GigaOM » Cleantech

Cleantech investing quietly re-emerging as smaller, more rational and capital-light

Katie Fehrenbacher — Thu, 02 May 2013 18:30:28 +0000

Despite a continuing drop in the amount of funding that venture capitalists are willing to put into “cleantech” companies, a more rational style of VC investing in cleantech has emerged in 2013. A variety of investors are closing on modest funds that are investing small amounts into companies that have much shorter lifecycles and require smaller amounts of funding to scale. Many of these companies use software and IT at the core of their businesses.

SJF Ventures this week announced the close of its third fund, which has $90 million under management. The firm has invested in a variety of sustainability-minded startups including innovative waste and recycling company CleanScapes, clean power services company Community Energy, e-waste recycling company eRecycling Corp, data center efficiency software company Fieldview Solutions, and Optoro, which uses software to sell and move undersold goods. The firm also invests in companies that aren’t focused on sustainability like MediaMath. SJF’s limited partners include banks, insurances and financial services firms, mutual and pension funds, family offices, among others.

SJF said in its announcement that its second fund “is performing in the top quartile all U.S. venture capital funds of its vintage year.” Compare that to the pretty weak returns disclosed by cleantech limited partner heavyweight CalPERS, or the analysis provided by Venrock partner Matthew Nordan.

SJF Ventures partner David Kirkpatrick told me its cleantech investing thesis is focused on companies that are “capital efficient” and have business models that deliver immediate value to customers, like asset recovery, reuse and efficiency. In addition, the company provides growth equity investments, meaning they back companies that are later stage and are already delivering revenues — grow something that’s already working.

This type of cleantech 2.0 investing thesis has been around for awhile. The “Cleanweb” folks call this trend cleanweb, because many times the underlying technologies are digital ones. Greg Neichin, Executive Vice President of Cleantech Group, described the trend last month by saying: “We are seeing the market moving beyond irrational exuberance and becoming more cautious and thoughtful in deploying capital.”

SJF isn’t the only one still optimistic about cleantech investing. Earlier this year The Westly Group closed on a $160 million fund that it will invest into cleantech companies. The Westly Group backed three companies that went public, including electric car company Tesla, biofuel company Amyris, and Chinese recycling company China Recycling Energy Corporation (CREG). The firm raised the funds from investors like Citi, E.ON and SK Group.

Other firms that are still strong in cleantech investing include Khosla Ventures, Braemar Energy Ventures, Lux Capital, and Kleiner Perkins. A report from Cambridge Associates, and reported by Dan Primack, found that while cleantech investing has underperformed, it hasn’t been the black hole that it appeared. Really large and bad bets like Solyndra and Fisker have skewed public perception around how much money the sector has lost.

The Cleantech Group reported last month that the first quarter of 2013 saw total venture dollars in cleantech down by 29 percent from the fourth quarter of 2012, but that the number of deals was up for the quarter. Half of the number of deals were for Series B rounds or later, but almost all (90 percent) of the dollar amounts of the deals were for Series B rounds or later.

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5 reasons why a successful Silver Spring IPO is important

Katie Fehrenbacher — Wed, 13 Mar 2013 20:03:05 +0000

After almost two years, Silver Spring Networks has finally held its long-awaited IPO. And with a couple hours left until the market closes on its debut, the IPO could be considered a modest success. Silver Spring priced at the middle of its expected range ($17 per share), and then saw its shares soar almost 30 percent on its debut.

While the $81 million that the company raised in the IPO wasn’t as much as the maximum value of the $150 million that Silver Spring originally filed for back in the summer of 2011, the sale was “oversubscribed,” said Silver Spring Networks CEO Scott Lang, and the company opened up a million more shares to sell on Tuesday night. We’ll still have to see how the company’s stock fares over the following weeks and months, but the overall debut day has been positive.

Here are five reasons why it’s important that Silver Spring Networks had a relatively successful IPO:

1). Priming the smart grid IPO market (Opower?): At the Distributech show earlier this year, smart grid execs told me that all eyes were on Silver Spring’s planned IPO to see how the market would react. If the IPO was successful that would mean that a company that has been growing, like Opower, could potentially follow in its footsteps. Opower, like Silver Spring, has been considering an IPO since late 2011. 2012 was clearly a difficult year for IPOs from energy-focused companies, but it looks like 2013 could be better. Opower and Silver Spring also share an investor: Kleiner Perkins.

2). A modest win for cleantech investors: While it wasn’t a huge return, the IPO represents one of the rare successful exits for venture capitalists that put money into cleantech companies. Foundation Capital owns 12.26 million shares after the IPO and its private placement (it agreed to buy $12 million more worth of shares at the IPO price). At, say, $21 per share, Foundation’s shares are worth $257.46 million. Kleiner owns 5.66 million worth of shares, and at $21 per share, that’s worth $118.86 million. So yep, not huge, but at least these are exits.

3). Silver Spring needs to be a big public company: The IPO is important for Silver Springs because the company is competing with large public companies for utility business. Utilities like to do deals with big, stable firms, that they feel will be around for awhile. It’s hard to break into the utility sector as a startup. To take business and sales to the next level, Silver Spring needed to bulk up. The funds, of course, will also be helpful to grow the smart grid business.

4). The smart grid is real and being built: The rollout of the smart grid has suffered from PR problems due to smart meter security fears, and an expected slow down of the installation of smart meters in the U.S. Successful moves by smart grid pioneer Silver Spring shows how the smart grid continues to be built out in the U.S. and internationally.

5). The importance of patient investors and entrepreneurs: Silver Spring was founded in 2002, and has been building its business for over a decade. Foundation Capital was an early investor in the company and has supported Silver Spring’s ups and downs over the years (including an early time when the tech hit some hurdles). Now a decade later, Foundation has gotten its exit and still owned a little over 30 percent just before the IPO. (Foundation owned over 40 percent when Silver Spring first filed for its IPO in 2011). Foundation’s Warren Weiss, sits on the board. The company was co-founded by Eric Dresselhuys who still remains at the company as Executive Vice President and Chief Marketing Officer.

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Bringing a little cheer to energy innovation

Katie Fehrenbacher — Mon, 25 Feb 2013 08:00:21 +0000

There’s glitter all over the carpet in the hallways at the Gaylord National Resort, a sprawling hotel that sits on the shores of the Potomac River just south of Washington, D.C. It’s definitely not from the thousands of energy geeks that are arriving at the hotel on Sunday night to kick off several days of discussions and meetings about next-generation energy technology for the ARPA-E Summit. It’s the aftermath from thousands of preteen girls, decked out in hotpants, ponytails and ribbons, that just spent two days cheering and dancing their way through a large cheer competition.

The two events seem about as different as when the Consumer Electronics Show used to coincide with Adultcon in Vegas. But the clean energy and energy efficiency industries could use some of the cheerleader’s glitter and cheer spirit right about now.

Following the close of a year which saw the politicization of clean energy technologies, the struggles of dozens of solar manufacturers and electric car companies, and a “cleantech cliff” that saw investments in cleantech startups drop by a third, the 2013 ARPA-E Summit will likely be a pretty sober affair.

As MIT Tech Review wrote recently, government energy R&D spending in 2013 is facing a fiscal cliff, and venture capitalists won’t likely flock back to pumping money into energy companies this year. Both of which mean funding for entrepreneurs, innovators and researchers that have bright ideas for things like next-generation batteries, low cost biofuels, or futuristic solar materials will be difficult to get this year. Or at least it’ll be a lot harder to find money for these technologies than it was a few years ago.

The silver lining of money being tight is that only the most promising technologies will get funding, and there will be less “dumb money,” so to speak. As a seatmate of mine on the flight over this morning put it: the state of clean financing is awful but it inevitably had to correct itself at some point.

Altaeros Energies High Altitude Wind Turbine shown off at ARPA-E 2012

But in the face of these more difficult times, another way to look at the ARPA-E program — which gives small grants to early stage projects and was modeled on the Defense Department’s DARPA program — is perhaps it could be the energy industry’s bit of glitter and cheer. It’s one of the few funding programs from the Department of Energy that has bipartisan support, will likely be able to maintain its current annual budget and is widely celebrated by entrepreneurs, politicians and academics alike.

The ARPA-E Summit itself draws some of the bigger names in technology and politics as speakers — this year New York Mayor Michael Bloomberg and Tesla CEO Elon Musk. In previous years Bill Clinton, Bill Gates and Arnold Schwarzenegger have given rousing speeches.

ARPA-E 2013 will be one of the last places that we’ll be able to hear from soon-to-be-leaving DOE Secretary Steven Chu. Chu has been one of the biggest influences on the U.S. Department of Energy over the last several decades.

I’m personally looking forward to moderating a discussion between IDEO’s David Blakely and Otherlab’s Saul Griffith about the importance of storytelling and narrative for early stage energy technologies (we’ll be live streaming it here for free on Monday at 4:30 PM EST). Particularly in difficult times, creating compelling narratives for next-gen clean energy technologies that could be decades from commercialization will be crucial.

As the energy geeks wake up on Monday morning ready to talk about kilowatts and sunshots with their peers, the cheerleaders will have mostly gone home. But perhaps, in a strange way, they don’t have so little in common after all.

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6 technologies that could shape the future of energy

Fri, 25 Jan 2013 18:05:32 +0000

Whether it’s the energy used to light up and warm our homes, or the energy consumed in our gas tanks as we drive down the highway, the vast majority of the world’s energy sources come from fossil fuels. But a new generation of technologies is looking to replace coal and oil with cleaner and more efficient sources, like algae fuel, geothermal power and solar panels. New technology is also making it easier to store energy in next-gen battery technologies, and easier to move around on a better power grid. Here’s a round up of stories we covered this month that demonstrate 6 technologies that could shape the future of energy:

Algae fuel

Thin, flexible batteries

Wireless mesh smart grid

Crowdfunding solar

Next-gen geothermal power

Biomimicry LEDs

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Cleantech and investment in 2013

Mon, 17 Dec 2012 17:05:16 +0000

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Why greentech startups need to renew their focus on volume manufacturing

Kunal Girotra, ThinSilicon — Tue, 11 Dec 2012 16:00:57 +0000

Back in early 2000, I spent four years working in Samsung’s LCD division, where giant sized TVs were pumped out of their football field-sized manufacturing lines 24/7. Manufacturing at Samsung always had a “war-like” kind of atmosphere, where entire fabs would spring up from scratch in six months and every new process would be ramped up to high manufacturing yields in a short amount of time.

I imagine a similar focus on high volume manufacturing at other successful hardware companies like Intel and First Solar, that make millions of units per month. This is no ordinary feat and is achieved only by a disciplined approach, operational rigor and a clear vision that “he who controls manufacturing eventually controls the market.”

Silicon Valley is the mecca of innovation worldwide, which makes the recent lack of successful greentech hardware startups difficult to comprehend. While there are a variety of reasons for this issue, one thing that might be missing from the greentech ecosystem is this Samsung-style intense focus on manufacturing.

Innovation is good, but scaled up manufacturing matters too.

Silicon Valley startups producing solar panels, batteries, energy efficient windows and other volume hardware products will have to achieve manufacturing at the scale of tens of thousands of defect-free units per month to make a dent in the marketplace. Having a superior product specification might not be enough if the companies are unable to produce the goods cost-effectively in mass numbers. In fact, their very ability, or inability, to do so might end up being the differentiator between survival and failure.

Technology transfer from R&D to manufacturing requires a different crew geared toward an operations-driven mindset and a brute force methodology that can quickly deliver a stable process. The 24/7 lifestyle that is required to deliver, say an 80 percent up-time, is painstaking, time consuming and requires dedication and commitment. At Samsung, the technology transfer engineers were treated like celebrities and provided with five star accommodations at the factory site. Special bonuses and incentives were tied to the speed of progress. One might say that’s an unfair comparison, but the reality is that Silicon Valley is competing against several such cleantech companies from all over Asia. Unless the startups have extremely revolutionary products that can tolerate lower manufacturing yields, there is a need to manufacture as efficiently, if not better, than the competition.

Having said all that, Silicon Valley was the birthplace of the “Intel Way” and has had a rich history of volume manufacturing. But an exodus of semiconductor fabs from the Valley to nearby states has taken the manufacturing focus out of the Valley and along with it, a lot of the manufacturing talent. This, in combination with the rise of Asia and the difficulty in obtaining financing for manufacturing has made it even more challenging for greentech manufacturing startups to scale up.

How to get around the manufacturing learning curve

Here are a few ways that greentech startups could help overcome issues with scaling up to volume manufacturing:

1). Obtain an experienced crew that can transfer R&D processes into a pilot line with an extreme focus on improving yields. Ensure that every employee understands that true success comes not from obtaining one-off records or champion results but from volume data obtained from processing hundreds of samples. At Samsung, no champion results were ever reported as an accomplishment in an upcoming line since those results are meaningless until proven at scale. Companies like Miasole in Silicon Valley took the right approach of involving Intel manufacturing experts for their solar panel factories and it would be wise for others to follow suit.

2). Manufacturing is a costly endeavor and gives the most bang for buck when it’s running 24/7. Hence it’s advisable to not wait for a perfect product but transfer an intermediate process and iron out kinks in the production process. A lower specification product with 90 percent yield might have better economics than having a higher performing product with a 50 percent yield, assuming the market will accept such a product for some time. There is no better example than First Solar who has continued to sell less than 12 percent efficient solar panels for a long time proving that there is room for a lower specification product if you make manufacturing extremely efficient.

3). Excellence in manufacturing depends on the company’s ability to expand and build future lines. For a Silicon Valley startup, a pilot line locally in the area might make sense to be close to the R&D team. But it might be wise to take the cue from other high tech companies and move manufacturing to nearby states given their lower costs of land and permitting, robust manufacturing ecosystem and availability of manufacturing talent. Several companies like Stion, Soladigm and others have already taken that approach, which is a good sign.

The importance of manufacturing to ensure a greentech hardware company’s success cannot be stressed enough. High-yield manufacturing allows a company to reduce the cost of its product and reinvest the profits into newer lines and more R&D. All of this requires a cultural change across the company.

The startups that truly understand the differences of personnel and resource requirements for manufacturing vis-à-vis R&D have a greater chance of success. Those that don’t might perish to the Asian giants who believe it or not, have figured out the art of volume manufacturing.

Kunal Girotra is a Director of Process Engineering at ThinSilicon, a solar cell R&D subsidiary of China Solar Power. Prior to that, he worked in various R&D and technology transfer roles at Samsung’s LCD division for advanced LCD and OLED displays. He can be reached at kunalgirotra@gmail.com.

Images courtesy of Miasole, Shutterstock/Mypokcik, First Solar.

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SolarCity IPO represents a bellwether for clean energy exits

Katie Fehrenbacher — Tue, 11 Dec 2012 01:04:46 +0000

Solar installer and financier SolarCity is moving ever closer to its planned IPO this week — the company is expected to price its shares Tuesday afternoon, and debut on the Nasdaq on Wednesday morning under the symbol SCTY. Will the promising company, backed by entrepreneur Elon Musk, buck the overall trend of weak solar stocks and withdrawn cleantech IPOs, and actually start trading within its expected price range this week?

SolarCity’s per share range was priced at $13 and $15 per share at the end of November, and at the midpoint of that range SolarCity could raise $141 million in an IPO. Musk already said that he’ll buy $15 million of the stock.

Solar industry watchers had the same questions for solar thermal BrightSource Energy, which was planning to IPO back in April of this year. But BrightSource ended up pulling its IPO plans days before the debut as it didn’t get the pricing valuation that it wanted. The company later raised a large round of money from existing investors instead of turning to the public markets.

But SolarCity is very different from BrightSource Energy. While BrightSource is building large solar power plants in the deserts and selling the power to utilities, SolarCity is providing installation and financing to put solar panels on rooftops. The advantages of its business model and markets are that:

1). The price of solar panels is at a historic low.

2). Much of its business is around providing financing to cover the upfront cost of panels. There’s not much technology risk there.

Though, there are still some open questions in SolarCity’s future. GigaOM Pro’s Adam Lesser points out that SolarCity’s business model is based on maintaining two things that could face an uncertain future:

1). A low cost of capital: SolarCity has already raised $1.57 billion in “tax equity” funds to fund solar installations, where investors put up cash and in return receive the 30 percent tax credit that the federal government provides for renewable energy projects. But those incentives could easily be cut in the coming years, and then the company needs to find low cost capital elsewhere.

2). Cheap natural gas: Lesser also points out that “if natural gas maintains its incredibly cheap pricing, then the market could get more difficult for SolarCity.” SolarCity depends on utility rates being higher for its customers than the electricity prices it can offer through solar systems. If super cheap natural gas used in power plants by utilities actually lowers electricity prices, that could mess with SolarCity’s markets.

In addition, there’s these other risks I wrote about this year — 5 things to know about SolarCity’s IPO, and it’s not all good.

But if SolarCity does manage to debut in its expected range, it would represent one of the rare venture-backed cleantech IPOs that have emerged over the years. SolarCity is backed by Draper Fisher Jurvetson, DBL Investors, Generation Investment Management and Musk. Much of this crew — DBL, DFJ and Musk — also took electric car maker Tesla public, which was another one of those rare cleantech IPOs. Maybe entrepreneurs and investors should just copy what these guys do.

A new publicly-traded solar company could help prove that there are smart investments and sizable exits for those entrepreneurs and investors that bet on the right side of the economic trends in cleantech. Solyndra and many of the next-gen solar manufacturers out there bet on the price of silicon going up and now are struggling (or not around anymore). In actuality the price of silicon dropped, making solar panels super cheap, so if your business model — like SolarCity’s — is based on that cost curve, there’s money to be made.

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GE’s industrial internet is really (mostly) about energy efficiency

Katie Fehrenbacher — Mon, 26 Nov 2012 17:12:15 +0000

GE put out a substantial report this morning on what it thinks are the opportunities for the industrial internet, which will be followed up by an event on the same subject in San Francisco later this week. As my colleague Barb Darrow wrote, it’s not a big shocker, and the move is really a rebranding effort for a few sectors that GE has long been working on, including smart grid technology, the internet of things, and smart transportation. But the major driving force at the heart of the movement is using digital technology to enable industry to reduce energy consumption and better manage resources.

Most of the sectors that GE’s newly coined effort covers — transportation, aviation, locomotives, power generation, power distribution, oil and gas development, and industrial processes — are highly energy-reliant (if not all about energy) and the use of digital technologies in these sectors is meant to enable the use of energy (electricity and fuel) as efficiently as possible. That’s where a lot of the cost savings lie. The one exception in the mix is GE’s attention on digital health care.

GE says that with digital and sensor technologies, the commercial aviation industry could reduce fuel use by one percent, which is a savings of $30 billion over 15 years. A one percent efficiency gain for gas-fired power plants globally could deliver $66 billion in fuel savings. A one percent gain in efficiency for the world’s rail networks could lead to $27 billion in fuel savings. The list goes on — and it’s filled with energy efficiency measures, which equals cost savings.

GE has been classifying a lot of this technology under its Ecomagination brand, and it’ll probably continue to do so well into the future. Saving energy — electricity use and fuel — is clearly in the best interest of the planet. Burning fossil fuels for transportation and electricity is a major cause of climate change.

But GE’s CEO Jeff Immelt has said before that he regrets spending so much time over the past four years focused on how green GE’s technologies are. In the Spring of 2011, Immelt said at an event at MIT (reported by Reuters):

“If I had one thing to do over again I would not have talked so much about green. . . Even though I believe in global warming and I believe in the science … it just took on a connotation that was too elitist; it was too precious and it let opponents think that if you had a green initiative, you didn’t care about jobs. I’m a businessman. That’s all I care about, is jobs.”

The re-branding of green technologies — and the clean tech sector — is happening across the board. The term cleantech (and green for that matter) have been deeply politicized in the U.S., and have become a dirty word in some post-Solyndra circles. From a startup perspective, venture capitalists and entrepreneurs have had a harder time making money in “cleantech” than in mobile and web ventures.

As a result some investors — and some innovators — have moved away from so-called cleantech. The term “smart grid,” too, has been a bit tainted as consumers have pushed back on smart meters in certain regions. Smart grid returns for investors and startups have also been scarce. Investor groups looking to rebrand cleantech have been emphasizing terms like Clean Web, digital green and the intersection of cleantech and IT.

But as I reported recently, the trends behind the cleantech movement (and the smart grid) are still in place: there will be 9 billion people by 2050, which will lead to resource constraints, and a need for the better management of resources (energy being a major one). GE seems to be at the forefront of trying to rebrand this trend with this Industrial Internet moniker — and I applaud that.

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The cleantech sector dodges a bullet as Obama projected to take Presidency

Katie Fehrenbacher — Wed, 07 Nov 2012 05:26:54 +0000

Supporters of clean energy and clean technologies everywhere are breathing a sigh of relief as President Obama is being projected to win four more years in the White House. I know I am — if Mitt Romney had won, the next four years would be even more bleak than they already are for entrepreneurs, scientists and investors working on developing next-generation clean energy and clean technologies.

As the Chronicle’s David Baker put it this weekend: cleantech’s future hinged on this election. Cleantech has become so politicized — despite that red states are growing more green jobs faster than blue states — that Tesla, Fisker, and of course Solyndra, creeped into almost all of the Presidential debates this election season.

Obama put an unprecedented billions into clean energy through the stimulus package, which has led to the development of solar and wind farms, and the incubation of new energy technologies through the ARPA-E program. Of course, not all the funds were spent well, and funding for now bankrupt Solyndra is now infamous.

Romney, on the other hand, used Obama’s green stimulus funds as an example of misspending, waste and cronyism and actively wanted to cut funding for things like a wind farm tax credit. In his election speeches he’s joked about global warming and the sea levels rising, and made statements about loving coal.

I’ve already gotten numerous press releases from companies and clean energy advocate groups hailing Obama’s victory as a major win for the industry. On Twitter the clean energy sector is also displaying its relief.

But it’s beyond just a victory — it’s a chance of survival for next-gen energy innovators and startups, which have had an extremely difficult past 18 months. Many of them will now at least continue to have an opportunity to compete on their merits. I said this during a talk at the NREL Forum last month, but I think cleantech will soon start turning a corner. With this news, it just has — the chief who clearly supports the development of these technologies, will be returning. Now we just need to get him talking about climate change, again.

Image courtesy of Seanmferese

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This week in cleantech: next-gen batteries and the importance of design

Katie Fehrenbacher — Fri, 26 Oct 2012 20:21:13 +0000

We’ve got a lot of great stuff for cleantech-watchers on GigaOM Pro (our subscription research service) this week. First up:

Over the next decade the advanced-battery industry will witness broad approaches to technology and project development. To date significant resources have been allocated by various stakeholders including the United States government, which currently has 39 different battery- and energy-storage-related research programs. Learn about this market in our in-depth report on next-gen batteries (subscription required).
When it comes to consumer products and cleantech, the two companies that have distinguished themselves over the past few years are smart thermostat maker Nest and electric vehicle pioneer Tesla. So as we ready for GigaOM’s Roadmap Conference, which is devoted to connected design this year and will feature Nest founder Tony Fadell and Tesla’s retail experience head George Blankenship (both are ex-Apple), it’s worth stopping to consider why Nest and Tesla are having signs of early success. . . . read the rest of GigaOM Pro cleantech analyst Adam Lesser’s column on The intersection of cleantech and great design (free to non-subscribers).
The third quarter in cleantech brought into focus the successes and challenges of more-mature companies like Tesla, Airbnb, and Zipcar. It also highlighted energy challenges in India and China. Check out the Cleantech third quarter 2012 analysis and outlook (subscription required).

As well as Adam’s blog posts (free to non-subscribers):

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