LightSail, a Khosla Ventures- and Bill Gates-funded energystoragestartup has had significant layoffs, according to a source close to the company. The CEO of the firm, Steve Crane, confirmed that "about 15 percent of our workforce" was laid off "due to a delay in one of our projects," in an email this morning.

LightSail Energy has raised more than $42 million from Total, the French Energy giant, Peter Thiel, Bill Gates, Khosla Ventures, and Innovacorp for its compressed air energy storage (CAES) technology.

In the words of the CEO and co-founder of the firm, "LightSail Energy is applying thermodynamics to solve the problems of today’s electrical grid." Earlier interviews with the firm's CEO suggested that the company would be shipping its first commercial product in 2013.

The goal for LightSail, Crane said, is to provide grid-scale storage “as cost-effectively and efficiently as pumped hydro, but without the geographic restrictions.”

To make CAES more efficient, Crane explained, the LightSail system captures and stores both the mechanical energy and the thermal energy used in compressing air. To do this, a water mist is infused into the compression chamber as the air is compressed. When the captured, pressurized air is released back through the system, the heated water is re-infused into it. That heated air can return more of the energy stored by the system than can other CAES processes, according to the CEO.

LightSail Investor Thiel wrote in a release last year, “For far too long, the cleantech industry has been driven by politicians and ideologues who trade people’s taxes for dreams,” said Peter Thiel.  “But hype is not a sustainable energy source. While authentic energy breakthroughs are needed to overcome geological constraints, fraudulent companies have driven out the good. It’s time to find honest companies that can develop technologies that stand on real innovation instead of the backs of taxpayers. LightSail is run by engineers, not salespeople, and it promises to be one of the first true alternative energy storage companies.”

Unfortunately for LightSail and VC-funded startups chasing this business, the utility-scale and grid edge storage market is not going to emerge in an orderly and predictable fashion. That lack of visibility is going to force a shakeout in the VC-funded energy storage/battery bubble (Aquion, Ambri, LightSail, EOS, Pellion, Seeo, GELI, Sakti3, Qnovo, Energy Cache, Stem, Demand Energy, etc.) 

The energy storage market in the U.S. is looking to the 1.325 gigawatt California energy storage "mandate" to drive its growth. The CPUC has also asked Southern California Edison to procure 50 megawatts of energy storage over the next eight years, according to a final decision issued late last year. It's among the first state regulatory rulings that put grid storage at center stage. New York will soon provide more details on its energy storage procurement plans.

When it comes to energy storage mandates and RFQs -- it is likely that utilities will lean towards incumbents like AES, ABB, GE, S&C and Schneider rather than VC-funded startups.

The one problem with CAES, Crane admitted in an earlier interview, is efficiency. “That’s the bet. If we can keep the price advantage while solving the round-trip efficiency [issue], we have an unbeatable approach.”

Other startup innovators in smaller-scale CAES include General Compression, SustainX, and Bright Energy.

Here's LightSail cofounder, Danielle Fong, presenting on the firm's technology: