > Reduces development costs for innovation
Expected Return
Innovation Contract funding For SMBs projects with larger corporate customers,
giving exposure to larger customer base and
sales channels
Capital Stack > Grants, loans
Components
> State of Washington, various philanthropic > Promotes innovation and small
Potential Funders investors focused on science and innovation For business development within the Blue
(e.g., Lemelson, Packard, others) Maritime Economy
Blue
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 76
ILLUSTRATIVE DEAL: INNOVATION CONTRACTS (2 OF 3)
Deal Structure
Funding Structure Details Capital Flows
> Financial returns ($4M to $7M) from previous clean
energy fund, a federal-funds pass-through program, Total
project costs 1 State funding 4
could be invested back into this pilot and/or
> To ensure continued solvency of the program, philanthropic Innovative
capital
Washington State could provide Innovation 1 project is
Contract funding as both a low-interest loan in developed
Federal and state Corpora te's SMB's share of
addition to grant funding
funding share of c osts costs Innovation
> Financial benefits could potentially mirror those in (at least 2 0%) (as much as 80%) Contracts
Norway (see below): in a partnership between 2 help offset
corporate and innovative SMB, larger corporate costs incurred
would be responsible for at least 20% of overall by SMB
SMB's own Loans and grants
development costs; grants and loans would be issued i nvestment(at via Innovation
to SMB to cover up to 45% of its development costs lea st 55% of share Contract (as much Project
of costs) as 45% of SMB's 2 3 launches into
> Foundations would fund Innovation Contracts share of costs) market and
through impact investment in the form of grants and earns revenue
low-interest loans that offset a portion of the Returns from
development costs incurred by SMBs low-interest
Philanthropic impact
> In this funding structure, the partnerships of Pro ject loans are
capital 4
corporates and SMB seeking an Innovation Contract provided back
would either apply for funding directly from the 3 to funders
foundation, or, should the foundation partner with Small
Corporate
the state, through a Washington state agency Business
Innovation Contracts from Innovation Norway:
> Innovation Norway, state-owned national development bank, annually spends about $35M on Innovation Contracts, a support program that
provides grants to SMBs developing new products or services to larger corporate customers
Case Examples > The pilot customer (the larger corporate) must be responsible for at least 20% of the overall development costs of the product or service
> Importantly, the pilot customer must also have a specific and well-articulated need for a specific application of technology or innovation
solution that a Norwegian SMB can provide
> The SMB is responsible for covering at least 55% of its own costs, which are at least 80% of the overall costs but the Innovation Contract,
through low-interest loans and grants, will cover up to 45%
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 77
ILLUSTRATIVE DEAL: INNOVATION CONTRACTS (3 OF 3)
Due Diligence Questions / Follow-Up
> What would be the process to unlock the returns (estimated as $4m-$7m) from the clean energy fund for use in
Innovation Contract funding?
> How would a pilot be evaluated for success? How would a determination be made on whether to continue funding,
and for how much?
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 78
OTHER CAPITAL CONSIDERATIONS: AQUACULTURE
Context
Global fish production is expected to grow by 15% (26M tons) from 2014-26, with global aquaculture output growing by 34% over
that period*
Given the rapid growth of the industry and the State of Washington's interest in sustainably scaling fish production, aquaculture was a
subject of interest in stakeholder interviews
To capture a piece of this growing industry, the State of WA
first needs to decide which aspect(s) of the aquaculture
industry it especially wants to catalyze locally
Tech Enablers Small-Scale Aquaculture Farms
(e.g., smart fish feeding technology, robotics, reproductive technology, etc.) (e.g., finfish, shellfish, and sea vegetable farms)
Investment Type: More suited to equity than traditional aquaculture Investment Type: Debt
Example Investors: Aqua-Spark (Netherlands), Alimentos Ventures Example Investors: CEI (Maine), Craft3 (Pacific NW)
(Germany)
Financing Challenges: Financing Challenges:
Investors' lack of awareness about profitability expectations and Perception of high risk, lack of sufficient collateral, seasonality of
differences in capital needs across different aquaculture sub-industries revenue streams
Perception of high risk (e.g., because industry is new, fragmented
across small players, capital-intensive, has a skills shortage, and is
subject to risk of disease)
Potential Actions for Further Exploration: Potential Actions for Further Exploration:
Connect with existing, high-profile VCs outside of WA (e.g., those Additional mapping of aquaculture capital needs and loan
listed above) about building Pacific NW portfolios availability in WA to understand whether gaps in capital access
Develop a guide to educate other investors about capital needs, identified in other places (e.g., gap in access to loans <$150K in
growth trends, and ways to de-risk investments in different Maine, which is now filled by CEI's new Maine-focused Sea Farm
aquaculture sub-industries Loan program) also apply to WA
*Source: UN Food and Agriculture Organization ("Fish projections in the OECD-FAO Agricultural Outlook: 2017-26")
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 79
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 80
Core
CORE MARITIME SECTOR OVERVIEW
Before delving into the analysis of the core maritime sector, it is useful to understand the contents of
each industry segment more deeply than NAICS codes alone allow
Sub-Sector Description
Ship and Boat Includes the building of cargo ships, barges, submarines, passenger ships, and drilling platforms; also
Building, Repair &
includes the repair of such vessels; covers both naval and civilian vessels
Maintenance
Commercial Covers the full value chain of seafood production, from fishing and aquaculture related to finfish and
Fishing & Seafood
shellfish to seafood packaging to the operation of seafood markets
Products
Passenger Water Includes local passenger water transportation (e.g., ferries in coastal areas, harbors, rivers, and lakes), as
Transportation well as cruise ship operations
Includes long-distance, transoceanic, and river cargo shipping, as well as related planning, routing, and
Maritime Logistics
warehousing; also includes sensors, navigation systems, and other systems and instruments that
& Shipping
contribute to safe and effective cargo / freight shipping operations
Recreational Includes sightseeing cruising, charter fishing boat services, and airboats; also includes the operation of
Boating & Boat marinas that provide storage, fueling, maintenance, and rental services for such boats and boating
Building activities
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 81
Core
CORE MARITIME INDUSTRY DISTRIBUTION
While the Seattle-Tacoma-Bellevue MSA and broader Puget Sound region are the center of gravity for
core maritime businesses, there are important secondary geographic clusters, particularly for logistics
and fishing
Geographic Distribution of Small Businesses in State of WA Analysis
> The Seattle-Tacoma-Bellevue
MSA is the primary locus of
activity for all subsectors
> However, Snohomish, Skagit, Whatcom,
Pierce, and Kitsap counties also have a
high density of maritime businesses
across sectors
> Maritime Logistics & Shipping
and Recreational Boating & Boat
Building have secondary clusters
in inland cities that are located on
major rivers and/or highway systems
> Commercial Fishing appears to
be the most dispersed segment
along the coasts, with presence in
areas that do not appear to have
other significant clusters (e.g., Pacific
County)
Source: ArcGIS Business Analyst; 1 dot = one business with under 50 employees; 6-digit NAICS codes
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 82
Core
CORE MARITIME INDUSTRIES: FIRMS & EMPLOYMENT
Average firm size and salaries vary considerably across segments, likely due to differences in firms'
labor and capital requirements and the technical skills the segments demand of employees
Firms and Employment by Industry Segment: State of WA Analysis
17,682 38
18,000 40 > While Maritime Logistics
16,000 & Shipping is the largest
14,000 26 30 segment, Ship & Boat
12,000 Building tends to have
10,000 8,696 22
20 larger firms likely as a
8,000 result of their large labor and
6,000 13 7 4,930 capital requirements, relative
4,000 10
2,257 to other segments
2,000 1,475
688 787 56 325 129
0 0 > Average salaries vary
Commercial Maritime Passenger Recreational Ship and Boat significantly (>$30K), likely
Fishing & Logistics & Water Boating & Building, Repair due, in part, to differences
Seafood Shipping Transportation Boat Building & Maintenance
Products in the level of technical /
specialized skills segments
Avg. Annual
Wages (All $59K $74K $68K $42K $58K require (e.g., boat dealers
Firms): command lower salaries than
Relative to engineers for navigational
MIT Living devices)
Wage*:
Median Small
Business $1.06M $1.26M $1.33M $1.02M $1.38M
Revenue:
Total Firms Total Employment Avg. Employees / Firm
Source: Firms & employment data from U.S. Census Bureau 2016 Business Patterns (WA state; 6-digit NAICS codes); Annual wage data from WA state 2016 Quarterly Census of Employment and Wages;
Median small business revenue from ArcGIS Business Analyst
*MIT Living Wage for the State of Washington for a family of 2 adults and 1 child is $61,988 / year
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 83
Core
CORE MARITIME INDUSTRIES: FIRM DATA
While all segments are predominantly comprised of small businesses, differences in more specific
business size distribution may suggest different needs and level of interest in scaling operations
Small Businesses' Share of Core Maritime Industry Segments Analysis
% with <50 > While all segments are almost
employees 94% 92% 93% 99% 80%
entirely comprised of small
businesses, Commercial Fishing
Total Firms 688 787 56 325 129 & Seafood is particularly
40 (6%) 1 (0%) 59 (7%) 3 (0%) 3 (5%) 1 (2%) 18 (6%) 0 (0%) 0 (0%)
4 (1%) skewed toward microbusinesses
44 (6%)
80 (10%) 5 (9%) 30 (9%) 26 (20%)
38 (6%) (<4 employees)
53 (8%) 5 (9%) This suggests either limited
105 (13%) 67 (21%)
26 (20%) appetite or resources for scaling
13 (23%) > The size distribution in Ship and
135 (17%)
Boat Building suggests that this
Small 18 (14%)
segment contains businesses of
Businesses various stages and/or focuses,
512 (74%) 25 (19%) which may be looking to scale
206 (63%)
405 (51%) 29 (52%) further
34 (26%)
Commercial Maritime Passenger Recreational Ship and Boat
Fishing & Logistics & Water Boating & Building,
Seafood Shipping Transport Boat Building Repair &
Products Maintenance
Source: U.S. Census Bureau 2016 Business Patterns (WA state; 6-digit NAICS codes)
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 84
Core
CORE MARITIME INDUSTRIES: FIRM DATA (2 OF 2)
Layering on differences in average revenue per business provides insight into which segments are
particularly lucrative for small businesses and where there are likely significant non-wage capital
needs Average Revenue per Business*
Commercial Maritime Recreational Ship and Boat
Passenger Water
Fishing & Logistics & Boating & Boat Building, Repair
Transport
Seafood Products Shipping Building & Maintenance
20 to 49
$15.6M $6.4M $5.4M $9.3M $5.1M
employees
10 to 19
$6.5M $2.4M N/A $3.7M $3.6M
employees
5 to 9
$1.8M $1.4M $1.3M $2.1M $1.6M
employees
1 to 4
$1.1M $542K $462K $724K $287K
employees
Analysis
> Segments' business size profiles do not appear to be positively correlated with average revenue
Commercial Fishing & Seafood Products has the highest average revenue for all small business size sub-categories,
despite having the highest proportion of microbusinesses this suggests that the industry may be more lucrative
and/or that it is easier for very small businesses to capture market share
> Two of the segments with the lowest wages (sub-living wage) are those with the highest average business
revenue (Commercial Fishing & Seafood and Recreational Boating & Boat Building), suggesting that these
segments may have other significant non-wage operational expenses / capital requirements
Source: ArcGIS Business Analyst
*Note: Data based on businesses included in the ArcGIS Business Analyst tool and may not reflect all businesses in these clusters; however, they should be roughly
representative
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 85
Core
DEMOGRAPHIC BREAKDOWN: TOTAL FIRMS
All segments of the core maritime sector have very low representation of business owners of color
and women no segment exceeds 10% representation in either demographic
Person of Color-owned Businesses' Share of Total Woman-owned Businesses' Share of Total
People of color comprised 19.5% of WA's over-18 population
Women comprised 50.5% of WA's over-18 population in 2012
in 2012
696 660 59 280 99 696 661 59 280 100
100% 100%
10.5% 8.9% 7.1% 10.5% 8.9% 7.0%
16.7% 16.9% 16.6% 16.9%
83.2% 75.6% 74.6% 87.5% 87.9% 82.5%
76.4% 74.6% 88.9% 92.0%
6.3% 7.7% 8.5% 3.6% 5.1% 7.0% 7.0% 8.5%
2.1% 1.0%
Commercial Maritime Passenger Recreational Ship and Commercial Maritime Passenger Recreational Ship and
Fishing & Logistics & Water Boating & Boat Fishing & Logistics & Water Boating & Boat
Seafood Shipping Transport Boat Building, Seafood Shipping Transport Boat Building,
Products Building Repair & Products Building Repair &
Maintenance Maintenance
N/A or Unknown Non PoC-owned PoC-owned N/A or Unknown Non Woman-owned Woman-owned
Source: U.S. Census Bureau 2012 Survey of Business Owners (State-level, using 6-digit NAICS codes); 2012 American Community Survey
Note: Totals do not match exactly due to rounding error in dataset
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 86
Core
GROWTH RATES: STATE OF WASHINGTON
Small business growth lags that of core maritime firms overall particularly in capital-intensive
segments but the segment that includes water transportation appears to contain some especially
high-performing small businesses
Growth by Industry Segment (CAGR 2012-16) Analysis
14% > Overall, the number of maritime
businesses has been steady in past years,
12% though employment (and thus, average
firm size) has grown modestly
10% > In industries with large capital
Employment Growth requirements and economies of scale (e.g.,
8% Ship Building, aspects of Maritime Logistics &
6% Shipping like specialized warehousing), small
business growth has lagged behind that
4% of larger companies
> In the segment that includes water
2% transportation, however, small business
employment growth outpaces the
0% overall trend, even as the number of firms
decreases
-2% This suggests that there are particularly
-3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5% 1.0% high-growth small businesses in this
segment
Firm Growth
Source: U.S. Census Bureau Business Patterns (4 and 5-digit NAICS codes); yellow markers represent NAICS codes for which it was not possible to break out
Maritime Logistics & Shipping vs. Passenger Water Transportation activities at the 4- or 5-digit level (e.g., deep sea, coastal, and inland transportation & shipping)
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 87
Non-Core
NON-CORE MARITIME INDUSTRY DEFINITION
The following are the NAICS codes used for analyzing the non-core maritime industry segments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 88
Non-Core
NON-CORE MARITIME SECTOR OVERVIEW
Because these NAICS codes are not all strictly maritime-related, it is useful to understand the
contents of each industry segment more deeply than NAICS codes alone allow
Sub-Sector Description
Includes cleanup of contaminated buildings, soil, and water (e.g., waste water treatment, oil spill
Environmental cleanup); also includes consulting services to businesses and other organizations to assist them in
Services controlling their environmental impact (e.g., through responsible waste management), as well as
surveying and mapping services
Energy Includes hydroelectric and tidal power generation
NAICS code includes a broad array of engineering services beyond naval architecture (e.g., civil
Naval Architecture
engineering, construction engineering, mechanical engineering services, etc.)
Naval Science & Includes research and development in oceanography, fisheries, life sciences, environmental science,
Technology (S&T) electronics, physics, etc.; research can be conducted at universities, government laboratories, private
and R&D sector organizations, etc.
Includes specialized (refrigerated) trucks that transport perishable goods (e.g., seafood) over both
Other Logistics
short and long distances, freight railway operations, and leasing of transportation equipment
Includes manufacturing of marine engines (though included NAICS code is not exclusively for marine
Other Manufacturing
engines)
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 89
Non-Core
NON-CORE MARITIME INDUSTRY DISTRIBUTION
There will likely be a strong correlation between which industries the Dept of Commerce prioritizes
and where, geographically, it needs to build partnerships, investigate deal prospects, and channel capital
Geographic Distribution of Small Businesses in State of WA Analysis
> Like the core maritime industries, non-
core industries are primarily clustered in
the Seattle-Tacoma-Bellevue MSA
> However, compared to the core maritime
industries, non-core industries show
stronger clustering in inland cities
(e.g., Yakima, Kennewick, greater Portland)
especially Other Logistics
> Some segments (e.g., R&D,
Manufacturing) are narrowly
clustered in the Seattle-Tacoma,
Bellevue MSA, likely because this area is
a hub for research and technology
industries in general
> Others, like Energy have a small
footprint and are highly
geographically dispersed
Source: ArcGIS Business Analyst; 1 dot = one business with under 50 employees; 6-digit NAICS codes
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 90
Non-Core
NON-CORE MARITIME INDUSTRIES: FIRMS & EMPLOYMENT
The non-core maritime industries tend to be smaller and higher-paying than the core industries, as
they are more technology-driven and specialized
Firms and Employment by Industry Segment: State of WA Analysis
35,000 33,703 44 50 > There is a small
concentration of relevant
30,000
40 Energy and Other
25,000 Manufacturing firms in WA;
30 stronger clusters include
20,000
Engineering & Naval
1 5,327
15,000 20 20 Architecture and Other
11 Logistics
10,000
6 7,210 7 6,568 > Non-core maritime
5,000 3 10
1,664 businesses tend to be
17 99 639 906 5 14 348
0 0 smaller than core
Energy Engineering Environmental Other Other Research & maritime businesses,
& Naval Services Logistics Manufacturing Development with the exception of the
Architecture R&D segment
Avg. Ann. > Salaries in non-core
Wages (All $94K $93K $84K $49K $92K $109K
Firms): maritime industries,
except for Other
Relative to Logistics, are
MIT Living substantially higher than
Wage*: in core-maritime segments
because these segments are
Total Firms Total Employment Avg. Employees / Firm more technology-driven
Source: Firms and employment data from U.S. Census Bureau 2016 Business Patterns (WA state; 6-digit NAICS codes); Annual wage data from WA state 2016
Quarterly Census of Employment and Wages
*MIT Living Wage for the State of Washington for a family of 2 adults and 1 child is $61,988 / year
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 91
Non-Core
NON-CORE MARITIME INDUSTRIES: FIRM DATA (1 OF 2)
While businesses in these industries are almost all small, the range of sizes and stages they represent
suggests a diverse set of capital needs
Small Businesses' Share of Non-Core Maritime Industry Segments Analysis
% with <50
employees 100% 93% 97% 100% 100% 88% > With the exception of R&D,
non-core maritime industries
are almost entirely
Total
Firms 17 1,664 639 906 5 348 comprised of small
110 (7% ) 1 17 (3%) 1 25 38 3
3 61 (7%) businesses
158 (0%) 54 (8%) (0%) (3%) (11%) (1%)
(18%) 87
(9%) 77 > Though most businesses are
184 (10%) 2 27 (8%)
(12%)
3 (11%) 109 (40%) 41 small (<50 employees), the
(18%) 98 (12%) (12%) variation in firm sizes
252 (15%)
(15%) 52 within that range suggests
3 (15%) a variety of potential
(18%)
Small capital needs (e.g., from
Businesses seed/angel investment or
624 grants through larger loans
959 392 (69%) 3
(61%) (60%) 187
8 (58%) and/or equity)
(54%)
(47%)
Energy Engineering Environmental Other Other Research &
& Naval Services Logistics Manufacturing Development
Architecture
Source: U.S. Census Bureau 2016 Business Patterns (WA state; 6-digit NAICS codes)
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 92
Non-Core
DEMOGRAPHIC BREAKDOWN: TOTAL FIRMS
While non-core maritime industries have greater representation of people of color and women than
do the more traditional maritime industries, they still have little demographic diversity
Person of Color-owned Businesses' Share of Total Woman-owned Businesses' Share of Total
People of color comprised 19.5% of WA's over-18 population
Women comprised 50.5% of WA's over-18 population in 2012
in 2012
3,361 727 1,025 232 3,361 727 1,025 232
100% 4.4% 5.4% 100%
7.0% 4.4% 7.0% 5.4%
33.6% 33.6%
85.2% 81.9% 85.9% 77.0% 80.7%
88.2%
57.8% 54.7%
16.0%
10.4% 12.8%
4.8% 8.6% 9.7% 14.0% 11.6%
Engineering Environmental Other Research & Engineering Environmental Other Research &
& Naval Services Logistics Development & Naval Services Logistics Development
Architecture Architecture
N/A or Unknown Non PoC-owned PoC-owned N/A or Unknown Non Woman-owned Woman-owned
Source: U.S. Census Bureau 2012 Survey of Business Owners (State-level, using 6-digit NAICS codes; data unavailable for Energy and Other Manufacturing); 2012
American Community Survey
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 93
Non-Core
GROWTH RATES: STATE OF WASHINGTON
In contrast with core maritime industry trends, small business growth trends in non-core maritime
industries have been positive and have tracked closely with overall industry trends
Growth by Industry Segment (CAGR 2012-16) Analysis
> With the exception of small R&D
14% organizations, all non-core maritime
segments have been experiencing
12% growth in both firm count and
employment this applies to small
10%
Employment Growth businesses and firms overall
8% > Small business growth
performance has tracked closely
6% to overall growth rates in recent
years
4%
> The main exception is the Energy
2% segment, where small firms have seen
lower employment growth than firms
0% overall
This could suggest acquisitions in
-2%
the segment and/or the existence
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% of a/some high-growth, larger
player(s) in the Energy segment
Firm Growth
Source: U.S. Census Bureau Business Patterns (4 and 5-digit NAICS codes); Manufacturing excluded due to very limited number of businesses
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 94
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 95
CASE STUDY: BOSTON (1 OF 2)
Overview of Maritime Economy & Key Industry Clusters
Key City Info
The Port of Boston is the largest port in Massachusetts and a key port long the
seaboard of the East Coast. In 2019, The Port generated $8.2b in economic Population
4,628,910
activity and supported 66,000 jobs through direct and indirect effects. (metro region, 2015)
> Shipping: 2018 marked the fourth consecutive year of record-high container Port volume
volume at the Port of Boston; a $350m improvement project is underway to 298,000
(TEUs, 2018)
deeper the Port for usage by even larger container vessels
> Seafood processing: Although the number of employees and Port volume % change
+25%
establishments in this sector have declined with globalization and advances in (2014-2018)
processing technology, the sector remains strong the occupancy rate of
processing spaces in Boston was 94% in 2015 Map of Key Assets
> Tourism and recreation: The Port's Flynn Cruiseport saw record volume in
2018, with more than 150 ship calls and 390,000 passengers; additional
tourism activity includes seafood-based tourism, passenger boat rentals, and
scenic harbor tours
> Ship repair: While shipbuilding has been in a slow decline in Boston and
Massachusetts, the ship repair sector remains a growing industry due to the
high volume of fishing and tourism vessels that traffic the Port
Key Maritime Economy Stakeholders
> Port of Boston: the Port is administered by the state's Massachusetts Port Processing hub
Authority, which is an independent public authority, to a state agency; the
members of the 6-person board are appointed by the governor Passenger
> terminal Cargo terminal
SeaAhead: SeaAhead is a Benefit Corporation with the mission of and port entry
supporting new venture development in the Blue Economy; ecosystem
stakeholders and member organizations include scientists, corporations, and
local and regional government organizations
8 miles
Source: Commonwealth of Massachusetts, UMass Dartmouth, Associated Industries of Massachusetts, SeaAhead
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 96
CASE STUDY: BOSTON (2 OF 2)
Capital Activity and Illustrative Deals
> Key Challenges
Stakeholders in Boston-area maritime investments vary widely by
subsector in what is a still-developing ecosystem; defense contractors > Unclear path to grow for small innovative
continue to drive innovation and funding in maritime technology and robotics, maritime companies: Maritime technology and
with European investors providing capital for shipping and other cargo innovations grown out of Boston's robust
ecosystem of research institutions and
ventures
universities report that access to capital,
customers, and markets are a persistent
Illustrative deals challenge; product development is often driven by
> In 2018, the Massachusetts Technology Collaborative announced a historical customers (e.g., defense contractors)
new grant initiative that would allocate up to $500,000 for innovation > Workforce shortage: In a 2017 survey of more
in seaport communities; the grant program is accepting a wide range of than 700 business owners in the Massachusetts
potential solutions, including those related to fisheries, shipping, and maritime economy, 50% of respondents indicated
renewable energy "availability of skilled works" was a "very
> Boson-based Sea Machines Robotics closed a $10m Series A round in challenging" issue for doing business
2018; the round was led by Accomplice Capital, a Cambridge-based venture
firm, but included investors from across the U.S. Potential Solutions
> In 2018, Shell's New Energies division partnered with EDP
> Increased coordination among maritime
Renewables on a $135M bid to develop wind farms offshore of the Boston
businesses sand stakeholders: Only 47% of
harbor maritime business owners in Massachusetts are a
member of an industry association; efforts like
Sample Sustainability Efforts SeaAhead and the Bluetech Innovation Hub can
> Boston's high-tech acquaculture firms employ filtration and help connect businesses across sectors and drive
collaboration and growth
temperature control systems that eliminate environmental impact, > Addressing gaps in capital ecosystem: The
avoiding disruption of the coastal ecosystems tech ecosystem in Boston and Cambridge is take
> The Massachusetts Port Authority has been a national leader in advantage of the dense concentration of maritime
sustainability efforts for more than a decade, including sustainability industries and research; new industry
cruiseport rehabilitation in 2010 and installation of shore power at collaborations and innovation hubs can help
the fish pier in 2011 been; recent efforts include altering emergency attract capital by demonstrating an ecosystem of
systems to remain floodproof with rising sea levels better-supported small businesses
Source: Commonwealth of Massachusetts, UMass Dartmouth, Associated Industries of Massachusetts, SeaAhead
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 97
CASE STUDY: TAKEAWAYS FROM BOSTON
Grant programs driving innovation: The Massachusetts Technology Collaborative grant program
focused on coastal innovation is helping to fill the capital gap for small maritime businesses who are
1 unable to find venture funding; by expanding and sustaining this program, the state and interested
stakeholders may be able to support small business innovation at a level that attracts the interest and
investment of venture capitalists who are focused on maritime tech
Maritime and tech stakeholders collaborating for better ecosystem support: The Bluetech
Innovation Hub at the Cambridge Innovation Center is a direct response to the need for a support
2 ecosystem for maritime technology; similarly, SeaAhead was founded to help make connections
between investors, researchers, business owners, and other maritime stakeholders in order to better
drive innovation and collaboration within the Blue Economy
Innovation within historical key industries: Recognizing the importance of seafood
processing to the Boston and Massachusetts economies, aquaculture firms in the Boston maritime
3 economy are employing technology that allows for the successful development of aquaculture
products without disrupting local waterways and the sectors dependent on them; this approach
allows both traditional and new approaches in this sector to thrive
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 98
Information here concerns the Oslo
CASE STUDY: OSLO (1 OF 2) metropolitan region (more national
information is available on the following slide)
Overview of Maritime Economy & Key Industry Clusters
Key City Info
The Port of Oslo is the largest public multi-purpose cargo port in Norway,
leading all Norwegian ports in container and passenger volume. In 2017, a survey Population
1,546,706
of more than 250 international maritime experts ranked Oslo 3rd on a list of (metro region, 2015)
leading maritime capitals, a consideration of Oslo's performance in four maritime Port volume
sectors: shipping, finance and law, technology, and ports and logistics. 238,000 (est.)
(TEUs, 2018)
> Shipping: Oslo is one of the world's leading shipping hubs, with centuries of
experience as a major hub. Nearly 6,000 ships dock at the Port of Oslo Port volume % change
+19%
annually, carrying a total of 6 million tons of cargo and more than five million (2014-2018)
passengers
> Maritime finance and law: Oslo's role in the world maritime economy has Map of Key Assets
made it a hub for related services; the region is home to major shipping
Finance, law, and
investors, maritime banks, and traders tech cluster
> Oil drilling: Norway is a world leader in offshore drilling, ranking 4th, behind
Saudi Arabia, in oil production per capita Port entry and
> Port Authority
Technology and innovation: a 2019 study ranked Oslo as the top maritime
Electronics and
city for technological innovation; major research efforts, especially those maritime
related to the Blue Economy, are clustered around the University of Oslo equipment
Key Maritime Economy Stakeholders
> Oslo Port Authority: a municipal agency that operates and oversees the
Port of Oslo; managed by an elected board and Port Director 125 miles
> Oslo Maritime Network: a non-profit membership network comprised of
organizations throughout the greater Oslo region's maritime cluster, including
shipping companies, environmental organizations, and research groups
> Innovation Norway: the Norwegian government's effort for innovation and
development of Norwegian enterprises and industry; given the maritime
sector's importance in Norway, Innovation Norway funds and supports a Oil drilling
number of key maritime efforts, including the Global Centers of Expertise, cluster
which include several dedicated maritime industrial clusters
Source: Norway Exports, Blue Maritime Clusters, OECD, Next Street interviews, Innovation Norway, WA Dept. of Commerce
Next Street Financial LLC Copyright 2019 CONFIDENTIAL 99
This slide discusses more national deals and
CASE STUDY: OSLO (2 OF 2) initiatives to capture a more representative
picture of Norway's maritime economy
Capital Activity and Illustrative Deals
> Key Challenges
In 2019, the Norwegian government announced that it was doubling the
allotment of the sovereign wealth fund available for investment in unlisted > Underdeveloped tech startup ecosystem:
renewable energy ventures to $14B; unlisted energy projects (generally smaller Much of Norway's small business development is
and newer ventures) represent more than two-thirds of the full green energy market funded and supported by government initiatives,
> Innovation Norway serves primarily as a bank, co-financing about 6,000 with banks and PE focused on larger deals
projects in Norway, the bulk of which go to maritime businesses and those > Limited maritime VC: The Norwegian venture
in the adjacent energy and technology sectors; capital is provided in the form capital ecosystem is very young, with few highly
of loans, guarantees, and grants, but no equity established firms. Most finance is focused on
large-scale shipping investment, drawing on
Illustrative deals historical strengths and areas of expertise
> In 2017, Innovation Norway's export credit program helped fund the conversion of a > Oil declining: Facing labor shortages and
Danish container ship to hybrid power with a guaranteed $1m loan; Norwegian pressure from environmentalists, Norwegian oil
Electric Systems provided the batteries for the ship, which were then production is in steady decline, with some experts
installed at a shipyard in the Faroe Islands projecting that 2019's production could be the
> In 2018, Longship, an Oslo-based private equity firm, acquired 100% of lowest in more than 30 years
Nofitech, a Norwegian small business that develops aquaculture
technology; in 2017, Nofitech had approximately $10M in revenue and 6 employees Potential Solutions
> Several shipping companies, including some based in Oslo, joined together in 2017 > Government financial support of maritime
to build a $150m fund to provide alternative financing to shipping ventures: In the absence of a more developed
companies both in Norway and around the world tech venture ecosystem, especially in maritime,
the Norwegian government supports small
Sample Sustainability Efforts businesses and stimulates innovation through a
> In May 2019, Innovation Norway and the State of Washington entered into an variety of financial measures, including funding
agreement that, among other efforts, sets goals for decarbonization, maritime innovation partnerships between smaller
technology innovation, digitization of maritime data, and developments of companies and large corporations
sustainable acquaculture > Traditional industries investing in clean
> Blue Growth for a Great Future is the Norwegian government's maritime tech: The Norwegian sovereign wealth fund is
strategy, and includes key initiatives to stimulate green growth in the comprised of surplus revenues from the oil
maritime industry and the use of environmentally friendly technology and fuels sector; as oil production declines, the fund is
> By 2030, only ships with low- or zero-emission technology will be granted investing in renewable energy ventures that may
access to fjords and other Norwegian water space in turn generate surpluses for the fund
Source: Norway Exports, Blue Maritime Clusters, OECD, Next Street interviews, Innovation Norway, WA Dept. of Commerce
Next Street Financial LLC Copyright 2019 CONFIDENTIAL
100
CASE STUDY: TAKEAWAYS FROM OSLO
Multiple forms of government support for maritime industries and innovation: Norwegian
government supports small businesses through a variety of financial measures, including export
credits, Innovation Contracts that fund partnerships with larger corporations, and grants to support
1 pilot programs in environmental and technological innovation; these programs help support and
sustain a maritime small business ecosystem in the absence of a more developed maritime capital
landscape
Traditional industries investing in disruptive technologies: The Norwegian sovereign wealth
2 fund, is the world's largest, controlling over $1 trillion in assets; by divesting in oil (the source of its
funding) and investing instead in renewable energy, the fund is providing substantial support for
emerging clean tech as Norwegian oil production declines due to market and political pressure
Key support services attract international business: In additional to water-based and and
3 traditional industries, Norway's large maritime economy has produced robust business support
and financial services that attract activity and investment from international stakeholders
Next Street Financial LLC Copyright 2019 CONFIDENTIAL
101
CASE STUDY TEMPLATE FOR DISCUSSION (1 OF 2)
Overview of Maritime Economy & Key Industry Clusters
The Port of Rotterdam is the largest port in Europe. Through direct and indirect
effects, the port sustains more than 345,000 jobs and contributes 45.6 billion to Key City Info
the Netherlands' economy, representing more than 6% of GDP. Key clusters
include: Population
2,563,197
> Shipping: In 2018, more than 29,000 seagoing and 107,000 inland vessels (metro region, 2015)
passed through Rotterdam, making Rotterdam the 11th busiest port in the Port volume
world 14.5 million
(TEUs, 2018)
> Ship repair: Rotterdam is home to 3 dedicated repair shipyards,11 repair-
specific docks, and various diving repair companies to accommodate the Port volume % change
+17.8%
various sizes of seagoing and inland vessels that traffic the port (2014-2018)
> Oil and chemical: Rotterdam is one of the world's largest fuel hubs, with 5
oil refineries and 45 chemical companies based in and around the port
> Biofuel and wind power: Cleaner energy production has clustered around Map of Key Assets
the port's oil and chemical production, providing more than half of the
Netherland's power production Port entry and
> Marine business services: Inland, there is a well organized cluster of logistics hub
maritime-specific services provided by banks, insurance companies, insurance
Business and
brokers, lawyers, accountants, and tax consultants corporate services
Key Maritime Economy Stakeholders Industrial and
> Port of Rotterdam Authority: a government corporation that operates energy corridor Innovation and
investment hub
the port, jointly owned by Rotterdam and the Dutch national government
> Maritime by Holland: a privately-funded business network that identifies
and co-finances a range of projects that draw on multiple sectors across the
25 miles
Dutch maritime industry
> Rotterdam Maritime Capital: a collaboration between businesses,
government agencies, associations, institutions in Rotterdam's maritime
economy that seeks to spur international investment
Source: Port of Rotterdam, Rotterdam Maritime Capital, Rotterdam Partners, Maritime by Holland, Mach
Next Street Financial LLC Copyright 2019 CONFIDENTIAL
102
CASE STUDY TEMPLATE FOR DISCUSSION (2 OF 2)
Capital Activity and Illustrative Deals
> Key Challenges
PortXL is a Rotterdam-based accelerator that financially supports new
maritime businesses during a year-long cohort program in return for an equity stake; > Transition to greener energy: Rotterdam's
the accelerator preferences businesses with an explicit focus on disrupting historical strength as a producer of carbon-based
conventional maritime industries energy, as well as its role as a leading world port,
> GetFunded is a city of Rotterdam program that helps small businesses apply creates tension with shippers from countries with
for various sources of European innovation grants; this year's cohort of 7 includes less robust sustainability standards
high-tech solutions for ship repair, docking, and logistics > Port congestion: Inefficient barge
> A German maritime technology investment firm, TecPier, announced transportation from deep sea to inland terminals
earlier this year that they will explore investments between 200k and 250k for leads to significant delays and wasted fuel for
companies that have completed Rotterdam-area accelerator programs shippers
> Low employment: Worldwide maritime labor
Illustrative deals trends are also present in Rotterdam; new labor
> Dutch bank ING and the European Investment Bank have each is below replacement levels for aging employees
contributed 150m to support projects with a "green innovation element" in and owners in traditional industries (shipping,
Europe's maritime sector; one early investment was 110m to a Dutch shipping repair, recreation)
company to retrofit 42 ships with exhaust gas cleaning systems and ballast water
Potential Solutions
management systems
> Over the past 2 years, Mainport Innovation Fund, a Dutch fund investing in > Applications of new technology: Dutch
logistics and transport, has invested more than 7m in seed and Series A funding startup Captain AI has engineered self-driving
for Netherlands-based maritime technology firms boats and ships. This summer, the Port Authority
is sending one of its own ships out to sea using
Sample Sustainability Efforts CapitainAI technology; over time, this AI can
> Rotterdam awards port dues discounts via the "Green Award" to any alleviate port congestion and produce more
seagoing tankers or shipping companies that demonstrate investments in improving efficient shipping routes, saving fuel and time
environmental performance > Incentives for conversion to cleaner energy:
> The Port Authority has earmarked 5 million of its Climate-Friendly Shipping While investors may be slower to bet on green
initiative to fund and develop low- or no-carbon fuel maritime projects tech solutions to traditional shipping challenges,
> The Port Authority has partnered with Dutch public works agencies to relaunch a the Port and the Dutch Government offer
floating solar farm in unused harbor; the new farm will be the largest ever in shipping companies incentives to reduce carbon
the Netherlands and is part of the port's efforts towards cleaner energy creation emissions, driving them to seek emerging
solutions in the market
Source: Port of Rotterdam, Rotterdam Maritime Capital, Rotterdam Partners, Maritime by Holland, Mach
Next Street Financial LLC Copyright 2019 CONFIDENTIAL
103
CASE STUDY: TAKEAWAYS FROM ROTTERDAM
Innovation-first mindset: Maritime startups in the Netherlands are focused on high-tech
innovations in traditional industries, (e.g., AI that captains ships, machine learning solutions to port
1 logistics, cloud-based software to improve fuel efficiency). These solutions draw the interest of
investors who are familiar with and interested in technology ventures
Government support for early-stage ventures and maritime innovation: The Dutch
government provides substantial funding and programmatic support to early-stage maritime
2 businesses, including assistance in applying for grants and establishing financial partnerships to fund
innovations in green and blue tech. This support creates opportunities for early-stage maritime
startups to develop without needing to seek additional forms of capital
Accelerators are a deliberate pipeline for investors: With early-stage investors cautious
3 about returns on maritime investment, accelerators have become a particular proving ground for
maritime startups; one such example is TecPier's commitment to make investments in companies
that have completed Rotterdam-area accelerator programs, which reduces investment risk and
creates a clear pipeline to investment for startups in an accelerator cohort
Attracting international capital: In 2018, Dutch accelerator HighTechXL held an invitation-only
investment summit for Dutch startups and Chinese investors. The explicit goal was to attract international
4 investment into the Dutch startup economy, but entrepreneurs also found the summit valuable for the
access to potential markets and customers
Next Street Financial LLC Copyright 2019 CONFIDENTIAL
104
CASE STUDY: SAN DIEGO (1 OF 2)
Overview of Maritime Economy & Key Industry Clusters
Key City Info
The Port of San Diego is located within the San Diego Bay. In 2017, the Port's
overall economic impact was $9.4 billion. Roughly 70,000 jobs in San Diego Population
3,317,749
County are generated by the Port; more than 44,000 of those are on the Port's (metro region, 2017)
waterfront and include shipbuilding and repair, cargo handling, tourism and Port volume
hospitality jobs. 130,000 (est.)
(TEUs, 2018)
> Shipping: San Diego is a leading cargo and recreational port; roughly 10% of
cars imported to the U.S. come through the Port, and the 2018 cruise season Port volume % change
+18%
brought 94 port calls and nearly 300,000 passengers (2014-2018)
> Shipbuilding and repair: Bolstered by the Navy's presence, San Diego is
home to the West Coast's only major shipbuilding and submarine yards; Map of Key Assets
smaller shipyards are developing to serve foreign recreational customers
> Ocean science and observation: San Diego is home to leading institutions Scripps
of both ocean and weather observation; in recent years, climate change has research hub
driven increased research and activity in this cluster
> Defense and security: Inland, there is a well organized cluster of maritime-
specific services provided by banks, insurance companies, insurance brokers,
lawyers, accountants, and tax consultants
Key Maritime Economy Stakeholders
> Port of San Diego: a public benefit corporation governed by Board of
Commissions comprised of representatives from the 5 cities that border the Maritime
San Diego Bay; established a Blue Economy Incubator in 2016 Alliance
> The Maritime Alliance: the non-profit industry association and cluster
Port Authority
organizer for the San Diego maritime technology community; The Maritime
Alliance represents the largest maritime (ocean and water) technology
community in the U.S Port entry
> Scripps Institution of Oceanography: one of the world's largest Naval Base
institutions for the study of ocean and Earth science; employs more than San Diego
1,200 academic and administrative staff 14 miles
Source: Port of San Diego, Logistics Management, American Association of Port Authorities, California DOT, BizJournals
Next Street Financial LLC Copyright 2019 CONFIDENTIAL
105
CASE STUDY: SAN DIEGO (2 OF 2)
Capital Activity and Illustrative Deals
> Key Challenges
In 2016, the Port established the Blue Economy Incubator to remove "barriers to
ocean entrepreneurs and provide key assets and services focused on pilot > Workforce development: As seen in other
project facilitation"; through 2018, the Port had launched 5 pilot projects ranging maritime economies, San Diego is challenged by
from shellfish nursery operations, copper remediation technology, a drive-in an aging workforce, and a lack of training
boatwash, a smart marina app, and a marine debris removal system. programs for traditional maritime trades
> Each year, 20 companies are invited to present to a panel of judges at a pitchfest > Fractured maritime stakeholder
during The Maritime Alliance's Blue Tech week, with venture and corporate ecosystem: Stakeholders in the maritime sector
investors in attendance report lack of coordination and heavy
competition among smaller maritime economy
Illustrative deals development initiatives
> Ocean Aero, which designs unmanned vehicles that operate both on the ocean > Limited early-stage and high risk capital: As
surface and underwater, closed a multi-million Series B in 2018 and has in Seattle, small businesses still struggle to attract
several corporate investors, including Teledyne and Lockheed Martin early-stage capital that is willing to take a risk on
> In 2018, BlueNalu, a startup developing technology to grow seafood the long development and revenue timelines in
directly from fish cells, closed a $4.5m seed round just 2 months after the Blue Economy
announcing their launch; the round was led by New Crop Capital, a NYC-based food
science venture fund Potential Solutions
> Aquacycles, a recreational water-borne bicycle company, was able to raise funding > Greater coordination among Blue
through the 2018 Blue Tech Week pitchfest; exact terms aren't known, but Economy Initiatives: The Maritime Alliance,
businesses at the pitchfest seek between $15k and $250k along with smaller organizations like Blue
Economy Strategies, are working to enlist San
Sample Sustainability Efforts Diego stakeholders for greater cooperation on
> The Port's Board of Commissioners works aggressively to improve air quality and projects like Blue Tech Week and Seaport San
reduce greenhouse gas emissions; through the success of various initiatives, Diego
greenhouse gas emissions at the port fell 34% from 2006 to 2016 > Blue Economy Incubator as hub for small
> Currently, 70% of passenger vessel and refrigerated cargo fleets which visit business development: Having a major
the Port are using shore power instead of running diesel engines in port organization, the Port of San Diego, develop a
> By order of the Port's Green Truck Program, all heavy-duty trucks accessing the blue economy incubator can centralize funding
Port of San Diego maritime terminals must comply with the clean air initiatives and small business development as it
requirements under California's drayage truck regulations, including the grows and attracts more regional and national
requirement that trucks be year 2014 or newer recognition
Source: Port of San Diego, Logistics Management, American Association of Port Authorities, California DOT, BizJournals
Next Street Financial LLC Copyright 2019 CONFIDENTIAL
106
CASE STUDY: TAKEAWAYS FROM SAN DIEGO
New markets for clusters with historical strengths: Shipbuilding and repair, robotics, and
scientific observation are all maritime industry clusters that have a large presence in San Diego due
1 to the Navy, but are finding other other markets and applications for their products and services,
demonstrating the way traditional core and non-core industries can evolve
Dedicated Blue Economy incubator: The Port of San Diego's Blue Economy Incubator has
proved to be an early success, launching 5 businesses across a variety of maritime industries. The Port
2 is providing seed investment funds and expertise to support entrepreneurship, foster sustainable
aquaculture, and help drive blue tech innovation, promoting small business innovation and
development with the backing and partnership of a governmental organization and its partners
Visible and centrally-coordinated maritime tech conference: Blue Tech Week is a
dedicated effort to make San Diego's maritime tech more visible to stakeholders both within the
3 region and nationally. The conference attracts industry leaders, investors, and other maritime
stakeholders in an effort to develop the San Diego maritime tech economy
Movement towards unified ecosystem support: Organizations like Maritime Blue and Blue Economy
4 Strategies are working to coordinate Blue Economy stakeholders and initiatives for greater impact. Over
time, this effort may overcome San Diego's fractured and competitive maritime stakeholder ecosystem,
driving new growth and innovation through cooperation
Next Street Financial LLC Copyright 2019 CONFIDENTIAL
107
TABLE OF CONTENTS
Executive Summary
Project Overview
Blue Economy Industry Analysis
Blue Economy Peer Cities Analysis
Blue Economy Local Capital Landscape
Debt
Equity
Grants
Blue Economy Capital Landscape Gaps
Illustrative Deals
Appendix
Full Industry Analysis
Peer City Case Studies
Illustrative Seattle Investments
Next Street Financial LLC Copyright 2019 CONFIDENTIAL
108
ILLUSTRATIVE INVESTMENTS IN SEATTLE MARITIME COMP'S
Company Detail Investment Round Local Investors National Investors
Beta Hatch Industrializing production of insects as Seed > Element 8 > Frontier Angel > Cavallo Ventures
sustainable protein for animal feed > Keiretsu Capital Fund > NQV8
IO Currents Turns large scale maritime sensor data Seed > Bellingham
into actionable intelligence Series A Angel Investors
> Imagen
Modumetal Non-laminated alloy that will replace 8 rounds ($65.2M); 5 > Flying Fish > BP Ventures > Catamount
metals in many applications such as venture rounds, 2 Partners > Conoco Phillips Ventures
military armor and vehicles Convertible Notes, 1 > Vulcan > Founders Fund > Subversive Capital
Series A > Second Avenue > Hercules Capital
Partners
> Steven Singh
Pure Watercraft Electric propulsion company designing Debt financing raised
and building electric powered $2.1M in 2016
recreational watercrafts
Love the Wild Sustainable fish entrees Series A > Aqua Spark
> Leonardo
DiCaprio
Foundation
Fish People Seafood entrees and soups Series B raised a total > Blueberry > S2G Ventures
$12M Ventures > 3x5 Partners
> Collaborative > Advantage
Fund Capital
> Encourage
Capital
Seattle Food Tech Plant based meat Pre-seed; $2.1M > VegInvest > Y Combinator
> Liquid 2 > Blue Horizon
Ventures Equity
> UP Honest > Kyle Vogt
> Sinai Ventures > Tamar Capital
Next Street Financial LLC Copyright 2019 CONFIDENTIAL
109
Limitations of Translatable Documents
PDF files are created with text and images are placed at an exact position on a page of a fixed size.
Web pages are fluid in nature, and the exact positioning of PDF text creates presentation problems.
PDFs that are full page graphics, or scanned pages are generally unable to be made accessible, In these cases, viewing whatever plain text could be extracted is the only alternative.