Cleantech investors and philanthropy

Carla Dearing recently asked cleantech investors to tell philanthropists where to put their money since cleantech venture investing has gotten so hot. It's a great question, and really brings home the fact that there's been rapid changes in expectations about a lot of cleantech sectors -- we IRR-focused VCs must really believe in the "10x" possibilities of clean technologies, markets and business models that used to be seen as taking too long to develop or otherwise not providing strong returns. Institutional VCs are not allowed to put their LPs' capital into investments without the expectations of those strong returns -- philanthropy is a different game. So Carla smartly asks what's therefore out of play for VCs, where patient capital and non-profits could still play an important role.

The fascinating thing about this question is how much of a moving target it really is. Even just a few months ago, for example, we might have included service offerings like solar financing plays as something VCs likely wouldn't invest in, because of the lack of defensible intellectual property and low barriers to entry (very generally speaking, of course). Now it's one of the hottest investment areas, as the rapidly-growing solar market has led to expectations that the market can support multiple "winners". Low-tech plays in biofuels and other hot sectors have been getting plenty of capital, too, even if not always from VCs (although, sometimes...).

So what's out of bounds? The very fact that this question is being seriously asked reflects a rapid expansion of investor appetite that is at the heart of the recent concerns about a cleantech venture capital "bubble", as we've discussed before. And, as we've described on this question, while there doesn't appear to be any "bubble" across the entire sector, certain subsectors and market niches can certainly feel frothy. Among other factors is the simple truth that not all "hot" investment areas will end up providing the returns some investors are currently expecting, so philanthropists can't consider a societal problem solved just because VCs are putting early money into potential solutions...

So Carla, my two cents' worth as of this moment in time would be: Put your money into the demand side of the market.

In other words, VCs and other institutional investors (project finance, public markets, etc.), not to mention government and academic research efforts, seem to be very happy to put money into the supply side, funding a rapidly growing list of cleantech technologies and services. I hesitate to nominate any particular technology or service sectors as being out of bounds for VCs, because that answer will continue to change as market conditions (and investor optimism) change. But without the anticipated growth in demand for these products and services, a lot of these investments will inevitably fall flat.

Water tech is a great example: There are some great technology development efforts underway that would clean up the water we drink and the wastewater we create, but the most likely buyers aren't buying. And there are a lot of energy efficiency options out there for homeowners and commercial/industrial building owners that make stunning financial sense, and yet still haven't been widely adopted like you'd expect. There are major segments of most clean/green technology markets that VCs and others still aren't putting their money into, but most of those un-addressed value chain segments tend to be downstream.

The most important thing philanthropists could do, in other words, would be to prime the engine of clean technology market adoption. Instead of catalyzing technology development, catalyze market development. Fund adoption of clean drinking water and solar and other distributed energy techs in emerging economies. Educate U.S. water and electric utilities (and their regulators) about the various new choices available, and how they can provide compelling economics and better quality at the same time. Be an angel investor for a local energy efficiency consultancy or green home product distributor. And help consumers understand their green and clean choices, empowering them to actually adopt the solutions that are in their best interest, but that they either don't know about or don't realize the economics around.

And thanks to Carla for asking a great question -- there are probably a lot of great ways philanthropists and investors can work together "profitably", by both sides' definition of the word...

Readers are encouraged to add their own comments and suggestions for Carla as well.

Technology Partners' $300mm Fund VIII, and other news

Technology Partners, probably best known to cleantech investors as the home of cleantech champion Ira Ehrenpreis, announced today the closing of their newest fund at $300mm. The fund will be equally directed toward cleantech and life sciences investments, and they've already made four investments (including two in cleantech: Tesla, and a "stealth" solar company, according to the press release), so the fund has been closed for some time prior to this announcement. Ira also has joined the Board of the NVCA and mentioned that he's helping them pull together the new-ish Cleantech Council. Cheers to Ira and the rest of the Tech Partners team!

A couple of recently announced deals to note:

• Cnano Technology, which is developing low-cost carbon nanotubes for a variety of applications (including some related to cleantech), announced a $6mm round of financing. The funding was co-led by CMEA Ventures and Pangaea Ventures, and also included WI Harper.

• HaloSource, a developer of antimicrobial coatings and drinking water treatment products, has raised a $15mm round of financing (VWire identified it as a Series C) from the Masdar Clean Tech Fund. The company's products are aimed at the developing economies.

• Sierra Solar Power, a thin film PV startup, has raised a $6.86mm Series A led by GSR Ventures, according to PE Week Wire. They also appear to be in active recruitment mode.

• Seems we missed the announcement of Craton's two-tranched $5mm Series A into "green concrete" startup GigaCrete. The funding was completed a while ago, but we didn't want to post it until it was publicly mentioned. Apparently, we whiffed on it when it was...

Other news and notes: In case you missed it last week, Neal Dikeman had a very interesting scoop about IBM and their solar plans... Coal power already becoming obsolete?... Joel on the current state of "green business"... Ladies and gentlemen, your 2007 California Clean Tech Open finalists... Finally, Jack Bauer, eco-hero?

Solaria and LiquidPiston

• The big deal so far this week is Solaria's $50mm Series C, led by Q-Cells and including existing investors Sigma Partners, NGEN and Moser Baer. In the deal, Solaria also gains access to 1.35 gigawatts worth of Q-Cells' PV cells to be used in Solaria panels over the next ten years. The slowness of high-profile CIGS and other thin film PV startups to get into the market has meant that the competition for silicon wafers and silicon-based cells is about as hot as it can get right now.

• Cambridge, MA's LiquidPiston announced a $1.25mm seed round from Adams Capital Management and Northwater Capital. The company is developing an advanced "high efficiency hybrid cycle" engine. We've talked before about the challenges of investing in advanced engine technologies.

• Cleantech investors in the news: Good Energies is expanding their U.S. operations, opening up new offices in NYC and Washington, DC, according to VentureWire. With $5B in assets under management globally, Good Energies has been ramping up their cleantech investing efforts significantly lately -- the VWire column mentioned portfolio companies Ice Energy, SAGE Electrochromics, Konarka, Renewable Energy Corp and the aforementioned Q-Cells (since Good Energies holds about 50% of Q-Cells, read the above notice about the Solaria investment accordingly...)... Also, here's a very good article on the important role of angel investors, using a cleantech example.
  

Other news and notes: The WSJ on cleantech... A good overview of water tech investing (yes, yours truly is quoted, but if you skip those parts it's still a good article)... The latest Dow Jones VentureOne/ E&Y numbers are out, and they give some props to cleantech... European VCs are being urged to ramp up their cleantech efforts or "face just getting the dregs of green projects"... Power from space?... Power from tornados?... Power from really smart marketing?... Speaking of smart marketing, here's a useful tool from ZAP -- find an EV plug-in site near you (thanks, Pluggy!)... Some intriguing thoughts on polling and policy... Finally, today's fun read: "He is an extraordinary gentleman, isn't he?"

The Boston cleantech community is heating up

We'll have to wait on the deal-tracking numbers to be sure, but it certainly feels like the Boston-area cleantech community is getting a lot more active these days.

Many of the leading local VC firms are taking an interest and getting involved through great efforts like NEEIC, and beyond the VC/ entrepreneur end of the market there's been an increase in regional efforts to build a stronger overall "clean energy community". And of course, there's the world-class research being done at the various local universities and other research centers...

Last night's REBN-East event was another good example -- a new high for attendance, and perhaps most impressive was the number of venture investors that were able to come out. Thanks again to Flagship Ventures for kindly sponsoring the event (Dan Primack also mentioned the event on PE Week Wire today -- read his take, and his interesting commentary on the current state of the cleantech sector here). [7/21 update: Wade Roush at Xconomy also had a nice write-up worth checking out here]

Cleantech and related deals:

• Eka Systems, a wireless mesh AMR developer, raised a round of financing (PEWW reports it as a $12.5mm Series C), led by Angeleno Group and RockPort, with participation from existing non-institutional investors. We've discussed the cleantech applications of AMR here before.

• As also reported in PEWW, GreenDimes, which works to reduce postal junk mail, has raised a $20.5mm Series A led by Tudor Investment Corporation. The company claims to have stopped over a million pounds of junk mail to date.

• They fit into the overall "energy resources are becoming scarce" investment thesis, but are they cleantech? Readers are invited to draw their own judgments on that question (comments are always welcomed), but here are two deals that are certainly worth noting regardless of how they're classified: DynaPump earlier this week raised a $12mm Series C led by Element and including NGP Energy Technology Partners and existing investor CTTV Investments (Chevron's tech venture arm)... And thanks to Ben Kuo for bringing to my attention that Kleiner Perkins has apparently invested in GloriOil... Both DynaPump and GloriOil have technologies for enhancing oil recovery from existing oil wells.

Cleantech investors in the news: A provocative column by Yaletown Venture Partner's Kirk Washington... And Kleiner gives out their first awards for "Greentech Policy Innovators" (congrats to Bob Epstein and Professor Jose Goldemberg).

Other news and notes: Battery and fuel cell market growth is driving an increase in demand for core materials... A hot topic of conversation is the intriguing controversy over Planktos... What's in the box?... Finally, theoretical economics rarely intersects with venture capital, but for those of us who unfortunately trained in the subject here's a fun clip to watch over the weekend:

Think, Gevo, and corn-based ethanol under fire

[7/19 edit: The title of this post can be read several ways, in retrospect. To be clear, Think Global AS and Gevo are not under fire. rd]

• Think Global AS, the Norwegian electric vehicle manufacturer, raised a $60mm Series B round of financing. New investors Element, RockPort, Hazel Capital and CG Holding all participated alongside existing investors Canica, Capricorn Investment Group, Wintergreen Advisors, and individual investors. Venture funding of electric vehicles is really heating up -- how long until this guy has VCs knocking on his door? Maybe this guy will buy a Think with his insurance settlement.
  

• Bio-butanol developer Gevo emerged from stealth mode to announce a financing by new investor Virgin Fuels and existing investor Khosla Ventures. Jonathan Shieber at VWire reported today that the round was an "under $10mm" Series B [7/19 edit: corrected the quote]. The financing is intended to help the company "whip it good" into a pilot plant stage. If toxicity and cost issues can be addressed, biobutanol has a lot of potential as a gasoline replacement with better energy density, transportability and other benefits versus ethanol.

• Meanwhile, the backlash against corn-based ethanol is starting to ramp up. Many industry participants apparently expect that cellulosic ethanol will be able to save the day. But alternative sources of sugars are also being increasingly turned to. Because of all of the policy implications in the U.S., it will be interesting for cleantech investors to watch how this debate continues to evolve. Meanwhile, biodiesel continues to get little attention, but is looking poised for an uptake.
  

Other news and notes: Cleantech venture investments in China more than doubled last year, according to the Cleantech Group... Finally, a "cooler" use for cubic zirconia.

Energy prices to remain high

That's the verdict, at least, of a few recent news items.

First of all, the National Petroleum Council released a study (pdf of execsum here) which projected continued energy demand growth which will require the use of every available energy resource, dirty and clean -- very interestingly, they made a strong endorsement of energy efficiency as an energy source.

Secondly, this news that Goldman Sachs is projecting $95 per barrel oil by the end of the year, unless OPEC and other suppliers significantly boost output. Now, oil is just one energy source with limited direct impacts on many clean energy technology markets.

But thirdly, word came out that electricity consumption in Europe is continuing to expand at the same pace as GDP, despite significant efforts to promote efficiency improvements. And in the U.S., Citibank is advising their investor clients to abandon coal industry investments -- for a number of reasons including expectations of continued pressure to reduce carbon emissions.

It's a good time to already have a head start "up the learning curve". But caution, as always, is still warranted.

Cleantech VC deals so far this week:

• Boston-area waste-to-energy startup Ze-Gen announced a $4.5mm Series A led by Flagship Ventures and including participation by VantagePoint Venture Partners.
  

• SAGE Electrochromics, which has developed windows with the capability to quickly darken (to block light and heat, for significant energy savings) or clear up (for visibility) announced a $16mm Series B, led by Good Energies. Applied Ventures and Bekaert also participated in the round. The deal includes provisions for an additional $13mm in financing.

• VentureWire reported that ImageTree, which is developing technology for forest inventory and management, has taken in $2mm in debt financing from BlueCrest Capital. The company's technology has applications in sustainable forestry and potentially for land-based carbon sequestration project monitoring.

• UK-based Metalysis, which has proprietary technology for the production of specialty metals (for a number of applications including some in cleantech areas), raised a GBP 13mm round of financing from Environmental Technologies Fund, 3i, QinetiQ, Seven Spires, Chord Capital and Cambridge Capital Group.
  

Other news and notes: Most of this is outside of any VC's investment horizon, but it's a fascinating vision... Here's a useful presentation (note: link opens a pdf) describing Virgin Fuels' investment strategy, for those interested... Another relevant bplan competition -- the Oxford University 21st Century Challenge... Yet another article on why watertech is poised to attract VCs -- but VCs are having a tough time finding backable ventures (calling all entrepreneurs, we need you in watertech!!!)... Perhaps an unexpected problem for centralized utility-scale PV developers... Finally, your tax dollars at work, on a pretty nifty tech idea.

REMINDER for tomorrow's REBN-East networking event:
July 19th, at Flat Top Johnny's in Kendall Square, 6:30pm.
(Sponsored by Flagship Ventures)

Big week for cleantech deals

Lots of deals to catch up on here at the end of the week:

• Energy efficiency is the new "IT" sector (apologies for a very bad pun): Computer/server efficiency software provider Verdiem has raised a $8.33mm round of financing led by Kleiner Perkins, and including participation by The Westley Group, Phoenix Partners, Falcon Partners, Catamount Ventures, Angeleno Group, and Trevor Traina (angel). The company's software allows computer system administrators to remotely override PC users when they re-set their efficiency settings (turning off "sleep" mode, for example).

• Thin-film (CIGS) solar developer SoloPower raised a $30mm Series B, led by Convexa Capital, and including participation by Scatec AS and Spencer Energy AS. Existing investors Crosslink Capital, Firsthand Capital Management and Musea Capital also took part in the financing. VentureWire noted that the team had had a term sheet with a "very reputable" (note: VWire's quote marks) U.S. VC before going with this mostly Norwegian group of backers.
  

• Another thin-film solar startup (this time using amorphous Si), MWOE Solar, announced a $7mm Series A led by Emerald Technology Ventures, and including participation by NGP Energy Technology Partners.
  

• Linking themselves with the energy efficiency angles of RFID and sensors, Germany-based Nanotron announced an EUR 10mm round of financing led by zouk ventures, and including existing investors Polytechnos, Danfoss, and IBB Beteiligungsgesellschaft - VC Fonds Berlin.

• Another sensor company, SpectraSensors, which manufactures tunable diode laser-based sensors for gas analysis, announced a $14mm Series C. Nomura's New Energy and Clean Technology Ventures group led the round, which also included CTTV Investments (Chevron's venture capital arm) along with existing investors American River Ventures, Blueprint Ventures, and Nth Power. The firm has been making strong strides in the optical sensors space and is one of the best examples of telecommunications tech being re-purposed into advanced sensing technologies with cleantech applications. The deal is also one of the first public announcements for Nomura's new cleantech group, whose team includes cleantech venture veterans Russell Pullan and Whitney Rockley. So cheers all around...

• 6N Silicon, which is developing a method for less expensive production of solar grade silicon, made a public announcement of their C$6mm Series A. Ventures West and Yaletown Venture Partners led the round. The company also announced that they've taken in C$4mm from SDT Canada to help build out a demonstration line.

• Cerion Energy, which is developing a diesel fuel additive with efficiency and pollution reduction benefits, announced a $1.2mm Series A financing. Braemar Energy Ventures led the round, which also included Excell Partners.
  

• VentureWire reported that Korean brushless DC motor developer SNTech has taken in a $1.2mm or $1.5mm (some discrepancies in the article) seed round of financing from SAIL Venture Partners, which took a 25% ownership stake in the company. The company had $2.5mm in revenue in 2006 and offers cheaper and more efficient motors versus incumbent designs. VWire also revealed this past week that SAIL is in the process of raising their first institutional LP-backed fund, and that the firm has several European such backers committed to what is targeted to be a $100mm total fund raise.
  

Other news and notes: Speaking of VentureWire, Jonathan Shieber and the rest of the team there have launched a new daily news service focused on cleantech... Is private equity/ venture capital souring on solar? (this week's funding announcements notwithstanding, we assume)... A useful update on BPL... Neal on the ongoing "cleantech" vs "greentech" debate... For the job-seekers out there, one blogger's take on 13 socially-responsible careers in finance... A nice profile of Southwest Wind Power and micro-wind in general... Finally, even when you spend all your time paying attention to energy markets and the like, you still come across the occasional graphic that takes you aback. Wow.

REMINDER for the next REBN-East networking event:
July 19th, at Flat Top Johnny's in Kendall Square, 6:30pm.

Five questions: Ron Pernick and Clint Wilder

For readers who haven't picked up a copy yet, Ron Pernick and Clint Wilder's recent book The Clean Tech Revolution is a very good primer on the sector. Even regular readers of this website might find it a very useful read -- and especially might find it a great gift for that special someone (your boss, your father in law, etc.) who doesn't quite get this whole cleantech "thing" yet...

So we thought it would be good to subject Ron and Clint (who also are a principal and contributing editor at Clean Edge, respectively) to be the next victims, er, participants in the overwhemingly popular ongoing series, "Five Questions". And they were kind enough to share their thoughts...

Q. When did you make the decision to write this book? Was there a particular triggering point in the market when you realized your potential audience had gone mainstream?

A. Back in late 2002, when Clean Edge was helping define the clean-tech industry, we felt that the sector was ripe for a book aimed at a broad business audience. We worked on our first book outline and the idea percolated – then went on the back burner as Clean Edge’s business expanded and took all of our attention -- but it never really went away. In late 2004, we decided to get serious about the effort, hired an agent, wrote a formal book proposal, and finalized a contract with Harper Collins in the summer of 2005.

What was the trigger?

There have been so many ‘tipping points’ in the mainstreaming of clean tech – the growth of clean-tech investing by seasoned VC firms, the sale of Toyota’s millionth hybrid car, California’s landmark greenhouse gas legislation, just to name a few. We’ve seen the momentum just build and build. To be honest, as we saw the clean tech revolution become Page One news and the topic of national magazine cover stories in recent months, we were a little worried that our book release date in June might ‘miss the window.’ Clearly those worries were unfounded, as clean tech, and global mainstream awareness of all things green is only gaining momentum.

As we point out in the book, the move towards clean technology -- in energy, water, transportation, and materials -- will take decades to accomplish -- so it really takes a long-term perspective. Indeed, one of the most common things we hear from friends and colleagues is, “The timing of your book couldn’t be better.” We believe that's because we really are just at the inflection point for clean technology.

Q. While the book is suited for a lot of potential audiences, who’s the prototypical reader you wrote the book for?

There are a number of prototypical readers. Current and potential investors in clean tech, ranging from individuals looking at single stocks or mutual funds, all the way up to pension fund investment managers and venture capitalists. People considering a career in clean tech, whether freshly-minted B-school grads or mid-life career changers. Public-sector officials looking for the next engine of economic growth for their city, state, or nation.

We wrote the book with a lot of different ‘entry points’ – Breakthrough Opportunities, Clean-Tech Consumer Tips, and especially our Ten to Watch lists of leading companies in each technology sector – so that everyone from clean-tech veterans to newbies will find something of value.

Q. Is there a cleantech investment bubble? Why, or why not?

A. Any high-growth investment sector, especially those involving cutting-edge technology, will have a host of losers among the winners. That’s how the capitalist system works. And of course, there will be irrational exuberance in some clean-tech sectors at various times.

But we are often asked ‘the bubble question’, and our simple answer is no; the broader clean tech sector will not be a bubble like the dot-com industry. Why? Because clean tech companies, for the most part, are providing technologies that the world truly needs – those that deliver energy, transportation, potable water, materials. We love John Doerr’s quote that really encapsulates this opportunity – the fact that we’re talking about businesses that are involved in atoms, not just bits.

We’re talking about the largest industries on earth – electricity, automobiles, water – opportunities in the trillions of dollars. And the clean tech revolution will need to serve the needs of both the developed world (to replace aging, crumbling, dirty infrastructure) and in the developing world (where 1 billion people lack access to electricity and 2 billion are without access to clean, potable water).

In the dot-com run-up, many companies put something out in the market and then tried to create the demand for it. No one needs to create a demand for energy use or clean water – or more reliable and efficient use of both – we really are talking about the new industrials when we look at clean tech...

Q. How much is the market growth you project in clean energy tech predicated on new favorable policies coming into effect? How much is this industry threatened by random acts of politics or inconsistent policies?

A. We like to point out that there is no energy industry on the planet that is subsidy or policy independent. Just look at the oil, coal, and nuclear industries. None of them would be where they are without government support. So to answer your question – policy that supports clean-tech growth and development is tantamount to its success.

But as we point out in The Clean Tech Revolution, the shift is already well underway. From Frankfurt to Sacramento to Tokyo to Beijing – government entities of all sizes are now viewing clean tech as a main driver of job creation, economic competitiveness, energy independence, and in battling climate change and meeting carbon challenges. Dozens of cities, states, provinces, and federal governments are lining up behind the transition.

Even in the U.S., where national policy has been lackluster, to say the least, states have stepped in to fill the void. There are now two dozen states with RPS and cities around the nation are vying for the jobs being created in the manufacturing of solar panels, smart grid devices, advanced lithium ion batteries, and wind turbines. In fact, California Governor Schwarzenegger most likely won reelection in 2006 by running on a clean-energy platform that has positioned California as a global leader in clean energy.

We’re generally optimistic that this shift in policy will continue – because we see it as an imperative for governments that wish to remain relevant. Those regions that don’t embrace clean energy and clean tech, and provide supportive policies and a shift away from the polluting, volatile energy industries of old, will lose out to those regions that do.

Q. What technology has the highest potential-to-visibility ratio right now? (In other words, what’s your favorite unknown technology that investors should be more aware of…)

A. You ask an interesting question. There are so many untapped areas – some with relatively high visibility and others that are currently being overlooked by the investment community and the broader market.

Without sounding coy, we’d like to recommend that people pick up a copy of our book. Within The Clean Tech Revolution we showcase “breakthrough opportunities” in each of the eight technology chapters. We highlight some of the areas that we think offer the best near- to mid-term opportunity for investors, entrepreneurs, and corporate executives. Everything from next-generation lithium ion batteries and renewable-energy powered desalination plants to closed-loop biorefineries and smart appliances. The answer to your last question is, quite literally, in the book.