VC Investing in Greentech, Installment #137

Greentech venture capitalists and entrepreneurs sitting around talking

Eric Wesoff August 23, 2010

Eric Wesoff

Editor-at-Large
Greentech Media

Eric Wesoff is Editor-at-Large at Greentech Media. Prior to joining GTM, Eric Wesoff founded Sage Marketing Partners in 2000 to provide sales and marketing-consulting services to venture-capital firms and their portfolio companies in the alternative energy and telecommunications sectors. Mr. Wesoff has become a well-known, respected authority and speaker in these fields.

His expertise covers solar power, fuel cells, biofuels and advanced batteries. His strengths are in market research and analysis, business development and due diligence for investors. He frequently consults for energy startups and Silicon Valley's premier venture capitalists.

If you attend enough events covering venture capital investment in greentech, the same, sometimes obvious, themes start to repeat.

VCs need to invest in billion-dollar markets.
Teams are important.
The company has to be capital-efficient, but paradoxically, must be able to scale big, quickly.

This week's VC event was entitled "Unique Challenges and Prospects for Early-Stage Clean Technology Start-Ups" in Palo Alto, California and was put on by the good folks at Agrion. Here are some highlights:

Cleantech Open, Brian Payer, Co-Founder

If you haven't changed your business plan in two or three years, then something is wrong.

Battery Ventures, Mike Dauber, Partner

"I can't think of another industry more focused on cost [than energy]. No one makes a decision on Facebook based on cost."
"If you need hundreds of millions of dollars, it might be a good company -- but it's not a VC-fundable company."
"You can't talk about cleantech as if it were one giant market."
Licensing revenue models might be good interim plans, but not as the basis for a long-term business.
Battery Ventures is an investor in Redwood Systems, an LED lighting and lighting control firm. In Dauber's words, "The lighting value chain is very complicated and highly controlled; a startup must show incentives to everyone in the value chain."
Battery Ventures attempts to de-risk its deals by tranching the financing with milestones and technology proof-points.

CalCEF Clean Energy Angel Fund, Susan Preston, General Partner

Preston plugged a congressional bill currently being worked on -- a tax credit for early stage investors.
CalCEF has a bit of a different spin on the venture model; their LPs have access to CalCEF deal flow.
In Preston's words, there are "lots of cleantech areas flooded with companies with no differentiation."
Project financing has become the "second gap" in greentech financing.
Preston pointed out the need for entrepreneurs to be coachable -- the team has to understand how to adjust and how to take advice. The team has to understand their strengths and weaknesses. "These are tough areas for an entrepreneur to do self-evaluation."
Preston and CalCEF are "looking hard" for an investment "at the intersection of energy and water."

People Power, Gene Wang, CEO

Wang is a "five-time startup guy" and four-time CEO.
"Energy management is just like device management," according to Wang. We'll investigate this claim in an upcoming article.
Wang's current company, People Power, is in stealth and has something to do with "the internet of things." He's looking to manage every device in every building.
In his view, ZigBee won't work well enough for intra-home communication. Their open-source product has better range.
People Power just received a $1 million SBIR grant and is looking for a Series B. Wang said that it's been very challenging to raise money despite the "capital efficiency of the firm" and the "great team."

Draper Fisher Jurvetson, Joshua Raffaelli, Associate

Raffaelli has some energy experience, is focused on innovation and business models, and specifically looks at the demand side -- data center efficiency and innovative financing models.
DFJ portfolio firm Scientific Conservation is less focused on energy efficiency and more on determining how a building is performing through predictive analytics.
DFJ has "run into some trouble in the biofuel space" as have many other VC firms.
"The problem is that energy in the U.S. is cheap."
Raffaelli is on the board of troubled PACE (Property Assessed Clean Energy) company, Renewable Funding. In the face of conflicting legislation, the firm and the board are now confronted with the need to conduct a search for other opportunities.

Moderator: HelioPower, Ty Jagerson, Executive Vice President

HelioPower will double revenue this year from $10 million to $20 million.
Jagerson named AQT as a company of interest because of their use of off-the-shelf equipment to build CIGS solar cells.
He also cited Array Converter as a potentially disruptive solar electronics firm in the 'inverterless' solar space.