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Guest Blogger Eric Wesoff Covers the Week in Cleantech

Eric Wesoff: February 28, 2008, 11:42 AM
Rob Day, pioneering renewable energy VC investor, blogger and all-around good guy is on vacation in much sunnier climes this week and has given me the honor of filling in for him. My name is Eric Wesoff and I’m a senior analyst at Greentech Media and the author of the Venture Power Report. Here’s this week’s Cleantech Investing blog, now with slightly higher snark. Stealth Solar Stealthy solar firm Solexel is listed on Technology Partner’s website and on KP’s website but information is scant. They do have some job listings for epitaxial silicon engineers and MEMS engineers and the MEMS aspect is intriguing. Their write-up claims that they develop, “disruptive, high efficiency, cost-reduced energy conversion products for the solar energy market.??? Which is much less than informative. Apparently they already have a CFO, unusual for a company this small. The Ira has not responded to inquiries. There is No Such Thing as Clean Coal The DOE is trying to resurrect and restructure the battered FutureGen project - issuing a quick-turnaround RFI [PDF link] for projects to equip clean coal commercial power plants with carbon capture and storage (CCS) technology. If you have some ideas on “less dirty coal??? - the deadline is March 3. Solar Umbrellas? SKYshades (caution: crappy soundtrack), co-founded by the Great White Shark, has inked an MOU with VC-money-oxidizer, Konarka, in order to issue press releases abut organic PV umbrellas. Konarka supposedly builds flexible solar devices on plastic substrates and has raised at least five funding rounds (not really a good sign). Konarka has been raising VC money, issuing dubious press releases, and switching CEOs since 2001. Cellulosic Ethanol Funding with Political Connections PE Week Wire breaks the news on Mascoma’s $50M C Round, a combination of debt and equity. The Cambridge, Mass.-based start-up is working on cellulosic biomass-to-ethanol development and production. Funding came from General Catalyst Partners, Khosla Ventures, Atlas Venture, Flagship Ventures, Kleiner Perkins, Pinnacle Ventures, and VantagePoint Venture Partners. Mascoma had previously raised ~$40M in VC funding. Former senator Tom Daschle, an Obama supporter, is on the firm’s board. Former president, and soon-to-be-failed first husband, Bill Clinton is involved with Cilion, another VC-funded ethanol start-up. SoCalGas – An Enlightened Utility with a VC Investment Arm I had a great conversation with the venture arm of Southern California Gas recently and will report in detail in the next Venture Power. But here are some quick notes and observations – their venture arm is considered part of their research program and they are actively making venture investments in technologies and companies that “have a strategic fit with their charter or their customer’s needs.??? Their hot buttons include:
  • Energy efficiency
  • Smart grid technologies
  • Solar thermal systems – In their opinion, “the technology to beat is horizontal trough systems.??? More on SoCalGas soon.
Exploding Windmill The exploding Danish windmill video deserves repeating. Windpower is a great thing and this type of braking failure is an exception to windpower’s safety and effectiveness as a renewable energy source. Harnessing Big Wave Power at Half Moon Bay California's Mavericks. Rob Day returns next week unless he goes native.

Squeegees and t-shirts and air-powered cars

Rob Day: February 23, 2008, 6:30 PM
Lots happened this past week:
  • Sub-One Technology, an advanced coatings company that helps infrastructure resist corrosion and reduce friction, raised a $24mm Series C led by Nomura and including GE Energy Financial Services, Chevron, and ATV. Perhaps the company's products could be used on the proposed $3B ethanol pipeline that's being talked about for bringing the fuel from Iowa to the Northeast.
  • Clean Technology Investor had a very interesting column on how the lack of standards in the U.S. carbon credit market is hindering its growth, and thus hindering the ability of low carbon technology startups to monetize the additional potential value from offset sales. "So, in the absence of national standards, regional authorities, an alliance of investment banks and even a voluntary marketplace - the Chicago Climate Exchange, or CCX - are attempting to develop them ad hoc. The process of setting up specific qualifications, trading rules and market operations is still in the embryonic stage." Track down a copy of the full article for an interesting read...
  • At the Piper cleantech conference in NYC, a representative from Ausra gave probably the world's first investment presentation to ever combine a) a revenue forecast chart with the y-axis denominated in Billions; and b) the statement: "we have an army of squeegee men."
  • Finally, this fantastic site made the rounds among VCs... Drop it like it's hott, like cleantech hott.

More money for Tesla

Rob Day: February 20, 2008, 7:22 AM
Last week Tesla Motors closed on another $40mm in bridge financing co-led by Chairman Elon Musk and Valor Equity Partners -- haven't seen yet anywhere if other investors took part, but it wouldn't be surprising. At the Piper Jaffray Clean Technology and Renewables Conference in NYC, where a Tesla Roadster is parked right out front in the Madison Ave. courtyard of the New York Palace, the company presenter also mentioned that they have a "clear path to our Series D E later this year," which the FT reported could be as much as $250mm including equity and debt, "and an IPO next year," which may also be part of that $250mm total. I think I also heard the presenter say that Musk now owns 40% of the company, which would be surprisingly high to me, but as always yours truly is no journalist -- I could have heard wrong on any of the above, so happy to correct that if so... I look forward to my test drive. Cleantech investors around the world: Other news and notes: More on the ongoing corn-based ethanol debate... Neal identifies the low-hanging fruit... And finally, uh oh, looks like I'm out of a job.

The two kinds of disruptive clean technologies

Rob Day: February 18, 2008, 9:41 AM
Almost all VCs will say that they look to invest in "disruptive" technologies -- new products or systems where the value proposition is so markedly better in comparison to the incumbent choices that the market will have little choice but to go with the new option. Venture capital, needing to see rapid growth potential, naturally needs to see such opportunities, so it's easy for VCs to say that they're looking for Disruptive Technologies. But VCs mean different things when they say this. And in cleantech, the differences between what I'll call Compatible Disruptive Technologies and Incompatible Disruptive Technologies are, perhaps, even more stark than in other sectors. Compatible Disruptive Technologies (let's create an acronym and use "CDTs") are those that offer significant economic disruption, but without necessarily disrupting value chain relationships (at least at first). They are the solutions that dramatically reduce costs versus the status quo, but still go to market through the same channels, and could fit nicely into customers' facilities/ habits/ lives without too much of a mental or behavioral shift. They offer such a cost or other economic advantage, however, that they are still "disruptive" versus incumbent approaches within their targeted portion of the value chain. And often, the hope is that once they get into the market in a traditional way, they will further disrupt the rest of the value chain in some fundamental way. Incompatible Disruptive Technologies (okay, okay, "IDTs"...) are those that blow up value chains. To be successful, they must have compelling economic value propositions as well, or no one would go through all the trouble. But to be successful, they also require some pretty fundamental shifts in value chains. Some examples might help break through all the ex-consultant lingo... The differences between these two kinds of disruptive technologies can be found in most cleantech sectors.
  • Hybrid vehicles are CDTs -- you're still filling up at the gas station. Fuel cell powered vehicles are IDTs -- you're filling up with hydrogen from some as-yet unknown retailer or home option.
  • LED-based lightbulbs with edison screws are CDTs -- you can screw them into your existing sockets. Lighting fixtures designed around LEDs, with the diodes integrated into the fixture itself, and other LED-only features (like specialized lighting controls) built in, are IDTs -- no more sockets, you'll throw out the entire light fixture before the bulb ever burns out.
  • Thin-film solar panels in traditional format are CDTs -- still a roof or ground-mounted panel, even if it's cheaper. Building-integrated PV could be IDTs -- when roofers or general contractors can just slap products in place, who needs solar installers?
As with all jargon-y business concepts, readers are free to dismiss the distinction as non-existent, or to dismiss the specific examples above... But regular readers of this column will easily be able to point to recent cleantech VC deals that fall into one or the other category. Anyway, charging ahead: The markets that cleantech is targeting are huge, and resistant to change. So in this investment sector perhaps more than any other, the investment choices between backing CDTs and IDTs are clearer. And so you get very divergent investment strategies, where two very smart VCs may take entirely different approaches to how they invest in this sector. Those VCs backing CDTs argue that it's tough enough to break into the market with new tech in energy, water, etc. markets even when you're offering little disruption and a compelling value proposition. They point to the failure of previous "big idea" IDTs. For example: in the late 1990s, it was pretty much an accepted given by many observers and investors that by about 2008 or so we would be living in a "DG world", where microturbines and other distributed generation technologies, in a deregulated electricity market, would have dramatically changed the way utilities ran their businesses and their wires. Well, that hasn't really played out yet, and being early looks an awful lot like being wrong, as they say. So CDTs are seen as the way to go, because revolutionary changes in the market aren't necessary in order to get initial market traction. There's an installed base of OEMs and channel partners who can integrate the new tech in easily to their existing businesses, and/or an installed base of systems out in the field where the new products can simply possibly be slotted in. And earlier market traction means an earlier track record, more opportunities to demonstrate low remaining technology risk, and thus a more rapid path to broad commercialization and exit. To grossly over-generalize, in comparison to IDTs, CDT plays can drive to earlier cashflow breakeven, they can therefore be more capital efficient, and still offer very big upside returns if the innovation catches on quickly. Investors backing IDTs, on the other hand, say things like "if you're hunting elephants, you need to bring an elephant gun." They argue that if you really want to end up backing the huge success stories in cleantech, you need to back the plays that will revolutionize entire markets. That's the way to not only back big-growth market opportunities, but also importantly to CAPTURE the market opportunities. When you're the one who organizes the coup d'etat, in other words, you're usually the one who ends up in the president's mansion. Sure, it's riskier. Significant capital will need to be deployed not only to develop the technology, but also to educate and proselytize the market, and to build momentum even ahead of market entry (ie: PR, key market and policymaker relationships, etc.). But with greater risk comes greater rewards. And besides, if we're going to move quickly enough to change the world in the timeframe necessary to adequately address climate change, etc., we're going to need to move beyond what's easy. No one knows which strategy will produce higher returns. It might be possible to succeed wildly with either approach. It's certainly possible to fail with either approach. Really smart investors are lining up behind both strategies, and some are trying to build portfolios with a balance of both. But it's an important distinction to have in mind when reading about the latest deal -- pay attention to who was involved, and how the deal was structured, and the patterns will emerge. Here's another pundit's take on the same general topic. Speaking of the latest deals:
  • Stirling engine/ solar concentrator startup Infinia has raised a $50mm Series B, after raising a $9.5mm Series A last year. New investors GLG Partners and Wexford Capital participated in this latest round of financing, alongside existing investors Vulcan Capital, Khosla Ventures, EQUUS Total Return, Idealab, and Power Play Energy LLC.
Other news and notes: Planktos, we hardly knew ye... Cree's acquisition of LED Lighting Fixtures will probably bring even more investor interest to the solid state lighting space, since $103mm is a pretty nice exit valuation on a company that probably had something like $2-4mm in ttm revenues... Richard Branson wants an "environmental war room"... Solar continues to be white-hot -- besides the new deals mentioned above, Moser Baer has announced they're putting $1.5B into thin-film manufacturing capacity, India's $7B Fab City is switching its focus to solar, and here's a WSJ online column on the topic... A nice interview with Mr. Oz Cleantech, Ivor Frischknecht... Finally, recently stumbled upon a fascinating Los Alamos presentation on the possibility of underground nuclear power parks -- enjoy! (note: link opens pdf)

Big solar deals keep rollin’ in

Rob Day: February 10, 2008, 7:04 PM
  • Germany-based Odersun has raised a EUR 40mm Series B, led by Virgin Green Fund, and including participation by PCG Clean Energy & Technology Fund, AGF Private Equity, as well as existing investors DHTV and Advanced Technology & Materials.  The company will use the funds, as well as other funds raised, to build a second manufacturing plant for their thin-film solar, currently being integrated into accessories like messenger bags, but with additional potential for building-integrated PV.
  • Thinner-silicon solar cell developer Suniva raised a $50mm Series B for commercialization of their technology, which they say will be as cheap as conventional electricity.  NEA and Advanced Equities co-led the round, which also included participation by Goldman Sachs, Quercus Investments, and existing investors HIG Investments.  According to VWire, NEA will hold 3 board seats.
I'm looking forward to discussing all the doings in solar financing at the upcoming Solar Market Outlook day in NYC, later this month. Cleantech investors in the news:
  • Venture Wire is reporting that DFJ Element is raising their second fund, targeted at $400mm.  The firm closed their first fund in 2006, at $284mm.  They're re-branding as Element Partners.
Other news and notes: One of the major news items on the week were some studies pointing to the potential downsides of biofuels, particularly when forestland and other land conversion is part of the process.  Nathanael has some good thoughts on the issue here and here.  Clearly, the devil is in the details when it comes to the environmental impacts of biofuels.  One can envision a day when biofuels are being certified as being waste-derived, etc., similar to how forest products have seen certification efforts like the Forest Stewardship Council.  But while the debate rages on, cellulosic ethanol is coming to market soon, but it's unclear if people will buy it -- one big problem is the lack of good retail purchasing options for those drivers and fleet owners who might be interested. Meanwhile, in other news...   An Evergreen Solar board director is the latest solar exec to leave, but it's tough to see what trends are underlying this, if any...  Arno Harris has some interesting thoughts on green building trends...  Tyler has a cautionary tale about exactly why it can be so hard for clean technologies to get initial market traction...  (Sigh)... Finally, CERA has some bad news for incumbent energy companies -- clean energy options are coming, thanks to an anticipated $7 trillion in investments in the sector by 2030, and when they do the effects will be "disruptive" and not "incremental"...  But of that $7 trillion, this article suggests not much of it will go to privately-held companies...  Richard Stuebi argues that we need to gear up for a more substantial effort to make some dramatic changes happen -- and yet, the DOE EERE budget is lower than last year's appropriations and other similar cuts are proposed.  Hard to see how all of the above adds up.

Deals and info from the past week

Rob Day: February 2, 2008, 1:26 PM
  • GTM this past week told us about several cleantech VC deals including:
    • AqWise (wastewater treatment)... [2/4 correction:  Heard from Gene Dolgin at Israel Cleantech Ventures that the original source I'd used here was incorrect in some of their numbers, and instead that the accurate story was that "Israel Cleantech purchased 11% of the company in a secondary transaction in a deal that valued the company at $10M"]
    • Quantum Fuel Systems Technologies Worldwide took an approximate 25% stake in Asola (solar PV) for an undisclosed sum.
    • Green Plug (advanced power strips) took in an undisclosed amount of first-round funding from Peninsula Equity Partners.
    • Israeli solar thermal power developer Solel raised a significant amount of financing from Ecofin, which spent $105mm total in the new investment and in purchases of existing equity (Clean Technology Investor reported it was about half and half). Another round of financing is also planned, at which time Ecofin will hold a "very significant minority stake in the company."
  • Solar micro-inverter developer Enphase Energy took in a $6.5mm Series B (note: VWire reported that this amount actually reflects a combination of Series B and an earlier Series A round) led by Third Point Ventures. VWire also reported that the Series B took place back in 2006, and is only being made public now as the company emerges from stealth mode...
  • VentureWire reported that a 20 year old aerosol and particle technology company MSP Corp., with applications in pollution control and thin films, raised a $6mm Series A from Hunt Growth Capital.
Cleantech investors in the news:
  • Stanford Venture Capital Holdings has committed $10mm to Israel-based water tech AquAgro Fund.
Other news and notes: The Weather Channel is disappointed in Bush's latest climate change policy announcements... Meanwhile, here's a disquieting article describing the links between climate change and the availability of water in the U.S. southwest... The NYT on the emergence of the clean energy industry in California... If you're going to be at the GTM/ Prometheus Institute solar day in NYC later this month, make sure to say hello... With 2/5 right around the corner, here's your greentech voters' guide... Finally, and sadly, we send our condolences to the family and friends of Tyler Palmer, who died Monday in a tragic accident.