Arca Climate - A Case Study

Highlights

• Arca Climate Technologies, Inc. (“Arca”) has a mission to help combat and reverse climate change by advancing its carbon capture technology that utilizes mining tailings.
• In the Spring of 2022, Arca was a fresh Greentech company with only the Founders and the CEO as full-time staff. The company’s mission required a number of near-term critical tasks and financial help was needed.
• Since June 2022, 3 WEST has been engaged by Arca for Fractional CFO services. 3 WEST has assisted the company with cash management and planning, value proposition, and grant funding.
• 3 WEST has built a number of different reporting applications for Arca, including a 25-page custom financial reporting tool and engaged with Arca management on a weekly call.
• Since the Summer of 2022, Company management has had numerous achievements, including:
  
  • growing to 20 full-time staff
  • forming operating partnerships with six different mining companies (including industry leaders Vale and BHP)
  • entering into an off-take agreement with a prominent industry group (including Stripe, Meta, Shopify, Alphabet and McKinsey)
  • winning numerous Cleantech industry awards
  • securing $2+ million in grant funding
  • completing its official Seed round of US$5 million at a 257% increase ($7 million to $25 million) in value to its Pre-Seed financing.

Arca Climate - Overview

Arca is a direct-from-air carbon-capture company based in Vancouver, Canada. The company is a spin-out from the University of British Columbia and a product of its Entrepreneur@UBC accelerator program.

Arca was founded by a group of UBC academics in October 2021, including Dr. Greg Dipple, Professor of Geological Sciences. Along with the Founders, Arca is led by CEO, Paul Needham, who joined the company in April 2022.

Arca is advancing its portfolio of technologies as a potential answer to climate change. Arca’s mission is to accelerate carbon capture from the air using mining waste rock.

This process usually occurs over thousands of years in nature; however, the right mineralization combined with the proper treatment can greatly speed-up the carbon capture process.

The company believes that with just under 200 gigatons of suitable material in mine tailings, there is the potential to capture roughly 40 gigatons of CO₂.

Financial Needs

In June 2022, with cash in hand from an Xprize Award and a Pre-Seed financing, company management had plans to quickly grow the business.

Looking forward on the finance side, Arca needed help in a number of different areas, including cash management and planning, understanding its potential as an investment, and applying for grants.

Arca’s first specific hurdle included understanding what the company would require for funding an operation’s capital equipment and labour. Second, a forecast for revenue was needed (given the unique nature of the proposed operation, this would require some significant work).

Together, the forecast for revenue and costs would provide a picture of the general project economics and help forecast financing needs for production. Of particular importance, the project economics would also be useful to negotiate operating agreements with potential mining partners.

Arca also needed to be able to define its funding needs and growth plans outside of its production. This included plans for R&D activities to advance its carbon-capture technology.

This, along with the project economics (and level of potential carbon sequester), would provide the basis for grant funding applications and define the timing and size required for the next round of financing.

Finally, with details on project economics and expected cash burn, the company could more define its value proposition, build a narrative around a project pipeline and its potential contribution towards “Net Zero” (which held a high amounnt of qualitative value), and define its investment timeline/potential return for investors.

This would be needed for the next round of financing to spotlight its attractiveness as an investment and backstop any negotiations on valuation.

A major hurdle for Greentech companies, and specifically CC&S companies, is that there is often significant value that is ESG-based, and therefore more qualitative. The more a company can quantify its potential for carbon removal/revenue generation, the greater it can leverage its ESG investment qualities to maximize its value proposition and financial runway.

3 WEST Hired in June 2022

3 WEST was hired by Arca by a referral in June of 2022 for Fractional CFO services, initially for a three-month engagement.

After discussions on what Arca was in need of initially, David West of 3 WEST began putting together a detailed financial reporting tool for the company.

The first area to tackle was understanding what the projects would require for equipment and labour. Operations were broken down in terms of required positions with salaries and equipment with capital costs to arrive at the full costs of an operation (based on a specific run-rate).

With the operational costs detailed, the expected revenue was estimated based on the run-rate. The revenue was calculated using a Bottom-Up approach, based on the expected size and speed of proprietary equipment, as well as the company’s proprietary processes and research to arrive at a rate of carbon sequester.

This was then applied over the likely size of the operational tailings, with the revenue stream based on the timing and expected sale price of the Carbon Credits.

With one potential location detailed, other operations were included based on the company’s sales pipeline, to arrive at an overall forecast for corporate revenue, “CoGS” and capex required across the company over a longer-term.

An R&D budget was also arrived at, adding in for corporate overhead and other forecast expenses to ensure the proper timing and size of the next financing. Any shortfall in costs over the near-term needed to advance the R&D and cover project costs were carved out and proposed for in Cleantech Grant Funding Applications.

Finally, this collection of information and reports provided the basis for the company’s value proposition. With it, Arca began the process to secure its official Seed round of financing. It also moved towards beginning the negotiation process with potential partners / mining locations in order to secure it's project pipeline.

“David West has been instrumental in helping us understand project economics, model growth scenarios, negotiate transactions and mobilize grants and investment. Working first on the foundations of our financial model, we were then able to leverage that tool to support contract negotiations with a major partner.

Our financial tools – built and supported by David – have helped us win grant support and prepare for our next equity raise.”

- Paul Needham, CEO of Arca

The Outcome

Generally, assistance from 3 WEST allowed the company to gain a full understanding of its future cash flow uses and needs, based both on the production expected and the most efficient use of cash to get there.

It also provided the company with an understanding of the economics of individual projects and what the economics of its pipeline portfolio would look like. This provided the basis for Cleantech Grant Funding applications and the investment thesis for a Seed Round.

Overall, Arca’s management has been growing the company in giant steps. Here is a list of recent company achievements since the Summer of 2022:

• Arca has grown to 20 full-time staff with a corporate office and a lab set up in greater Vancouver. It is currently diving into R&D as it advances its proprietary process.
• Arca is now working with eleven mining companies, and has officially partnered with six, including BHP, Vale and Talon Metals, to potentially apply the technology to tailings owned by these companies.
• Included in the above, Arca has signed a contract to operate at the world-class BHP Mt. Keith tailings facility in Australia. The Mt. Keith operation is home to a tailings dam 16.6 km² in size, with 11 million tonnes of fresh tailings added each year.
• The company has recently secured a Cdn$2+ million grant from the BC Center for Innovation and Clean Energy (CICE) to fast-track commercial scaling of its technology. CICE also named the company as the 2023 CICE Changemaker Award.
• The company was chosen by Frontier Climate (a partnership of Stripe, Alphabet, Shopify, Meta and McKinsey) for an off-take agreement for its Carbon Credits.
• Arca was named to the 2022 Foresight 50, an award named to Canada’s top 50 most investable cleantech ventures.
• Arca was also named to Cleantech Group's 2022 Cleantech 50 to watch list.
• Finally, earlier in 2023, Arca raised its Seed Round of US$5 million, negotiated to a 257% increase in value over its Pre-Seed valuation.