Q2 VC in Greentech Comes Back Strong

More Than $1.2B in 85 Deals Signals a Quiet Recovery in the Greentech Sector

Optimism prevailed amongst greentech venture capital investors in the second quarter of 2009.  Despite the eulogies delivered for the greentech sector because of a less than stellar first quarter, VC investment in greentech rebounded in the second quarter with more than $1.2 billion invested in 85 startups.  

Notable investment trends in the second quarter included:

• An increase in smart grid, automotive, and energy storage investments
• No giant $100 million+ solar or biofuel rounds as in 2008
• Early stage and late stage investments dominated, while mid-stage funding was harder to come by
• Slightly smaller average round sizes

Ira Ehrenpreis, General Parters at Cleantech VC, Technology Partners, commented on the numbers: “The recent quarter’s balanced distribution of sectors that attracted capital underscores cleantech’s breadth and diversity of opportunity, one of the key drivers behind why cleantech remains an enduring area.”
 
John Rockwell, founder and Managing Director of Element Partners added, "The growing belief that credit markets and the economy are on the road to recovery has investors back in the market.  Greentech markets are massive and diverse and investors are starting to pour additional money into the next wave of greentech opportunities."

Solar power was once again the leading investment segment at more than $330 million. But unlike previous quarters – the second quarter saw a much more balanced distribution across the various sectors with a marked increase in automotive (more than $202 million) and energy storage (more than $180 million).

One of the drivers for steady second quarter venture investment was the promise of stimulus monies offering start-up investors a non-dilutive funding source. To fully return to health, the cleantech sector needs a rebound in project financing levels, level-headed carbon legislation (good luck to us on that) and some hope in the IPO market.

Details on every greentech deal from this quarter are in this report.

Algenol: The Elephant in the Room

I wrote a perspectives piece last week (see Algae Fantasists Predict 1B Gallons Per Year by 2014) on the viability of commercial algal biofuels and received a slew of comments, on and off-line, endorsing my claim that we are a longer way off from commercialization than claimed by breathless algae start-up press releases.

But according to Jim Lane of Biofuels Digest: Paul Woods, the chief executive of algae farmer Algenol is adamant he will produce 250 million gallons per year by 2013.   

And according to Lane in email correspondence – when it comes to biofuels from algae, "It really comes down to how one thinks about Algenol. That's the elephant in the room when it comes to photobioreactors."  

Today Algenol told the New York times that it is building a photobioreactor-based algae-to-ethanol demonstration plant at a Dow Chemical site in Freeport, Texas with plastic material supplied by Dow.  Photobioreactors or PBRs, in Algenol's case, are simply plastic covered troughs housing a mixture of saltwater, algae, nutrients, and CO2. 



Note that algae expert Dr. John Benemann flatly states that photobioreactors "do not work” and are useful only in supplying inoculum.

Algenol's proposed fuel harvesting method does differ from traditional algae oil extraction methods.  Rather than grow, flocculate, filter, de-water, and extract oil from the algae – Algenol uses a very different approach. Algenol's "Direct-to-Ethanol" process gathers ethanol produced by algae without destroying the algae and without the necessity of refining oil into biodiesel.  This method, if viable and scalable, has huge potential cost and embedded-energy advantages.

But according to Algenol's website:

• Initial proof of science was generated by Dr. John Coleman at the University of Toronto between 1989 and 1999. Since then, the process has been refined to allow algae to tolerate high heat, high salinity, and the alcohol levels present in ethanol production.
• The algae are metabolically enhanced to produce ethanol while being resistant to high temperature, high salinity, and high ethanol levels, which were previous barriers to ramping to commercial scale volumes.
• Algenol’s prototype production strains can produce ethanol at a rate of 6,000 gallons/acre/year, and are expected to improve to 10,000 gallons/acre/year by the end of 2009. With further refinement, the algae cells have the potential to increase production rates to 20,000 gallons/acre/year in the future.
• Algenol only uses algae strains that do not produce human toxins. In addition, the specific algae cells used cannot live in the environment found outside their Capture Technology contained sealed bioreactor.

Although this wording doesn't use the specific terms – these algae strains are clearly genetically modified – and that might be a hard sell in the U.S.  The food vs. fuel debate was bad press for biofuels and the frankenalgae debate would be even worse.

Algenol was reportedly underwritten with $70 million invested by the CEO and a few partners. Algenol claims to have plans to build a billion gallon per year facility in Mexico with a subsidiary of Mexican-owned BioFields at a cost of $850 million.  Mexico might be a bit more lax about genetically modified algae.
 
The company has applied for DOE stimulus bill funding.  More details from Lane at Biofuels Digest here.

I'll close with a comment from another renowned aquaculture and algae expert with more than 30 years of real-world experience:
 
"Few of the current slew of algae promoters seem to understand the immense energy/financial hurdles that algae fuel production need to overcome to be financially viable alternative fuels and as such their R&D priorities reflect this. As soon as I see an article touting algae's production of oil per unit area over terrestrial plants – I know the author(s) are clueless about the financial economics of algae fuel processing. As soon as I read about some special process that increases algae production per unit area – PBR's (that often use more energy than they produce), aphotic production, etc. I know the promoters don't understand the energy budgets involved in producing and processing algae to fuel.

"Bottom line – in our opinion the reality of economically viable algae fuel production is still quite a few years in the future – unless someone finds a truly novel short cut through the Laws of Thermodynamics and basic economics."

GTM Research has a brief report on algae players and technical challenges available here

Thanks to all the commenters for their input.

PV Microinverter Firm Enecsys Receives $10M in VC

There's been a surge in investment and entrepreneurial activity in the inverter and power conditioning circuitry that supports photovoltaic energy conversion. Since the beginning of 2009, five firms have received more than $63 million in funding and a large public firm (National Semiconductor) has officially unveiled its BoS product after acquiring a related technology startup (ACT Solar). More than $115 million in venture capital and more than 15 companies have entered this sector since 2005.

We noted the U.K.-based microinverter startup Enecsys in our recent Greentech Innovations Report. According to the Cambridge Evening News, the firm just announced a $10 million round A led by Wellington Partners with participation from BankInvest New Energy Solutions of Copenhagen. It was founded in 2003 and received $500,000 in seed funding from The Carbon Trust with IP from the University of Cambridge.

There are a number of microinverter firms attempting to come to market in additon to Enecys. Enphase has a clear and early lead over what is becoming a crowded field, having shipped more than 30,000 units. Here's the list:

•     Accurate Solar
•     Array Converter
•     Azuray
•     Enecsys
•     Enphase
•     GreenRay Solar
•     Larankelo
•     Petra Solar
•     SolarBridge
•     Sympagis

Microinverters offer improved energy harvest and improved monitoring capabilities for residential and commercial PV deployments.

Algae Fantasists Predict 1B Gallons Per Year by 2014

I want to believe that algae can make a significant contribution to our liquid fuels habit in the coming years. But wildly optimistic predictions based on scant evidence and stretched data are disingenuous and do a disservice to the entire industry.

Jim Lane of Biofuels Digest recently authored a forecast projecting that algal biofuels capacity will reach 1 billion gallons by 2014. That would be up from what is essentially, let me check, yes, zero algal biofuels capacity today. Biofuels Digest based its analysis on price and capacity projections for 2009 to 2014 from "leading companies in the field."  I am assuming that these price and capacity projections are based on little more than press releases and interviews from the likes of PetroAlgae, Solazyme, PetroSun, Solix, Sapphire and Algenol.  Some truth in those press releases and more than a little embellishment.

Here are the details of the forecast:

Algal Fuel/Capacity projections, 2009 to 2014

Look at this chart a bit more carefully. From 2009 to 2010, capacity goes from 1Mgy to 41Mgy.  That's a pretty irresponsible number to forecast if you can't supply the disruptive force that makes capacity grow by more than 4,000 per cent.

Capacity then triples and slows down to a mere 100 percent growth for a few years. That reasoning would be based on believing the forecasted capacity increases of less-than-transparent OTC bulletin board firms and start-ups with no volume experience or sufficient cash to make that happen.

Further magic from the chart slashes the price by 25 percent for a few years and then the price drop accelerates in 2012 to about 60 percent.  In what alternative universe do markets behave like this?

More questionable forecasting methodology from Lane in this sentence:  "Costs are based on the lowest cost provider – not an average for all providers."  Does that make any kind of sense to base your forecast on the lowest fantasy price forecast?

More twisted logic follows. I can barely understand these non-sequitors: “The $9–$30 cost ranges cited in the latest research reflect today’s prices,” said Biofuels Digest editor Jim Lane.  “That’s already competitive in some nutraceutical and food markets – for example, a pound of olive oil retails for around $17 at my store, or about $120 per gallon. But like the computer market – costs are expected to come down quickly.”  I think this means that I will soon be able to buy olive oil at $1.20 per gallon.

More disinformation and misinformation follow: "33 percent of 2014 capacity is projected to use a closed system, photobioreactor (PBR) process, with 67 percent using open pond “raceway” systems." In 2012, 22 percent of projected capacity would utilize the closed PBR process, and 78 percent would utilize open ponds." These wildly innaccurate forecasts fly in the face of any research from smart algae people at NREL or our favorite algae realist – Dr. John Benemann. The abject failure and shuttering of GreenFuels also does not support any hope for PBRs as a cost-effective solution. PBRs are not cost effective, yet Lane predicts more than 300 million gallons of biofuel derived for PBRs. No way. Dr. Benemann flatly states that PBRs "do not work” and are useful only in supplying inoculum. 

Jim – I'm in the forecasting business myself. If I was going to make claims for 1,000X growth in production and a 10X cost reduction in five years I would have to back it up with good reasoning.  And I'm not seeing a lot of that in your claims.

Jim Lane's online bio here.

Greentech Media has a brief report on algae players and challenges available here. We tried to stick to a reality-based style of analysis. I've asked Mr. Lane for a comment on my critique and will publish his reponse if it comes.

Breakfast at Orrick’s

There are a million cleantech events in Silicon Valley – and I'm live blogging one of them.

Interesting battery news about A123, Saft, and good comments from a VC at Rockport

Entitled: Innovation and the Fundraising and Investment Landscape this is a breakfast event at the law offices of Orrick in Menlo Park.

This was expertly moderated by Mitch Zuklie, Partner at Orrick (he heads up Orrick's cleantech practice).

Here are some interesting comments from some of the panelists:

Victor Westerlind, General Partner at venture capital firm Rockport Capital

• "Fundamentally VCs are risk adverse – they want no risk in the deal, if we could handle risk we'd be entrepreneurs."
• "It's both good times and bad times in cleantech investing."
• "This is a good time to start companies if you have a breakthrough investment."
• "Deal flow in the last six months has been great but valuations are absolutely down."
• "In 2009 it looks there is a tendency towards early rounds as you hope the world will be a lot better in two years as well as late stage rounds – the problem area is B and C rounds."
• "I'm an engineer and I've fallen into the trap of being wowed by cool technology – I've learned to take team over killer technology every time – I'll take a killer team every time."
• "The best ideas occur when the pressure is greatest. I've seen a lot interesting things get born out of that financial pressure."

Regarding lobbyists, Westerlind gave us a war story: One of Rockport's portfolio company, Solyndra, received $535 million in loan guarantees because it spent two years and an alleged $6 million on lobbying. It was an effort that started a long time ago. Victor would not verify the $6 million dollar figure.

Jeff Depew, CEO and Co-Founder of lithium-ion battery firm Imara

Jeff founded the firm in 2004, took VC in May 2006 and is now slugging through that awkward stage of doing a Round C.  His comments:

• "There are liars, damn liars and battery guys. Although fuel cells are a different class altogether."
• "We're looking at short cycle stuff like power tools."
• "The sexy stuff is transportation and grid – but it's not how you get across the gap and get the business built."
• "We have the best product entering the market place."
• "We have 20 percent more power and 60 percent more energy density and range."
• "A123's lead customer has approached us about replacing them."
• "SAFT had a team of McKinsey guys spending $175,000 per week on filing grant and loan requests."

The peripatetic Melody Jones McDowell, currently a director at investment bank Robert W. Baird & Co.:

• "We're seeing an uptick in M&A interest (as opposed to activity)."
• "If you're not hitting $5 million – a large industrial firm won't know what to do with you – the large industrials know how to kill technology."
• "Early stage is not where we're seeing M&A activity."

Joseph Muscat of Ernst & Young was also on the panel and gave some encouraging news on the state of VC and project financing in the second quarter as compared to the first quarter of 2009. "Innovation is very much continuing. I really do believe that corporate America can't do innovation like this community."

AccuStrata: Fixing a Gaping Hole in PV Manufacturing

Whether we're talking CIGS, CdTe, or a-Si – thin-film solar is a relatively new technology and as a young industry, there are still gaps in its complex manufacturing process.

"In-situ monitoring capability is truly a gaping hole in PV manufacturing," said a colleague at a stealthy CIGS firm.

AccuStrata, a small startup at the University of Maryland business incubator in College Park, Md. is looking to change this.

Thin-film solar manufacturers typically do not have real-time data about what is happening on the moving substrate as films are deposited inside deposition chambers. Legacy metrology tools usually measure the physical parameters of the films after the materials are already deposited. If process flaws are detected, the process parameters are tweaked to address the problem for the next production run. The result is low manufacturing yield and a waste of materials, energy, time, and money.

George Atanasoff, the President of AccuStrata referred to this as "post-factum monitoring."

AccuStrata is developing a real-time optical control system to improve the quality and increase the conversion efficiency of thin-film solar panels. The system is based on the firm's control software and small fiber optic sensors installed inside the thin-film deposition equipment. The system performs Real Time Spectroscopic Reflectometry and derives several important physical parameters of the films as they are being deposited, such as thickness and surface roughness, refractive index, lattice constant, absorption and  scattering coefficients and film bandgap. The miniaturization of the sensors allow deployment of multiple sensors in parallel and in series configurations and monitoring the surface of the entire panel at different moments of deposition.

The constant collection of data allows the creation of "response surface models" used by the software to guide the manufacturing process “on-the-fly” and make each panel to meet its' target specification.  The company refers to its system as a "solar panel manufacturing autopilot” with the intention of accruing this data into a sort of manufacturing expert system.

The company will soon be installing its first prototype system into a PV manufacturing line at a CIGS vendor you would likely recognize.  CIGS players include names like Global Solar, Heliovolt, Miasole, Solyndra, and more than 30 others vying for the zero billion dollar CIGS thin-film PV market.  AccuStrata looks to gain revenue from the sales of hardware, software and the replacement and maintenance of sensors.

The company is backed by its founders, angel investors, the State of Maryland, the NSF and is set to receive $150,000 in federal stimulus funds.

Other firms like Laytec and BT Imaging are also developing process control and metrology equipment for solar manufacturing.