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Cleantech events: Four stops in one column

Rob Day: June 29, 2006, 11:17 AM
Attended several good cleantech investing events over the past few days: The AAMA's very well done clean energy panel in Palo Alto, a strong cleantech investing panel at Larta, and a fun roundtable discussion which should be out in the September VCJ. Also participated in a few category judging calls for the California Clean Tech Open. The cleantech space is getting a whole lot of attention these days.

The AAMA panel session was moderated by John Denniston of KPCB, and also included Bryant Tong of Nth Power, Vikas Desai of SunPower, Dave Pearce of MiaSole (as always when I mention MiaSole, I'm compelled to note that I've got a minor vested interest in seeing them succeed), and David Wooley of The Energy Foundation. Given this group, the conversation naturally focused on solar markets and investment opportunities, but also touched on a wide range of clean energy topics.

The Larta panel was moderated by Ira Ehrenpreis of Technology Partners, and also included David Aslin of 3i, Nick Parker of the Cleantech Venture Network, John Rockwell of Element, and Bryant Tong of Nth Power.

A busy few days, and we'll try to synthesize all of it, in jumbled fashion. The following are some random thoughts, reactions and quotes from all four events, in case it is of interest to those who follow cleantech investing:

Solar is hot, hot, hot

In all four settings, solar was a dominant topic of discussion. The recent IPOs, and the promise of more IPOs yet to come, are focusing a lot of entrepreneurs' and investors' minds to the market. There were so many solar-based applicants in the Cal Clean Tech Open (CCTO), for instance, that it was tough to weed through them to get to the other applicants in the Renewables category. Solar concentrators, in particular, seem to be getting a lot of entrepreneurial efforts right now.

In the AAMA event, it was interesting to see the strong silicon-based performer SunPower side by side with the upstart thin-film MiaSole, to see the similarities and differences in outlook. The clear message heard in all of this week's events is that a rising tide will raise all ships in solar, and the tide is rising incredibly quickly in solar. But it's not to say that people don't have their concerns as well.

Some notable solar-related quotes (aggregated from various events, and as always note that these are paraphrased, this is not a journalistic website):

Vikas: "Solar is the only viable distributed generation technology. It's easy to think about it being on your roof. No other distributed generation tech can really claim that."

Bryant: "A lot of people talk about when solar is judged as an investment without subsidies it falls flat. But there are so many subsidies for oil and gas. We've seen how important state policies like California's are for helping to create this market. It's very difficult to make investments in the cleantech area where your investment is totally dependent upon subsidies. But we've also seen how important they are in the timing of the market."

Vikas: "What could slow the solar market... Despite getting close on a cost basis, we're not there yet. So the biggest risks are in policy. Need to see supportive policies in place, and stable, for a few more years, while the costs continue to come down."

Pearce: "I don't completely agree. The industry threatens to kill the goose that's laying the golden eggs. Solar system prices keep getting driven up because of demand driven by policies. In my opinion that has to change, I think regulators are looking at this trend. In terms of innovations, we need to move the module to truly integrated building integrated PV, so it's part of your roofing product, for example. That will help it be ubiquitous with every new building. We need to attack every part of this value chain to get the price down to grid parity."

Vikas: "The rising of pricing in crystalline silicon is because the supply of the raw material is short due to strong demand. Silicon production is an industry that has not made money over the last few years, and they're now taking the opportunity of a silicon shortage to make money. But capitalism works, it's a short term problem, there's a lot of capacity coming on." (Some are saying it will come on in full force by the end of 2008.)

Biofuels are also hot

Biofuels are also hot, but the venture capital investment opportunities aren't as clear, according to some. Much more of a capacity game, using tried and true technologies; but with potential for innovation to help drive the market. Supportive policies are clearly a critical part of this market as well:

Notable biofuels quotes:

Bryant: "We're seeing an amazing growth in the number of business plans for biofuels in early development stages. It's encouraging to see, but we're looking for business plans that we're supposed to make money off of, and it's tough. Literally hundreds of new business plans in this area. I don't think ethanol will take a big share of the fuel market, you'll run out of corn as a feedstock. But you'll also see a lot of waste to energy opportunities. Ethanol is getting into a lot of debates about whether it's worth the energy you put into it."

Wooley: "There will be ups and downs of energy prices, that's why we need policies to keep biofuel technologies from going under during these times. It's important at the federal and the state level, both."

Cleantech vs. "Greentech," and other investment areas to consider

It was kind of silly to see the difficulty everyone at the AAMA event had keeping things straight, given some efforts now to try to differentiate "greentech" from "cleantech" without it being clear why such a rebranding is necessary. All evening, panelists and audience members asking questions had to continually remind themselves to mention both phrases in the same breath: "So in this cleantech, er, or greentech, or whatever you call it, space, what are the key market drivers?"

Regardless of what this investment area is called (cleantech, greentech, creentech, gleantech, the label really doesn't matter), it's clear that there are a lot of good opportunities out there for entrepreneurs and investors in energy, water, materials, and other related areas. Across all these very disparate industries and markets and technologies, panelists seemed to share the consensus that "this time it's for real," that looming natural resource shortages are raising the value of the cleantech investment thesis, and that a number of other critical and supporting factors are coming together at the same time.

Nevertheless, judging simply from the numbers of applications in general categories of the California Clean Tech Open, renewable energy sources are getting a lot of entrepreneurs' mindshare right now, with transportation-related energy technologies and energy efficiency technologies a distant second- and third-place, and water and other non-energy clean technology areas very far behind. It's unclear why this is, because certainly there are huge opportunities in water and other cleantech areas, just like there are for energy. And it's not like water is not a compelling investment area: Just read this story.

General cleantech/greentech investment area quotes:

John R.: "One thing that's different now is the quality of the entrepreneurs. Also, there didn't used to be enough capital to be able to adequately address the huge needs in this space; and thus, there weren't enough of the supporting services like recruitin g, specialized for the needs of cleantech."

Bryant: "Batteries are an important area for investment. Allowing people to be able to store enough energy for non-peak times is the goal here. There are a lot of techs aiming at this, and I think you'll likely see the change that comes is evolutionary, not revolutionary."

Ira: "There are potentially big opportunities in water. Some exciting opportunities in the water area, including the use of sensors."

Nick: "In water in particular, we're seeing strong corporate activity, which is an important factor for demonstrating to investorsthat this is a compelling opportunity. We continue to need more entrepreneurial focus, however."

Bryant: "I said a few years ago that energy efficiency is not an area for venture investment. I wish I could take those words back. The market has gotten a lot more receptive to energy efficiency. I've gone a complete 180 degrees."

The B-word

Are we now in a clean energy bubble? The question came up several times during the week, and is clearly being asked elsewhere as well.

The consensus of panelists in these events was a clear "no." But that's when viewed across all energy sectors, and especially all cleantech sectors. Panelists described the market opportunities versus the amount of capital deployed and noted that it still falls short.

Nevertheless, in the audience it was clear that not everyone is comfortable with recent venture deal valuations in a couple of sectors, such as solar and biofuels. Certainly a case by case thing, and none of the experts up on stage seemed very worried about the overall industry. But stories like this are also pretty telling.

The implication, therefore, as we've talked about before, is that the investment community will quickly move beyond solar and biofuels to the next thing, and the next thing after that, within cleantech.

DFJ Element’s $284mm close

Rob Day: June 29, 2006, 9:22 AM
The big news in the cleantech investing world today is DFJ Element's announcement that they've closed their fundraising with $284mm. They'd previously spoken of a target amount of $150mm for the fund. It's a sign of how much LP interest there is in cleantech right now, and also a strong endorsement of the team at Element. It's also a lot of Fat Spaniels... Kudos to John, David, Tim, Mike, Raj, and the rest of the team.

Coaltek, Prometheus, Sionyx, Cilion, and week-end catchups

Rob Day: June 25, 2006, 4:29 PM
Two or three recent cleantech fundings scooped by Dan at PE Week Wire on Friday:
  • Coaltek, which raised a $7.7mm Series A just this past November, has apparently raised a subsequent $5mm Series B-1 inside round. All existing investors appear to have participated, according to PEWW.
  • Prometheus Energy, which is harvesting landfill methane and turning it into liquid natural gas for fueling fleets, has apparently taken in a $20.2mm equity infusion and arranged a $25mm line of credit. Dan reports that the funders include CryoFuel, Cascadia Energy Services, Sowood Capital and Libra Natural Resources. The company also reports in the Seattle PI article that their funders have pledged another $200mm in capital for future LFG projects. The company claims that part of their "secret sauce" is the ability of their technology to be deployed at a smaller scale than existing technologies, opening up more landfills and other gas sources as profitable feedstock locations.
  • Cleantech? Hard to tell. But secretive Sionyx has apparently raised $750k out of a $1.5mm Series A, with nanotech funder Harris & Harris providing this first portion. Sionyx doesn't have much available information, but according to this article (scroll down), it's a spin out from Harvard. If this recent patent filed by the two Harvard researchers noted in the BBJ article is any gauge, the company's technology may be applicable for cleantech applications like silicon-based solar PV.
  • A new ethanol company, Cilion, has been formed by Vinod Khosla and Western Milling, with the intention of standardizing 55mm gpy plants and rolling out 8 of them by the end of 2008 (the first three being in California). No financial terms have been announced. Vinod has been making a series of big bets on ethanol lately...
Other news and notes: Good clean energy section in Popular Mechanics... Here's a useful report on climate change and best business practices from WRI... Several leading cleantech investors share their thoughts ("biodiesel, ethanol and solar")... Some useful facts on biofuels from Worldwatch... Can't wait for your Tesla or Wrightspeed? Here's a review of the ZENN from Feel Good Cars...

It's hard to ignore that all of the above is energy-related news. It just reflects where the media's and most investors' attentions are focused right now, and there's been too much work lately to be more proactive in this regard. But we'll try to highlight some of the less talked about (but very deserving) areas of clean technology once things settle down a bit...

Solar: Get ready for some big moves

Rob Day: June 21, 2006, 8:52 AM
There's a lot of shifting going on right now behind the scenes in solar, and cleantech investors should be ready for some major moves over the next 12-18 months in this market. The following is just one man's half-educated guesses, so take it for what it's worth:
  • Thin-films startups are gearing up to make major launches in production. From today's very public news about Nanosolar's massive round and plans for the "world's largest solar cell factory," to less public news about other thin-films startups that are finalizing their production lines, the end of this year and beginning of next year should see some actual market-ready product launches out of CIGS and other silicon-alternative PV players. Will there be hiccups? Probably -- there have already been significant delays and some realignments along the way, and this is not easy stuff to work with. Will the window for rapid adoption of new solar techs (driven in large part by the current shortages of silicon) still be open when these new products come out? Hopefully. But thin-film players sure sound like at least a few of them are getting ready for prime-time soon, and that's going to have impacts across the market.
  • Get ready for a big wave of solar IPOs. From current rumors, it seems that just about every solar startup, including many that are some ways away from actually launching product, are being courted by I-bankers who are promising fat valuations and nice pops. Certainly when you see private investors putting $75mm into a pre-production solar company, you know they're expecting a near-term liquidity event. After the successful recent IPOs of SunPower, Suntech, etc., which demonstrated a lot of retail investor hunger for solar investments, a lot of companies are looking to jump out there before valuations come back down or the IPO window closes. When will that happen? After the fifth solar IPO? The tenth? The 19th?
  • As solar IPOs start to come fast and furious over the next year or so, expect that to trigger a wave of consolidation in the industry as well. There are a lot of reasons why the market will see consolidation of the various PV techs by single large players: The need to offer breadth of technology options to fit end-users' and installers' specific needs, the desire to hedge bets across different technologies, and the importance of strong brands in successful introductions of new technologies. As larger cash-rich players (SunPower, perhaps?) see potential acquisitions getting ready to take rich valuations in IPOs, there will be a scramble to grab them at more reasonable trade sale valuations before that can happen. A wave of IPOs, followed by a wave of acquisitions, therefore seems like a likely potential scenario...
  • Interestingly, however, some of the most likely acquirers are themselves exiting solar. Shell Solar sold off their silicon PV business earlier this year, and it's likely that BP Solar will soon be spun out or sold off as well. In some ways this makes perfect sense: These solar divisions are too small to move the needle on valuation multiples for these major oil giants, so they can achieve better multiples if sold off or turned into independent efforts. It's just a shareholder value maximization move, therefore, but it does raise the question about who the consolidators will be -- GE seems likely, as do the recently cash-rich early IPOers mentioned above... There are also rumors of very major LBO-type private equity roll-up efforts being considered, so look for signals that late-stage players are putting money into potential platform companies for such efforts...
Other news to note: A lot of "green = green" type articles this past week in major business journals, including Forbes and BusinessWeek... Solar to be competitive with grid-power costs by 2015?... Here's a nice column on the market potential for demand response, something we've talked about before... Looking forward to seeing everyone at Larta next week.

Nanosolar and Vaperma

Rob Day: June 21, 2006, 8:01 AM
  • Bay Area thin-films startup Nanosolar announced a $75mm raise yesterday, bringing the total amount raised by the company up to $100mm. Existing investors Mohr Davidow, Benchmark, OnPoint and Mitsui participated, as did new investors SAC Capital and GLG Partners (both are hedge funds), Swiss Re, Grazia Equity, Capricorn Management, Beck, and a couple of angel investors' investment groups. Matt Marshall has a very nice profile on the company (there's also a nice writup in VentureWire today, for those with access), which mentions Konarka as a thin-film competitor but doesn't mention other CIGS startups in the bay area that are also building production facilities -- CIGS is starting to look like a tight horserace.
  • On the ethanol front, Quebec-based Vaperma announced a C$7mm Series A led by SAM Private Equity. Other investors included BDC Capital, FIDD and an unnamed angel group. Vaperma's advanced membranes are designed to improve water separation/ distillation in fuel-related processes, including claims of saving 40% of energy costs in ethanol production.

SunEdison, QuNano announce raises

Rob Day: June 15, 2006, 11:10 PM
  • QuNano, a Swedish company developing "silicon heterostructure nanowires," announced a $6.1mm Series A, with participation by Provider Venture Partners, Teknoinvest, BTG plc, and LU Innovation and LUAB -- all are European investors. QuNano's technology has applications in a number of silicon-using cleantech applications, including LEDs and solar.

A few updates; European and Israeli cleantech VC at $120mm in Q1

Rob Day: June 15, 2006, 10:32 PM
On ethanol: Here's an interesting conversation with Mark Townsend Cox of the New Energy Fund on the topic (thanks to Nick Allen for the heads up)... Also, here's a Red Herring article on ethanol. The title is much more provocative than the article itself.

On solid state lighting: A good description of some of the potential applications of blue LED lighting in this article.

On clean water: Nanotube breakthroughs for desalination from LLNL.

On cleantech investing in Europe and Israel: At $120mm in Q1, it's a quarter the size of US cleantech venture capital, but still, impressive numbers.