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Are cleantech VCs finally starting to get active again?

Rob Day: March 29, 2009, 4:04 AM
I spent a couple of busy days in Washington, DC this week, meeting with old colleagues and making some new connections.  (And I drove all 1,000 round-trip miles instead of taking the train, how do you like me now, Xconomy!)  One thing that was impressively clear in DC is how front-and-center energy technology is among staffers on the Hill.  A lot of very important things being worked on there right now, and minds seem to be pretty focused.  Great to see.  Unfortunately, it's also clear that the entire cleantech venture and startup community is gearing up to bombard the Hill and the DOE with funding requests... Meanwhile, outside of the Beltway, it's starting to feel like maybe some cleantech VCs are starting to get back in the game.  It's just anecdotal, but I see my colleagues in the industry getting more serious about doing deals, after a hiatus of a few months. For a while there, even VCs with capital left in their funds were sitting on the sidelines.  The limited partner community just wasn't making commitments to funds.  So VCs were forced to consider that it might be a long time before they could raise additional capital.  And thus, even if they still had capital left in their existing funds, they needed to hoard their resources and a) make sure they had enough in reserve to fully back their existing investments; and b) make sure that they stretched out their remaining new deals, so doing fewer deals over the course of 2009 than they had originally anticipated. Of course, many funds are still in this situation, so it's not like dealflow is coming rushing back.  It's still a very difficult time for VCs to raise capital from limited partners, and thus it's still a very difficult time for startups to raise capital from VCs.  But I do see some faint stirrings of life out there. Naturally, however, that won't be reflected in recent deal announcements, since there's a significant lag between VC interest and then deals and then the eventual press releases...  So here are the few announced deals from the past week:
  • Lightscape Materials, an LED phosphor spinout from Sarnoff Corp., has raised a $3mm Series A from Wisepower Co. LTD and Foosung HDS Co. LTD.
Other news and notes:  REBN continues to grow, with another great REBN-MidAtlantic event in Philly, and a new chapter being launched in North Carolina...  If you're reading the NYT Mag article on Freeman Dyson today, here's Hansen's reply...  A good catch-up on cleantech in the Pacific Northwest...  Here's a cogent critique of efforts to focus on breakthrough R&D efforts in energytech instead of driving adoption of already-commercialized energy efficiency technologies...  You heard it here last -- Al Gore is planning a new book timed to impact the upcoming climate legislation debate in Washington...  Finally, the Conspicuous Consumption Award has to go to this vacuum, which nature must certainly abhor -- if you can afford to buy it, I'm guessing you're not using it yourself.

Getting a job in cleantech

Rob Day: March 21, 2009, 9:14 AM
It's terrific to see the first of the DOE loan guarantees being awarded, to Solyndra it turns out.  Good acceleration by the DOE to get that kind of industry support underway, and the first of a lot more to come. With a big influx of government support coming into the industry, there will be new project-related jobs as well.  In these economic times, that will be welcome news to many readers, I'm sure. I've already written a few words of guidance in the past, once last year, and once a few years back. In terms of places to look for the jobs, besides the generic job boards out there, a few green collar job sites have sprung up that are worth checking out: There are others out there as well -- cleantech recruiters and executive search firms are encouraged to add their sites as comments to this column. Other news and notes:  My latest Mass High Tech column, on the need to promote industrial demand response as a stimulus priority...  Steven Chu agrees with me that energy efficiency is sexy...  Andrew Friendly of ATV also writes in MHT about the stimulus and cleantech...  A perfect storm for water?...  NEA's Scott Sandell has provocative thoughts on whether or not cleantech is "dead"...  And finally, at least there's one new LP putting money into cleantech -- ATP.

Cleantech Investing: Four Years Old

Rob Day: March 19, 2009, 3:15 PM
Happened to notice that Sunday will be the fourth anniversary of my first Cleantech Investing post.  Going back through the archives really helps bring home what a wild ride it has been over the past 48 months in this sector.  And the fun continues... Many, many thanks to those of you who have made this site such a fun and interactive experience.  Keep those comments and questions and gripes coming!  I hope I can continue to make this column a useful resource for you (and the few thousand of our closest friends who regularly stop by).  And if you are a web2.0 type, check out the Twitter feed and the Facebook page for readers, so you can network with your fellow C.I. subscribers... In this era of "capital efficiency" and "energy efficiency is the next big thing" and "smart grid", it's fun to look back at some of what I and others have said on this over the past few years.  In particular, this three part series (column one, column two, and column three) on the smart grid kind of made me both smile and cringe when I stumbled upon it today. And of course, there are deals to report:
  • PE Hub yesterday reported two solar financings that sound like they're of the convertible notes + warrants variety:  Optisolar raised $30mm, and Heliovolt has raised $17.5mm of a planned $32mm round.
  • VentureWire reported that Silver Spring Networks has added $15mm to its Series D.  The additional capital apparently came in at a 20% premium on their first close back in October.
Other news and notes:  Here's one take on the SBIR reauthorization debate...  CFR has a good overview of the clean coal debate...  Google's Dan Reicher says energy efficiency could be the next big thing...  And finally, I'll extend the same generous offer to Fisker that I made (unsuccessfully) to Tesla -- simply give me one of your cars for a two-week test drive, and I promise a GLOWING review on this website!

A T.R.I. for carbon emissions?

Rob Day: March 14, 2009, 11:04 AM
Perhaps I'm just a hopeless policy wonk, but I was very excited to see the news that the EPA has proposed that major sources of carbon emissions should have to report what and how much they put out their smokestacks. Information is an undervalued but critically important regulatory tool.  If information gathering and reporting programs are well-designed, they can drive powerful market forces at minimal costs, with maximum flexibility. When policy pundits talk about regulating a pollutant like carbon emissions, what you hear most of the time are arguments for either "market-based" regulations (like cap-and-trade or carbon tax) or "command-and-control" regulations (like "best available control technology", where everyone is required to achieve the same performance with the same technology).  But few talk about "information-based" regulations. Yet back in the 1980s, Congress' implementation of the Toxics Release Inventory as part of a "right to know" law turned out to be a very important illustration of the potential usefulness of information as a regulatory tool.  The thinking was simple:  Require companies that were putting toxic pollutants into the environment (even if at legally-allowed levels) to report it into a simple database that the public could get access to.  If you want to see what the data looks like, check out Planet Hazard, a great web-based interface. The impacts were significant and immediate -- companies started reducing their emissions of toxics (with total reported emissions dropping 48% from 1988 to 2000).  In some cases companies were embarrassed by local news reports identifying the biggest polluters in certain regions.  And in other cases I've seen, some CEOs had never been forced to acknowledge the amount of toxics being emitted out of their factories, and they recognized that pollution is very often a form of wasteful cost, so TRI spurred waste-reduction efforts that improved profitability. I emphasize that last point because it shows that not only was making the data available a relatively low-cost way to get significantly reduced emissions, the information also became a useful business tool for businesses that were looking to lower their costs and environmental impact. TRI has come under attack for putting reporting burdens on companies, costs which have been measured in the hundreds of millions of dollars by some accounts.  But of course, that misses the point entirely -- this is information these companies should be gathering anyway, if they're run by profit-maximizing businesspeople.  And it's certainly a less-costly alternative to BACT standards or other more active regulations that could be placed on emitters of toxic waste, in any attempt to achieve the same reductions.  So it was a great win to see Obama already signing legislation strengthening TRI reporting requirements. So now we have the EPA proposing greenhouse gas emitters be put into a somewhat similar system.  And I think it's a terrific idea. Again, this is information that major GHG emitters should already be tracking.  Because carbon out the smokestack represents some form of waste, potentially avoidable.  Companies like eQuilibrium have already been signing up corporate customers who want to use their carbon emissions tallies to help them identify places where they are wasting energy.  There are efficient ways to gather this information now, it shouldn't be a huge administrative burden. But as the example of TRI showed, such information gathering and reporting can have a major impact on corporate performance.  Information is a powerful regulatory tool, and it's great to see it start to be deployed in the fight against climate change. A TRI equivalent for carbon emissions could be a lot more important than most people realize. . . .

Catching up on a month of cleantech dealflow

Rob Day: March 14, 2009, 10:06 AM
Even in this economy, cleantech deals keep happening.  We're way behind on mentioning them here, so here's a catch-up of sorts:
  • ChapDrive AS, a Norwegian wind turbine transmission startup, has raised an EUR 6mm round of financing.  Existing investors NorthZone Ventures, Hafslund Venture and Energy Capital Management, and new investors StatoilHydro and Innovation Norway provided the funding.
  • VentureWire reported that Bloom Energy is raising a $150mm Series F round of financing, with an asked-for valuation of $1.45B.
  • VWire reported that Smith Electric Vehicles took in $10mm in undisclosed financing earlier this year, as part of the company's formation.
  • Think, the electric vehicle company, went bankrupt, reports VentureWire, and now its U.S. operation has been restructured to be a 100% subsidiary of Think AS, the Norwegian parent.  As part of the restructuring, Kleiner Perkins now has a direct stake in Think AS and RockPort has increased their stake in the parent as well.  The company is reportedly seeking a $40mm new equity infusion.
Cleantech investors and other luminaries in the news:
  • Last month, VentureWire reported that CalPERS is considering a $200mm commitment to Khosla's new $1B targeted expansion-stage fund.  The article also pointed out a few other firms out there raising $1B+ sized later stage funds, including Riverstone Holdings, Clean Energy Partners, and C Change Investments.
  • VWire also reported that Macquarie is in the process of raising a $400mm cleantech fund-of-funds.
Other news and notes:  Here in Boston, what sounds like a terrific group has been launched -- New England Women in Energy and the Environment (NEWIEE)...  Meanwhile, on the policy front, without getting into the pros and cons of it, it's worth pointing out the cleantech implications of an emerging debate on patent reform, as illustrated by this column [3/16 update: changed link]...  Also, here's another good article looking at the implications from the mention of cap and trade in Obama's budget...  China's cleantech sector took in $1.3B in venture capital and private equity last year, 120% up from 2007, according to one survey...  Xconomy's been running through a list of cleantech companies in selected regions, such as this list of Oregon players...  Martin LaMonica searches for the Google of cleantech...  Clean Edge released their latest annual clean energy market report, and while 2008 was a record year, they suggest 2009 won't be so rosy...  In Britain, the BVCA has set up an energy, environment and technology group...  Finally, "Show of hands," everyone!

A proposal for government seed stage funding in cleantech

Rob Day: March 9, 2009, 10:06 AM
A couple of weeks ago I wrote up a few thoughts on the chatter about government money being directed to cleantech venture capital firms (and then discovered I'd given fodder to the Globe, who knew?).  At the end of the column, I mentioned that I wished to see more government support for cleantech startups at the early end, too early for many venture capital investors.  It prompted some thoughtful replies from several readers. One reader pointed me to Sustainable Development Technology Canada.  This is a non-profit, quasi-governmental corporation that makes direct investments in Canadian cleantech companies to help them in later-stage growth or for initial project development purposes.  It has taken in $1B from the government and has already made investments in 144 projects to date -- they're looking to issue their 15th round of funding later this year.  So here's a model for some to look at, but it doesn't really address that seed-stage gap I pointed to. Another reader reminded me about OnPoint and In-Q-Tel, two government-sponsored firms whose missions are to invest in startups that are developing technologies of interest to the Army and the CIA respectively.  These groups are investing in some early stage opportunities, but also are coming in later stage in some cases as well.  But it's certainly a good model to draw upon for inspiration when it comes to government financing of cleantech. Of course, a couple of people reminded me about the proposals for an "ARPA-E", a counterpart to the Department of Defense's DARPA research grant program.  DARPA is another good tool to consider, and has certainly been the source of grants for a number of cleantech startups.  It's not an investment, however, and so it comes with a very specific set of requirements (and bureaucratic headaches) for the grantee.  It's useful, but no panacea. Finally, Reem Yared wrote to bring up a DOE program that was in place to support seed-stage companies up until a couple of years ago:
In fact, the DOE used to run a program called Inventions and Innovations, where they funded promising clean technologies with grants of $50,000 and $250,000. The grants went to inventors who were still at the patent-filing stage, helping them go through the patent process and on to commercialization. There was a whole selection process which worked quite well. I was one of the consultants hired by the DOE (working for Vista Ventures) to help seven of the start-ups develop their commercialization strategy. Another company was DOE-sponsored market research services. The DOE had enough experience with the program to know that simply funding the research would not be enough: the patents would just be filed and shelved. The inventors/entrepreneurs really did need the hand-holding through the commercialization process. The start-ups I worked with were all over the country and in all different fields: wind, glass manufacturing, paper manufacturing, LP gas distribution, biofuels, car engines, AC pumps. The irony, of course, is that the year Pres. Bush mentioned a focus on cleanTech in his state of the Union address, the administration pulled the plug on the program (April 2007). I don’t think it would take too much effort to restart it, rather than creating something from scratch. See
Government-run investment programs have historically been challenged for a) having unintended consequences like the patent-shelving Reem mentions, and b) not being able to bring on board top investment talent because the government salary structure and even profit-sharing aren't possible.  That latter objection also points to operational challenges -- such simple questions as "are we looking for jobs growth" versus "are we looking for strong investment returns" become pretty fundamental to the exercise. But merging a few of these ideas together, a quasi-governmental, independent corporation sponsored (and funded) by the DOE could be launched, to focus on seed stage companies commercializing technology out of the DOE labs and DOE-funded research.  It wouldn't have to be a huge amount of capital to have a major impact -- a few tens of millions of dollars would be very significant in this context, but relatively small in comparison to the "billions" being discussed by Krugman et al.  Then the questions to be answered around staffing and incentives and compensation would be very similar to those faced by OnPoint and In-Q-Tel, which have been able to bring in experienced, motivated investors.  So no need to reinvent anything at all, we can borrow from what's already working elsewhere. I bet right now we could get some of the brightest investors in the cleantech venture capital world to support this and even join such an effort.

The cleantech anti-bubble is a buying opportunity

Rob Day: March 9, 2009, 6:12 AM
Ah, memories.  Remember way back when I had to devote significant writing on this website to the question of whether there was a bubble in cleantech or not?  And by now, it's starting to look like even my fairly pessimistic 1H09 cleantech venture dollars predictions may have been a bit optimistic, given that Jan-Feb investment totals were on a pace of less than 50% of 2008 annual totals. What we're seeing now is an anti-bubble.  It's across the entire economy, and in fact cleantech appears to be more insulated than many other sectors, but people just aren't putting money out there. In their March 7th issue, The Economist declares: "A share's value must be the present value of all future dividends -- otherwise stockmarkets would be a giant Ponzi scheme."  But that's exactly what has been happening across a wide variety of financial asset classes since the mid-80s.  It was driven by an oversupply of capital, due to a combination of loose monetary policies and the massive exportation of capital by fast-growing Chinese, et al., economies.  We've had 20+ years of one bubble after another in various asset classes, most recently from dot-coms to housing to corporate debt, with only a couple of hiccups along the way. The definition of a Ponzi scheme is one where the fundamental value of what's being invested in is irrelevant -- the only assumption is that the buyer will be able to find another buyer willing to pay even more. With the oversupply of capital we experienced for so long, it had to find places to go, and so we had bubbles where investors weren't paying attention to the underlying fundamental values of the assets they were buying.  Or fooled themselves into believing that "this time it's different".  Whatever.  Basically, to use the stockmarket example cited by The Economist, investors stopped caring about the dividends of stocks.  They just thought someone else would be willing to pay more for the stock later -- why? We started to see a bit of that in some subsectors in cleantech, most notably in solar panel manufacturing and food-based biofuel production.  Why was such-and-such thin-film solar company valued at over a billion dollars pre-money for a private equity round?  Because the investors felt that someone else would be willing to pay even more within a couple of years.  And certainly some of that behavior was also seen in the publicly-traded cleantech shares out there. So these bubbles, including in some cleantech sub-sectors, were the result of too much capital chasing into a "hot" market and getting away from the underlying fundamentals.  And now, we're experiencing the same category of problem but in the opposite direction:  Too little capital is available, and still everyone is getting away from the underlying fundamentals. But in cleantech we really are seeing some tremendous business opportunities.  Technologies at a commercialization stage, targeting big markets with huge unmet needs.  Our global natural resource shortages aren't going away, and while energy prices are temporarily depressed given the severity of the downturn, few expect them to stay low over the long run.  Cleantech startups selling cost-saving technologies still getting good revenue traction.  And of course, a huge influx of government support on the way to anyone with the potential to grow green collar jobs. Yet, right now many cleantech venture investors just aren't putting money out there.  Some are in a bit of maintenance mode, stretching out their existing funds rather than go out to raise a new fund right now.  Others are simply waiting for "the bottom".  And that means I see a lot of strong cleantech companies not getting funding.  Good companies with good revenue growth since their last round, looking at a down round this time.  Startups with capital-efficient business models and compelling customer economics, talking to VCs who say they're looking for capital efficient business models and compelling customer economics, but not getting term sheets. This means there is a strong buying opportunity out there right now in cleantech venture capital.  An opportunity for bold investors with available capital (and discipline and patience) to come in and find great companies to back, with a lot less competition than they would have faced a year ago. Yes, the economy means that some of the fundamentals have changed and deal valuations should be lower.  And yes, high cash burn is now justifiably out of style.  But there are still more great deals available right now than there are deals getting done. So consider this a call-to-arms for the entire cleantech venture community.  Let's get out there, and grow some great businesses.