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cleantechinvesting

Rob Day | April 13, 2009 at 2:24 PM 5 Comments

What’s the right energy price benchmark?

Everyone pays attention to oil prices as their first cut on energy prices.  I see numerous Wall St. analysts comparing oil price changes to solar stock price changes and showing strong correlations, and I scratch my head.  Oil prices shouldn’t really drive the fortunes of solar companies.  Very little of our electricity generation mix in the U.S. or in Europe or Japan (or other solar markets) comes from oil-fired generators.  And yet investors seem to view solar as a hedge on oil prices, probably because oil prices are highly visible and volatile.  We pass by gas stations all the time in our daily lives and see the prices go up and down.  Oil prices are reported on in the evening news.  VCs are often asked what their oil price “breakeven” is when looking at cleantech opportunities (ie: “what long run oil price do you invest based upon?”).  Oil, oil, oil.

But I would argue that the more salient price is natural gas.  It’s the peak generation fuel of choice and thus determines the peak electricity prices that most affect energy efficiency and smart grid and PHEV techs.  Ditto for solar prices, since solar is largely a peak power play (esp. once peak-shifting energy storage options are implemented).  It’s also a minor transportation fuel, so in some scenarios it can affect transportation tech options as well (if natgas prices drop, we’ll see a lot more natgas cars on the road).  Coal prices would be another good price to follow, but since it looks harder and harder to build new coal-fired facilities in the developed world, natgas fired generation is just as important for long-run scenario planning.

Funnily enough, right now there are a lot of divergent viewpoints when it comes to future natural gas prices for the U.S.  Here’s one analyst who argues that peak U.S. natural gas will occur between 2010 and 2020.  Yet I’ve also seen industry participants such as Ziff Energy point to the rapid expansion of “non-traditional” reservoirs in the U.S. such as the Barnett Shale and argue that natural gas prices are going to go on a long-term decline (more good info from FERC in this pdf), although others say that such reservoirs will be costlier to access.  Forward price curves, according to FERC and NYMEX (note: link opens pdf) are up, but not significantly.  (Coal futures also creep up a bit but stay relatively the same, btw—pdf at this link)

So basically, no one has a sure idea of what natural gas prices are likely to do over the next decade.  But with natural gas expected (by the EIA at least—note, link opens yet another pdf) to dominate new generation capacity additions between now and 2030, it’s a critical question for those investing in renewable energy markets.  Certainly a question I worry about more than the vagaries of daily oil prices.

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Rob Day | April 7, 2009 at 2:10 PM 4 Comments

What’s next after “cleantech” and “greentech”?

I’ve been having quite a few conversations with investors at generalist VC shops lately, where they’ve taken pains to point out that they don’t use the terms “cleantech” or “greentech”.

I completely understand why.

As cleantech/greentech have become a major part of the ongoing political discourse, the clean and green terminology is starting to get laden with “let’s save the planet” meanings.  Many VCs tend to have allergic reactions to such things.  Such returns-focused VCs (and also those who think energy independence is as important as green-ness) will want to use other terms to demonstrate that they’re focused on their bottom lines, and not the triple bottom line (social, env’l, business).  They’ll also want to demonstrate that they’re not just being “me-too”, and using different terminology helps to illustrate a different approach to the sector.

What all this branding and counter-branding is really all about, of course, is that people do view the sector in very different ways.  For some, it’s about renewable energy generation.  Others include energy efficiency, water, advanced materials, advanced manufacturing, etc.  I tend to fall into the camp of those who see a very broad investment thesis around looming natural resource scarcity, which then gets us into all of the above sub-categories and then some.  The problem is, “natural resource optimization” is just not very pithy.

But what are we to turn to as an alternative?  “Resource tech” perhaps?  Someone smarter at branding than I am will have to come up with the next big catch-phrase.

For me, it doesn’t matter what we call it, as long as we’re talking about productivity-maximizing strategies for addressing looming natural resource constraints in energy, water, agriculture, and other commodities.  And until someone comes up with something else that catches on, I’ll continue to write the “Cleantech Investing” column on the “GreenTech Media” website.

Deals from the past week (with a few firms looking pretty active):

  • Zigbee equipment provider Ember has raised an $8mm insider round of financing.  Investors included Polaris Venture Partners, GrandBanks Capital, RRE Ventures, Vulcan Capital, DFJ ePlanet Ventures, New Atlantic Ventures, WestLB Mellon Asset Management, Chevron Technology Ventures and Stata Venture Partners.

Other news and notes:  Here’s an interesting interview with CMEA’s Jim Watson...  Details on Ford’s relatively quiet shift toward the electric drivetrain...  Finally: Enjoy.

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Rob Day | April 3, 2009 at 10:19 AM 5 Comments

The funny thing about percentages

Both Eric Wesoff (of GTM) and the Cleantech Group released their Q1 cleantech venture numbers this week, and they were pretty close to each other in terms of total dollar amounts, with Wesoff tallying $836mm (but suggesting that undisclosed deals will take the number closer to $1B) and the Cleantech Group’s total at $1B.

But it’s always very interesting to see how such numbers are interpreted.  With a column “Optimistic News in Greentech VC,” Wesoff writes that the total—which he pegs at “close to 2007 levels” and compares favorably to Q1 2008 totals, which he had counted at “more than a billion dollars” at the time—is very healthy under the global economic circumstances, and a sign of strength in the sector.

Meanwhile, the Cleantech Group’s press release is very different in tone, talking about a 48% decline from the previous year’s totals. This, of course, led to even more negative headlines in some press coverage.

So wait a minute, how can this be?  Especially since, when I wrote about early Q1 2008 tallies a year ago, I mentioned the Cleantech Group’s totals were at $1.25B, reasonably close to Wesoff’s “more than a billion dollars”...

Basically, it’s another illustration of how good analysts using slightly different methodologies can arrive at very different results.  I checked with Brian Fan of the Cleantech Group, and he clarified that, after the initial Q1 2008 tallies had been released, then two additional and large Q1 deals were later disclosed:  A123, and Nanosolar.  Together, they ended up pushing the Cleantech Group’s Q1 2008 tally up close to $2B.  Which then explains why a $1B Q1 2009 would be a 48% decline, naturally.

I haven’t confirmed with Wesoff, but my guess is that he also captured those two deals in his tallies, but put them into the Q2 2008 category.  It would make sense, too.

So an arbitrary date in last year’s calendar is the difference between the first quarter of this year looking surprisingly healthy, or looking really dire, once you start comparing year-on-year percentages.  But it doesn’t matter, really.  The really important thing to note is simply that the dollars going into cleantech have declined somewhat, but haven’t stopped by any means.

A couple of other interesting notes:  Wesoff counts 14 out of his 59 deals as seed or early stage, which of course means yet another quarter when later-stage investments were the vast majority of deals done (or at least reported), in this case a 3:1 ratio of later-stage to seed/early stage.

Furthermore, it’s also interesting to note that deal sizes appear to be declining across all stages.  It’s tough to prove this point, but when you look at the Cleantech Group’s data point that the average deal size (a figure dominated by follow-ons, probably) has declined from $20mm to $12.3mm since Q3 2008, and also note this article describing how angel rounds across all sectors are still happening but at smaller sizes, it paints a picture of a lot of venture- and angel-backed companies making do with a lot less capital per round.  This may or may not also reflect lower valuations—my guess is that it does, but I don’t have any proof.

And as always, there are differences in deal counts between two different tallies—Wesoff at 59 deals, Cleantech Group at 82.  This can be explained in any number of ways, of course, and one thing to always note is the differences in geographic coverage between the two methodologies.  But interestingly, in terms of # of rounds, the Cleantech Group’s North American tally (which appears to be something like 45 deals or so) is only slightly below their Q1 2008 count.

So piecing it all together, this data appears to roughly confirm what I’d suggested might happen, back in December:  The mega-deals aren’t happening now, and deal sizes are generally down, so the dollars are way down but the number of deals is only slightly down.  Cleantech is still a bright spot within the overall venture picture.

Nice work again by both Wesoff and Fan.  Just always remember to look past the percentages, and especially past the headlines, and dig into the actual numbers.

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Rob Day | March 29, 2009 at 3:04 AM

Are cleantech VCs finally starting to get active again?

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.

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Rob Day | March 21, 2009 at 8:14 AM

Getting a job in cleantech

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.

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Rob Day | March 19, 2009 at 2:15 PM

Cleantech Investing: Four Years Old

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!

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Rob Day | March 14, 2009 at 10:04 AM 2 Comments

A T.R.I. for carbon emissions?

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.

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Cleantech Investing

Rob Day is a Boston-based cleantech venture capital investor and entrepreneur, and is also the President of the Renewable Energy Business Network (REBN). The views expressed on this blog are those of Rob and his friends and colleagues, not necessarily the views of REBN or Greentech Media or any other group. Contact Rob Day at: (JavaScript must be enabled to view this email address)

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