EEStor says it has been working on a 20 micron thick layer that makes up its supercapacitor and has made progress with increasing the reliability of the manufacturing process. But EEStor says it hasn’t yet reached a “level of permittivity necessary for commercial production,” of those layers. EEStor says if it improves the permittivity layer then it will look to get the performance of its device independently tested. Read all of the technical description here.

Zenn Motor, an electric car company with deep partnerships with EEStor, recently raised about $250,000, and is looking to raise another $400,000. I’m wondering if these funds are helping fund EEStor’s continued research.

Clean Break’s Tyler Hamilton says that Zenn’s chairman and chief executive James Kofman is a well respected investment banker in Toronto, and isn’t being paid in cash for the job, only options. Hamilton quotes Kofman recently as saying:

“There is a very good dialogue between the companies, and regular rapport on many fronts… The recent announcement has demonstrated we really are in a good position with them, much better than we were a year ago. What everyone is looking for is real transparency and real disclosure. The announcement we made puts us finally on a path where we have a clear methodology for getting better public disclosure.”

What do you think? BS or interesting progress?

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The Massachusetts company reported losses of $125 million, or $0.87 per share for the first quarter, compared with losses of $53.6 million, or $0.51 per share in a year-ago period. A123 generated $10.9 million in revenues, a 40 percent drop from $18.1 million in the first quarter of 2011.

A123 makes battery cells and packs primarily for electric cars and energy storage systems, and it competes with both startups and large, established lithium-ion battery makers, many of them in Japan and Korea. The company said Tuesday it has hired an outside adviser to figure out a new financial strategy, a move that has helped to boost its stock price by over 6 percent to $0.97 per share in recent trading. The company’s share price had previously fallen by 39 percent since late March, when it announced that it would start replacing battery packs with defective cells made at its Livonia, Mich., factory,

The company’s recent mistake has cost it dearly. The replacement program involved $51.6 million in warranty costs during the first quarter and another estimated $15.2 million for replacing defective batteries that were in its inventory, the company said last week.

The defective cells could cause battery packs to fail. In fact, the flaw led to a shut down of a Fisker electric Karma during testing by Consumer Reports, Bloomberg reported.  Back in December Fisker recalled 239 Karmas over faulty batteries made by A123 Systems. Fisker told Bloomberg that A123 was replacing battery packs that powered the Karma. A123 is a shareholder in Fisker.

A123 had to shut down production at its factory temporary and said it’s figured out the problem that caused the defective cells. The company built the factory in 2010 with a $249.1 million grant from the federal government. The company went public in 2009 to great fanfare, with its shares opening at $17 per share and closing at $20.29 per share on the first day of trading.

“We are gradually restarting production in a controlled manner consistent with our commitment to improve our manufacturing processes and quality, and have started shipping replacement products to impacted customers,” said David Vieau, A123’s CEO, in a statement Tuesday.

The battery maker said it expects to generate $145 million to $175 million in revenues in 2012, down from a previous forecast of $230 million to $300 million.

Photo courtesy of A123 Systems

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The disclosure on last week’s earning call from Amyris that it was shuttering or scaling down production at two of its three facilities, effectively putting off major biofuels production for another two to three years, is not altogether surprising. Once technology risk is surmounted in the lab and a feedstock can be converted into a petroleum at a decent yield, the question always becomes: Can you do it at scale?

Early optimism

The original goal had been for Amyris’s three facilities to produce 7.5 million liters of product a quarter, though the company has struggled with yield and separation loss, turning out just over 900,000 liters this past quarter. More importantly, the low production runs pushed the average selling price to $7.70 per liter, well above what the market will bear. Hence, Amyris’s decision to focus on smaller markets with lower volumes and higher selling prices, like the moisturizer ingredient squalene, which sells for $25-30 per liter.

It’s no secret that the EPA drastically overestimated what the bioufels industry could do. In 2012 it had thought that 500 million gallons of cellulosic biofuels would be possible, even though the reality is that the industry should do a bit over 10 million gallons this year. On last week’s earning call Cowen and Company’s Managing Director of Equity Research Rob Stone pressed Amyris CEO John Melo on the question of why production wasn’t scaling and why yields had disappointed.

Melo responded that it had taken Amyris “a lot of learning to be able to get the strains to perform….as well as they have in our environment” along with the challenges presented by separation and the fermentation process. Scaling biofuels is a massive engineering feat that requires tuning to maximize performance. Unlike some industries where being first to market is advantageous, in renewable energy, there’s often a first mover disadvantage because scaling the initial technology is as difficult (or more) than proofing the tech in the lab. Even if we look at Amyris’s share price, which has been bludgeoned from its $16 per share IPO price to about two bucks today, there’s a compelling case to be made for a second mover stepping in, buying the assets (the market value of the entire company is a scant $115 million compared to almost $2 billion at its peak), recapitalizing the company, and making a decent return.

The big picture for biofuels

Amyris is not alone. Other leading biofuels companies Solazyme, Kior and Gevo are off at least 40 percent from their 2011 IPO share pricings. What keeps investors in the game is the massive reward being floated. If biofuels succeed, they have two major advantages. 1) Unlike corn ethanol which had a pricy food feedstock—corn—many of the advanced biofuels are largely feedstock agnostic and 2) it’s a drop in fuel with no limitations on the percentage that can be used. It’s ready to go, direct into the transportation fuel supply, replacing imported crude oil.

Despite asking difficult questions and having neutral recommendations on Amyris and Gevo, Stone is still cautiously optimistic. “This industry is in crossing the chasm phase. You went through a phase where there was a lot of enthusiasm and lot of companies went public, and now a lot of companies are pushing out the ramp up on production, and stock prices are way down. We’re waiting for the upturn on the other side of that gap where realities and perceptions will start to move in a favorable direction.”

Stone’s models indicate that with oil prices as low as $70 a barrel, a company like Kior could compete with imported crude if it can scale its future plants to processing 1500 tons per day of feedstock (its Columbus plant, which is expected to be on line in the second half of this year, could theoretically do 500 tons per day). And it’s proving that the initial facilities can scale reasonably in the first place that is going to be critical.

As my colleague Katie Fehrenbacher has pointed out, companies like Kior IPO’ed and raised money in public markets with very long term risk/reward horizons, and to further scale, all biofuel companies are going to have to raise more cash. That fundraising ability will all depend on showing production capacity at initial plants. Amyris raised an additional $83.7 million in February, and Stone noted of the timing of the Amyris raise, “had they waited to put out this quarterly release they may not have been able to raise as much on the same terms.”

The dream of replacing foreign oil dependence with a renewable transportation fuel is a big dream and a bigger market. But from the lab to the production facility, there’s enormous risk, and if the commercialization hurdles can’t be crossed, it’ll be just that–a dream.

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Back in 2005, Ahlstrom, who was running a successful venture fund in Salt Lake City, Utah, asked himself and his investing team the question: if you could invest in any country in the world, where would it be? The group started collecting and crunching data points, like it needed a high growth potential, a large market size of over 50 million people, a GDP per capita of under $14,000, political stability, a decent history of human rights, and it needed business and entrepreneurship indicators like a small number of days needed to start a business.

At the end of the analysis the country that was spit out was Mexico. “We didn’t believe it. We were completely shocked,” says Ahlstrom, who told his team to go back and scrub the data and recrunch it. But again, the answer fell on Mexico. “Our image of Mexico was dusty, sombreros, drug problems, immigration issues. Not high tech,” says Ahlstrom. Nevertheless, a few years later Ahlstrom led a private equity growth fund in the region, and opened up Alta Ventures, based in Mexico City.

Alta, and Ahlstrom’s efforts, have really been one of the first major pushes to create an entrepreneur and investing community in Mexico. The ecosystem is still tiny compared to the Valley or even its Latin American counterpart Brazil, but it’s now growing. On the Geeks on a Plane tour through Mexico we participated in a Startup Mexico Weekend, which included a dozen teams pitching interesting ideas like RockMob, a Rockband for regular instruments, and Legal U, a startup creating online legal documents for landlords and small businesses. 500 Startups plans to focus more on the region, founding partner Dave McClure tells me.

Ahlstrom has worked tirelessly to kick start the industry. One of the problems with Mexico has been that pension funds were only recently able to invest in venture firms, and Ahlstrom began working on that problem as soon as he identified it. He also personally helped organize a conference in Mexico’s city of Monterrey in 2010 that he says was “a watershed moment and the launch of the venture capital industry in Mexico.”

Ahlstrom has done so much work that he has essentially helped clear the barriers for everyone else to come in. The pioneer is the man with a lot of arrows in his back, face down in the mud, says Ahlstrom.

For Ahlstrom, bringing his family down to Mexico, was actually more like coming home. His great great grandfather was a polygamist Mormon who brought his family down to Mexico to be able to keep the family together, and Ahlstrom tells a group at the U.S. Ambassador to Mexico’s house that the Romneys lived down the street (not exactly sure if that was a joke or not). Ahlstrom’s family (no longer polygamists) were driven out of Mexico for various financial and political reasons a couple times, but continued to return to Mexico over the years. Ahlstrom says creating the venture capital community in Mexico is “huge for my family.”

Image courtesy of Arturusoft.

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Sao Paulo, Brazil

Following that realization, Zennstrom said that when he started Atomico in 2006, one of the theses he had was that he wanted Atomico to be an international firm, which could help its portfolio companies move into international markets. “We thought Brazil would be one of the key markets that we would help them [our portfolio companies] expand into. But after we were in the market, we realized there were quite a few good entrepreneurs there and we started to get inbound opportunities to invest in companies in Brazil.” Atomico’s Carlos Pires, former Skype general manager, heads up the Brazilian market for Atomico.

Zennstrom noted that now the Brazilian Web market is growing very rapidly, Internet penetration has doubled over the past four years, consumers seem very keen on trying out new services, the economy is pretty stable, and it’s a very entrepreneurial country. “It’s a good time to invest here and find companies,” he said.

If there’s one thing that Zennstrom isn’t exactly keen on, it’s clones. He said:

A lot of the playbook that you’ve seen for the last ten years here [in Brazil] has been to see what is happening in the U.S. and do a local version of it. Which typically works really well. But there is no reason why there isn’t thinking here that’s bigger than that. And I think you will see that.

Here are a few bullet points from Zennstrom’s thoughts from the panel discussion:

On pitches: If you need a 25 page PowerPoint presentation to explain your idea, it’s probably too complicated.

On the eBay and Skype deal: What eBay did was they were looking for new companies to grow and when they acquired us they thought there would be some synergies, but it turned out that there weren’t that many synergies. So from an integration point of view it didn’t work out. But it turned out financially to be a good investment because when eBay sold the company they made a profit.

The lean startup: It’s a better time to start a business today, because when we started our businesses [Skype and Kazaa] we had to go out and get servers and infrastructure and it was so much more costly. Today if you do an online service you don’t need to spend money on infrastructure, you can use cloud services, and social media or viral media for spreading services.

Advice to a Web entrepreneur: If you’re not an engineer, you should probably become best friends with some smart engineers and make them co-founders.

On international markets and clones: Online companies need to go international much more quickly than they did before because otherwise you will get cloned if you have a good business model. Sometimes that’s OK, because sometimes if you get big you can acquire them. But the copy cats are getting much more sophisticated and may actually outperform you.

On spending on talent: Programmers are the most valuable people in the company, and they should always be the stars. Don’t be cheap when it comes to getting the right programmers. Really good programmers can really make miracles, and not-so-good programmers will create problems for you.

How good are Brazil’s programmers? Brazil is one of the biggest contributors to the open-source software community and typically open-source software developers are good. There is a lot of talent here, you just have to convince them to come and work for you and make them co-founders.

Missteps: I always knew I spent too little time on recruitment. The team is the most important thing.

Go international: I’d like to encourage entrepreneurs here [in Brazil] to think about not only the Brazilian market, but also think about building a company that can be successful internationally. The Internet is borderless. I would also encourage innovators to think of new business models instead of taking a playbook from someone else and making a copy of something else. It’s much more fun to be an originator of ideas and it’s a much bigger opportunity.

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This isn’t the first project to use ultra high voltage direct current lines at 800 kV, which are state of the art. Both Siemens and ABB, two powerline equipment makers, previously announced projects selling their 800 kV equipment to China Southern Power Grid and State Grid Corporation of China, respectively.

ABB sold an 800 kV line to State Grid Corporation of China to complete a 2000-kilometer project in 2010 to transport 6.4 GW of hydropower from the Xiangjiaba power plant in southwestern China to Shanghai. ABB said the Shanghai project was the world’s first transmission project to use ultra high voltage direct current equipment, though Siemens has made a similar claim with a project in China.

State Grid will also build the project touted by People’s Daily on Monday. The project will run power lines from the Hami prefecture in the Xinjiang province in the west to Zhengzhou city in Henan province in central China. The equipment will rise up along regions of big solar power development, such as the Gansu and Ningxia provinces. The project will cost 23.39 billion yuan ($3.7 billion), People’s Daily reported.

The use of high voltage direct current (HVDC) technology is gaining popularity in a world dominated by electric grids that run on alternating current. HVDC equipment tends to cost more, but it also can be more efficient at transporting large volumes of electricity over long distances. On Monday, the U.S. Department of Interior said it’s cleared a hurdle for a proposed HVDC transmission project, which counts Google as an investor, to carry up to 7 GW of wind power off the East Coast. Meanwhile, Tres Amigas is planning a HVDC transmission project to connect the three major power grids of the country. Japanese conglomerate Mitsui has agreed to invest $12 million in the project. Most of the transmission lines in the U.S. run at much lower voltages than 800 kV.

China has massive goals to build and generate more renewable energy, including 15 gigawatts of cumulative solar power generation by 2015 (and it wants its domestic solar industry to help meet that goal). The country installed a few gigawatts of solar power projects in 2011, and estimates from market analysts and Chinese solar companies have varied widely, from 3 GW to 7 GW, on how much China will add in 2012. China also is the world’s largest wind energy generating country. These developments have made the country a magnet for U.S. tech companies.

China is also interested in pairing energy storage with wind and solar farms. The country completed a 36 megawatt-hour energy storage project – the world’s largest lithium-ion battery farm – last year. Battery makers such as A123 Systems, Boston-Power, and PowerGenix all have set up shop in China to target the energy storage and electric car markets. Boston-Power made the bold move of shifting a bulk of its operation to China after lining up hefty funding from Chinese investors.

Photo courtesy of Siemens

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Cui’s latest breakthrough is to use silicon nanotubes coated with silicon oxide shells for the anode part of the battery. A battery is made up of an anode on one side and a cathode on the other, with an electrolyte in between. For a lithium ion battery, lithium ions travel from the anode to the cathode through the electrolyte, creating a chemical reaction that allows electrons to be harvested along the way.

The silicon oxide coating stops the silicon nanotube from expanding, keeping it away from the electrolyte, and enabling the battery to have more cycles. Most anodes are made of graphite, but silicon has a much higher capacity to store a charge. However, silicon anodes tend to break down or have a small cycle life because of that expansion characteristic. Stanford’s SLAC group explains how this works in more detail.

The IEEE points out that this jump in cycle life probably isn’t such a breakthrough for the electric car industry, as other types of batteries can lead to tens of thousands of cycles for the future of next-generation electric car batteries.

Amprius is a Valley startup that has been developing technology that can shrink the anode roughly fourfold from today’s carbon-based anode material technology, CEO Kang Sun told us a couple years ago in an interview. That could allow a fourfold increase in energy density if concurrent improvements in cathode technology can keep up, which is an uncertain prospect, to be sure. Last year Amprius raised a $25 million Series B investment to help it move toward its first commercial product, likely for the consumer electronics market. The round was led by Kleiner Perkins, Chinese firms IPV Capital and Qian Neng Fund, and Google’s former CEO Eric Schmidt, VantagePoint Venture Partners, Trident Capital and Stanford University.

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But increasingly, tech startups and investors are supporting business models that make companies accountable to not just their shareholders, but also their customers, workforce, environment and greater community.

Last week, Etsy announced that it had joined the ranks of more than 500 companies nationwide as a Certified B Corporation. Like a LEED certification for buildings or a FairTrade certification for coffee, the designation is conferred by a third-party for meeting a minimum standard of social and environmental performance.

Green products makers Seventh Generation and Method were among the first companies to become B Corp certified when Philadelphia-based B Labs started the process in 2007. National retailer Patagonia is also a Certified B Corporation. More recently, the tech community has taken a greater interest in B Corp status. In the past few months, eye-glasses startup Warby Parker and venture-backed travel community CouchSurfing have become B Corporations. Fred Wilson, managing partner of Union Square Ventures, an Etsy investor, said he thinks other companies in his portfolio are also good candidates for the certification.

For some businesses, the community is the value

“When you think about these large Internet-based businesses… it’s the activity of the people on the platform that creates the value,” he said.  ”The goodwill of the community, in large measure, [contributes to] the success of the company.”

In addition to the third-party certified B Corp status, seven states, including New York and California, have passed legislation that allows companies to incorporate as a Benefit Corporation (instead of a C Corp, S Corp or LLC, for example), giving them legal protection to pursue social and environmental solutions. It lets companies potentially sacrifice short-term financial gain in the interest of building long-term value for its community or other public stakeholders — without getting sued by investors. According to B Labs, the B Corp status gives consumers an easy way to spot genuinely socially responsible businesses and gives companies a vehicle for differentiating themselves.

But with all the corporate social responsibility hype in the marketplace, it’s hard not to be cynical about another “do good by doing good business” initiative. Measuring social and environmental impact isn’t easily quantified and, even if it were, it’s not so hard to fool an outside auditor. Beyond that, do you really need to be a certified socially conscious company to take socially conscious actions? In the end, what your business actually does is more important than what it says it believes in.

Startups might not have the resources to go through what can be a months-long process and pay for the fee-based B Corporation certification. To become B Corp certified, companies must achieve 80 out of 200 possible points on a social and environmental assessment, and Etsy, for example, said they started the process five months ago. None of the B Corp certified companies have lost their status because they were unable to maintain their standard of performance, the organization said, but 18 percent have lost their certification because they went out of business or for financial reasons.

Entrepreneurs might also worry that they’ll alienate potential investors with a corporate status that essentially tells them outright that, on occasion, they’re going to put shareholder interests below those of the (not easily defined) greater community. In a recent piece on the “promise of B-Corps” (prompted by an article on Patagonia’s pro-B Corp CEO), Reuters’ Felix Salmon said he expects that IPO-bound B corps would draw lower valuations than a conventional company.

But he added that once a company goes public there’s no reason why it shouldn’t grow as fast as any other company and generate comparable or higher shareholder returns. Unlike most public firms that are forced to report quarterly growth and maximize shareholder value at all costs, legally protected Benefit Corporations could escape the curse of the public company with an obligation to consider nonfinancial goals.

Which startups are good candidates

For now, the publicly traded B Corp is just a hypothetical — currently all B Corp companies are privately owned. But B corp designations could provide similar protections to tech companies in much earlier phases of growth.

Natalia Oberti Noguera, founder and CEO of the Pipeline Fellowship, which trains women philanthropists to become angel investors, said that in an industry that sees a lot of consolidation and shareholder transition, the B corp option means a founding mission remains in place even as ownership changes hands. And, as opposed to turning away potential investors, the B Corp status could actually help socially conscious startups attract like-minded investors, such as those with Investors Circle, the Pipeline Fellowship and others.

It’s not the right path for every startup, but for those with a stated social purpose — say professional women’s networks Daily Muse or Levo League or skill-sharing startups Skillshare and Catchafire — it could be a way to take their commitment to the next level.

Another thing to remember: A company doesn’t need B Corp status in order to be a social responsible business. While the B Corp program is a sign of progress, what really matters are the company’s actions, not the external designation, says A. Lauren Abele, COO of the Pipeline Fellowship.

“It’s important to remember that this is a tool,” said Abele. “The social integrity of a business lies at its core, in its decision-making process and commitment to its mission.”

A previous version of this story incorrectly said Patagonia was a founding Certified B Corporation, but it was not actually certified until 2012.

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Dave McClure speaking at the US Embassy in Mexico City. Photo by George Kellerman

It’s around 8:30 on a warm Friday night in Mexico City, and we’re all milling around a podium set up in the lobby of the private residence of the U.S. Ambassador to Mexico, Earl Anthony Wayne. Dozens of Mexico’s tech entrepreneurs and investing elite are mingling with more than 40 members of Geeks on a Plane, a traveling tech-revue of sorts organized by the Silicon Valley investment group, 500 Startups. Just outside the lobby, an expansive manicured lawn leads up to a massive, high rock wall. Guards with bullet-proof vests ushered the group through the fortress gate only about an hour before.

The Ambassador gives his polished remarks, followed by one of Mexico’s rare venture capitalists. Now it’s time for Dave McClure, the investor behind the two-year old fund and accelerator group 500 Startups, to say a few words. He is decidedly non-descript – glasses that are thick, jeans that sag, a t-shirt that says “500 Startups: We’re kind of a big deal,” flip-flops, and a black blazer as a gesture to the formal occasion (“hiding his hillbilly” as he calls it). McClure is a throwback to a Silicon Valley of the time before the brogrammers.

McClure thanks the Ambassador for the special night and starts to speak. He throws down his first salvo:

“For the last two heads of states that I met with I was also wearing flip-flops, so please don’t take it as any slight. If it’s good enough for the President of Chile and good enough for Hillary Clinton, it ‘s damn well good enough for Mexico.”

McClure is trying to do something a little bit different. What Billy Beane is to baseball, McClure is to technology startups. And like Beane, he is willing to go anywhere in the world to find a slight edge to beat his richer, bigger and fancier rivals on Sand Hill Road. He is quirky, offbeat and unconventional, which is one of the reasons why entrepreneurs love him, and he’s also a marketing machine that can turn out slogans and brands like a finely-tuned copy shop on Madison Avenue.

He’s more like a man with a mission or a preacher with a sermon than an investor trying to make a living. 500 Startups partner George Kellerman describes McClure as being so driven it’s as if his bucket list has just one item: to find the undiscovered entrepreneurs across the furthest reaches of the globe.

These principles are also where Geeks on a Plane comes in. The group brings together dozens of entrepreneurs and investors on a jam-packed, brain-jolting tour to meet with the local investors and innovators in cities throughout the world. Little sleep is had and much geeking (and partying) is done.

Geeks on a Plane Latin America kicked off last Thursday night in South Beach Miami — where the Mayor of Miami-Dade County, Carlos Gimenez, presented McClure with a plaque for tech industry excellence – and continues through Mexico City, Sao Paulo, and Buenos Aires over the next week. I’m traveling with the group (yeah, I have a rough life) and will be reporting on tech innovation across Latin America.

Moneyball for startups

So how exactly does McClure plan to disrupt tech investing? The group is starting out with what McClure calls a more “scientific” and “systematic” approach: essentially, it’s a numbers game. Instead of making a few several million dollar investments into promising early startups, 500 Startups is making smaller — $50,000 to $250,000 – investments into a lot more early stage startups; hence the “500 Startups” moniker.

The idea, as McClure puts it, is to fail more cheaply. And with more bets, the odds of hitting a winner is higher. The not-often talked about dark reality of the tech entrepreneur ecosystem is that it is wrought with failure. Some 70 to 80 percent of software startups fail, but if they fail cheaply and quickly, the heartache is a bit less.

For the 20 percent of companies that do hit some kind of stride or scale, 500 Startups offers follow-on rounds. For the couple of startups that are able to break out, 500 Startups helps usher them along to the venture stage, where more traditional venture capitalists step in. McClure points to a company like TaskRabbit as an example of a company that broke out and went on to raise successive venture rounds.

500 Startups’ first fund was for $29 million and I’ve heard that the group is currently raising another larger fund. By the end of 2013, 500 Startups will likely hit its namesake and will have backed about 500 companies, estimates McClure. Already they’ve closed on almost 300 companies.

Platforms & international markets

Part of the reason that more, smaller bets could work is because $50,000 is now enough to test out a Web or mobile idea and begin the scale-up process. Five to 10 years ago, before cloud computing and Web and mobile distribution platforms like Google, Facebook, Apple and Android, the costs to build and scale a tech startup were significantly higher.

McClure’s investing thesis is all about the low cost of building on these platforms. For example, Wildfire sits atop Facebook, SendGrid is about cloud-based email, and 955dreams is a product of iOS. He once taught Stanford students how to tap into these new Web and mobile platforms through his now famous Facebook class and later went on to make investments in the Facebook Fund.

International – and underserved — markets are another investing thesis. 500 Startups is one of a few firms that is willing to go more than 30 miles away from Sand Hill Road to find a deal. The truth is that the more traditional venture guys are scared to pursue this global strategy – the lifestyle is hard (constant travel). McClure, who is married with two children, says he spends close to three to four months on the road traveling. Geeks On a Plane is a large part of this international strategy.

Of course, 500 Startups isn’t all about McClure. His partners travel, hustle, party and forgo sleep (almost) as much as he does. Paul Singh somehow is able to keep up with McClure’s exuberance for entrepreneurs and is leading the fund’s work in India. Bedy Yang, who tells me that she “has the best job in the world,” can speak Chinese and Spanish and is heading up investments in Latin America. Newer partners include Christen O’Brien, who leads all of the Geeks on a Plane trips, conferences and corporate partnerships and Kellerman, who has a long history with the tech industry in Japan and was once a firefighter (really).

A marketing machine and a cult of personality

500 Startups is also as much about Moneyball as it is about marketing. McClure’s partners say his penchant for naming things and branding ideas is one of his invaluable skills – 500 Startups, Geeks on a Plane, the family-tech focused Mama Bear conference, the designer’s Warm Gun conference. As a marketer at heart, McClure is able to help companies think through growth better than pretty much any investor.

He’s also honed a cult of personality around a profanity-fueled, take-no-prisoners character that yells and swears when presentations get boring and writes brightly-colored rants on the company’s blog and Twitter feed. One of the most memorable scenes from the Geeks on a Plane India trip in December was when McClure shook up a startup demo event in Bangalore by telling the unpolished, young and earnest Indian entrepreneur presenters to “stop being so f*cking boring.”

The created personality is the branded Dave McClure. The real Dave McClure is much more mellow and thoughtful. He’s also first and foremost entrepreneur-friendly. In international markets like Mexico City and Delhi, McClure likes to tell local investors that it’s their fault if the tech ecosystem isn’t producing many quality startups — it’s not the lack of entrepreneurial talent in the regions, says McClure.

Will it work?

McClure can be entrepreneur-friendly to a fault. Kellerman described him as bordering on altruistic. That’s one reason why he doesn’t have a shortage of deal flow, but that could be another reason why a Limited Partner might feel more comfortable giving funds to a more cut-throat crew.

Another question is whether or not the return on the fund’s breakouts will be high enough to make back the desired amount of money. The traditional VC model is that one or two companies out of dozens can make back the entire fund. But if the fund’s stake in the firms that make it big is too small, 500 would need many more hits to collectively win big.

McClure acknowledges the risk, but says they’ve helped solve that problem by having 500 Startups do follow-on investments as well as the initial seed stage. And McClure can point to some breakouts that they’ve ushered along through that process like TaskRabbit, Twilio, SendGrid and Wildfire. His most famous exits were personal investments including Mint.com and SlideShare.

Another potential downside could be the pace of the investments. While globetrotting, red-eye flights and constant networking and mentoring can be exhilarating, they come with sacrifices, like being away from family and mental and physical burnout. Such a rapid pace could also cut down on the time for a decent amount of due diligence. Yes, many of 500’s first seed investments are experiments, but the partners need enough time with the entrepreneurs to make a somewhat smart bet.

From here to there

McClure grew up in West Virginia and about two decades ago joined the ranks of Silicon Valley as an engineer and programmer. He ran marketing for job search engine Simply Hired and joined PayPal as its Director of Marketing in the early 2000’s, which he describes as a time where “everything was going to crap but Google and PayPal were doing pretty well.” PayPal doing pretty well meant that when he left he had some funds to use to experiment with angel investing.

In 2007 McClure gained fame when he taught a  Facebook platform class, and then went on to manage two small funds for the Founders Fund and the Facebook Fund. While he had less than $3 million to play with, he made about 43 investments. And that’s where he says he began to hone the idea of the 500 Startups model.

The bigger question is why. Why does McClure have a burning passion to scour the world for undiscovered entrepreneurs? McClure says:

“It’s because I f8cked up. I was Billy Beane. I spent 20 years in the Valley and didn’t make it. Then I discovered I was a lot better at helping other people make it.”

Today, 500 Startups is just two years old, so it’s got a bit of time before it will prove out whether its model will become the future of tech investing. But the coming Facebook IPO could actually become a transformative act for the group.

In the late 90’s, Ron Conway was just another Silicon Valley angel investor. But with the Google IPO, he was transformed into the godfather of Silicon Valley start-ups. Likewise, Facebook’s IPO could act as an accelerant for McClure’s group.

As Facebook grows and also seeks to fill the positions of departing execs, it will look around to buy companies. It’s already started to increase its acquisitions. 500 Startups has backed companies with some of the top product and design people in the Valley, and many of their companies have the Facebook platform baked into their DNA. It doesn’t hurt that McClure spent years teaching and investing in the Facebook platform effect either.

Perhaps next week’s Facebook IPO could turn out to be the fund’s undercover lynchpin to remaking the landscape of tech investing.

Disclosure: Dave McClure was compensated by GigaOmni Media with stock and cash for his consulting efforts during the early days of the company. We have not had a business relationship since the end of 2006.

Image courtesy of Steve Nagata.

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NewWorld Capital Group previously raised $170 million and has made two investments in diesel emissions limiter Cleaire Advanced Emissions Controls, and energy efficiency AC producer, Coolerado. This year NewWorld Capital Group plans to raise at least $300 million more with a goal to do 8-12 deals, at $30-50 million each. I caught up with Bales late on a Friday afternoon to discuss his investment principles, which include the 6 angels and 6 devils of environmental investing, and a 4-plank strategy to fix our global problems. Also don’t ever call him a cleantech investor (at least not to his face).

(This interview has been edited for length and clarity).

Q). When we first met, we talked about the six angels and the six devils of environmental-oriented investing. What are the angels?

A). The six angels characterize the attractiveness of the environmental opportunities sector. We invest in energy efficiency, clean energy, water resources and reclamation, waste-to-value, and environmental services. The six angels are the six things that make these sectors attractive:

1). It’s already big. It’s over 300 billion in the U.S. alone, middle market.

2). It’s growing at 2-4 times GDP, among the fastest growing sectors in the U.S. economy. Rapid growth is a beautiful thing.

3). A substantial amount of innovation is going on in the market, some of it driven by all the money that went into venture capital in the last decade, some driven by simply technology or regulatory push.  Innovation is a beautiful thing because it creates more diversity in the market and less competitive intensity.

4). Diversity. The cyclicality of the sector will be far less because the end industries that are driving the segments we invest in are very diverse. You’re not going to see the problem that many investors fear, which is investing in a sector fund and the whole sector goes into decline or cyclic downturn.

5). A lot of complexity. It strongly favors the prepared mind or the expert, and tends to keep the generalists journalists at the door. You’re going to get less copycat behavior.

6). It’s undercapitalized. When you track all the firms that play in this big sandbox, the venture firms kind of grew up small with the exception of Kleiner and a few others, but basically they grew up supporting computer software innovation, which are first cross businesses and you can revolutionize the whole market. In our industry, these companies are kind of capital hungry so they require growth capital to get to scale.

Q). And what are the six devils that you’re trying to avoid in all your investments?

1). Technology risk. We’re not a venture firm and we’re not a cleantech firm. We will not take physics risk or science risk. It isn’t just whether the product works or the technology works, it’s whether you can scale the manufacturing without getting a lot of risk. That’s a golden rule around here.

2). We will not take on hydrocarbon pricing risk. We don’t invest in renewables because we don’t take hydrocarbon pricing risk. Renewables rely on high hydrocarbon prices, and hydrocarbon prices are highly subsidized. They’re asking us to compete against it with virtually no subsidies, and the subsidies being so temporary that you don’t have any policy stability. It’s better to just avoid all that stuff.

3). We don’t want to take capital scale risk. We don’t want to write big checks. We’d rather write more small checks. We’d rather do follow-on investing, milestone-based investing, rather than take a big first cost by writing a big first check.

4). We do not take on foreign competitor risk. If China really wants something bad, they’ll throw large amounts of commoditizing capital at it to drive down value and ultimately win on volume.

5). Business scaling risk. We accept it but we want to mitigate it as much as possible. We’re prepared to actually do that and be deeply involved in helping these companies grow, but we want to be paid damn well for doing that because it is a real risk. One of my complaints about the venture world is that by betting on technologies, they run the risk of hanging one man twice. They have to have a technology risk work out to their benefit. And then after that they have to take the business scaling risk. We’re prepared to take one of those risks.

6). Regulatory and subsidy risk. We’re perfectly happy to take advantage of a subsidy. But we will not base our investment case on the subsidy.

Q). Do you think technology risk is a job for the venture capital industry or should that function shift primarily to government programs, like ARPA-E?

A). It depends totally on the nature of the business. If the business requires enormous scale to function and it’s competing against an established hydrocarbon based business that’s fat with subsidy, then you do need government participation. These are very often second mover businesses. The first mover breaks the sword.

Let’s take CCS [carbon capture and storage] for example. CCS patent protection is not going to help very much. You’ve got so much social resistance to running a CO2 pipeline near somebody’s backyard. You’ve got a long, long process of educating the regulators and getting the permits. The first mover very often get’s screwed. The second mover comes in and buys the assets cheaper, discounts the first mover, and earns a respectful return.  Patent protection isn’t a very good protection, and you want to make sure that there’s some return for the risk taken by the first mover. If it’s true capital scale business, then government has a role to play.

If it doesn’t require a big investment like carbon capture and storage, then it probably doesn’t require ARPA-E or whatever. Venture investment ought to be adequate.  But venture firms, as you know, can’t write really large checks.

The government isn’t particularly good at picking winners. But there are energy innovations that are needed where there is significant technology risk for which the venture industry is not fully fitted. You go to places like GE and so forth — rich corporations. Most of them don’t want to take that kind of chance around technology risk. They’d rather buy a company that’s successfully dealt with it, that’s been able to surmount a specific technology challenge. They might be very interested in simply purchasing it and getting ten years of learning in one transaction.

Q). What is the fundraising environment right now for cleantech, and has the politicization of the DOE loan program and concerns about returns for the sector, impacted your ability to raise money?

A). I think the environment for raising money for cleantech is reasonably negative. We’re not a cleantech investor so we’re not raising money for cleantech because cleantech implies technology risk. The reason cleantech has disappointed investors is a little bit of excessive exuberance and that tech risk is very often resolved on the wrong side of the equation. Or the cleantech investment works out okay but then doesn’t get the growth capital to reach commercial scale, and kind of dies on the vine.

I think cleantech generally is in under a cloud, made that way in part frankly by the tendency of venture firms to get into this field and then many of them welcome social media and they’ve got another girl to take to the dance. The secret of success is constancy of purpose. There hasn’t been as much of that in the venture world as perhaps is needed. I think it’s important for growth capital investors like us who won’t take technology risk to make that clear to investors early on.

I think we’re getting really good reception in the fundraising market.  We have a very experienced team, very operational, no investment bankers at all. A lot of people believe this could be to the next ten years what information technology was to the 90′s, a lot of very slow primary demand growth.

Q). In 2010 you gave a talk at the Imagine Solutions Conference, in which you opened by discussing discouraging figures related to the global environment — 90 percent of large ocean food fish are gone and unrecoverable, 50 percent of tropical forests have now been cut down, the U.S. is 5 percent of the world population but produces 25 percent of global CO2 emissions. How do you maintain hope and how does being an environmentally oriented investor figure in your worldview.

A). By nature I’m an optimist and in the broader world situation I’m a reluctant pessimist. I think the future of the world is in dire shape.

But that doesn’t mean that there aren’t really interesting business opportunities in the near and intermediate term. And the inefficiencies, resource exhaustion, all these other factors, they do offer commercial opportunities. What we’re trying to do here is earn a maximum bottom line for investors not because we’re greedy but because we realize without that, you won’t grow private capital for these problems. And without private capital for these problems, you won’t solve them. Government has neither the policy consistency or the resources to solve them. We have to show the way, that private capital can productively flow into these problems and earn a competitive return. I’m quite optimistic that there are significant opportunities.

Q). What would an ideal solution look like? In an ideal world where you could intervene in the market, what would that intervention look like?

A). There would be four planks to a solution — you need all four.

1). The first plank is intelligent regulation and some economic incentives to go after energy efficiency. Forty percent of the solution lies in buildings and the appliances that operate in buildings. Buildings leak energy and appliances consume excess energy. You’re not going to fix that without regulation. California has kept per capita electricity pretty constant over the last quarter century. Whereas the U.S. overall is up 28 percent per capita and Texas is up around 46 percent per capita, showing Texas is a massively energy inefficient state.

2). Turn carbon into a factor cost — that’s clearly needed. Whether it’s done through a tax on carbon or a cap and trade, whether the tax on carbon generates revenue to retire the public debt that gets distributed back to the public itself, you could argue but it doesn’t really matter. You must turn carbon into a factor cost despite the myth that the right wing has sold the nation that doing so would harm jobs.

3). Selective government assistance to help technologies reach commercial scale where they can compete against heavily subsidized carbon alternatives. CCS is an example of something the market could never develop. If you’re ever going to get smart and begin to build your nuclear portfolio, you’re going to need significant amounts of government funding, if for no other reason than taking 15 years to build a nuclear plant, including permitting, suggests it’s not a commercially plausible private investment.

4). Reverse the negative trend in the U.S. carbon sink. There’s a major opportunity in restoration and conservation to protect more natural land. We really need to have our own carbon sink as an offset to greenhouse gas emissions. That’s actually a very cost effective opportunity, pretty simple to do.

Q). From a personal perspective, how did you get interested in climate change? You started at McKinsey, how did environmental concerns shift to your professional life?

A). Everybody to some extent, but maybe me to a greater extent, has a connection to nature. I’ve been deeply connected to nature. I can see over the longer term what’s happening. It doesn’t take much to wake up one day and realize that everything that’s been done by the Nature Conservancy over the last 50 years—and they’ve saved well more than a single Switzerland inside the U.S. domain—and all of that is going to be destroyed by climate change. When climate change first came to my consciousness in 2004, because I was asked to give a talk about it over at the U.N., it dawned on me pretty quickly that this was going to destroy much of what I held to be really dear, which is the functioning and the outlook of the biodiversity in the natural world. Once I reached that conclusion, I got very concerned and very active. The world has never seen a challenge like this where the cost of acting on it is now and the penalty of not acting on it is tomorrow.

Image courtesy of Svenstorm.

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