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The partners at NEA, one of the oldest and most established venture firms on Sand Hill Road, tell me that they’re committed to investing in next-generation energy technologies for the long haul, and will continue to make new investments in the space. While some of the generalist venture capital firms have started to move away from investing in so-called cleantech because of the difficulty with generating returns, NEA — which was one of the first VC firms to make a substantial bet on energy technologies — plans to buck that trend and will continue to invest in technology innovation in the sector.
NEA closed a monster $2.6 billion fund recently, which was one of the largest venture funds ever raised. Few VC funds can actually raise such a large amount of money these days from their Limited Partners, which are the investment groups that put money into venture firms. NEA’s previous fund invested in online commerce company Groupon, which was potentially one of the best returns in venture capital history.
At the same time, NEA’s allocation of funds into energy technologies has gone down slightly over the past year or two, particularly when it comes to capital-intensive energy generation technologies, which need scale and project financing. NEA Partner Ravi Viswanathan says while NEA previously was shooting to invest between 15 to 20 percent of its fund into energy technologies, he estimates the fund is currently aiming closer to around 10 percent for energy tech now.
Chairman and co-founder of NEA, Dick Kramlich — who’s a VC legend and was one of the first investors in Apple (s AAPL) — says that NEA can stay nimble by reacting to market conditions through the dynamic allocation of funds. Essentially if the winds of the markets change, the firm can invest more or less into whatever it likes. Contrast that to some of the more energy-specific funds out there, like Braemar Energy or Nth Power, which have less flexibility.
But NEA still firmly believes (like I do) that the global trends that attracted VCs to invest in the cleantech sector, aren’t going away. As the population grows to 9 billion people by 2050, addressing resource constraints — from energy to water to food — will become increasingly important.
NEA partner Scott Sandell emphasizes that the firms investments in energy technology make it diversified. Energy has a longer term horizon than web and mobile technologies, and the market is at a “scale you would never see in IT or healthcare,” says Sandell.
The key, says Sandell, is figuring out which companies can “make it to the end zone.” NEA firmly believes some of its portfolio companies, like fuel cell maker Bloom Energy and energy software company Opower, will be success stories. Viswanathan says he thinks that the next 12 to 24 months will be exciting times for some potential major exits for energy tech firms, which could act as catalysts for the rest of the industry.
The NEA team knows as well as any investors in this space, that strong returns have yet to materialize. “We haven’t seen a wave of high quality exits yet,” says Viswanathan. And Sandell is the first to point out that not all the firm’s energy bets will make it. Some of its startups have had their fair share of struggles over the years, like solar thin film firms Heliovolt (commercialization previously stalled) and Konarka (which recently went bankrupt) as well as electric car maker Fisker Automotive.
But, importantly, NEA plans to continue to back new energy companies, not just continue to fund its current portfolio stable. For example, NEA seed funded and recently led a series A round for solar tracker maker QBotix. In a year when investors are shying away from backing anything related to solar hardware — because of the drop in solar panel prices — NEA is again looking to go against the grain.
Utilizing data and software, investing in the “downstream” of the solar industry and focusing on the overall costs for the lifetime of energy technologies (and not just the upfront costs), are key aims for the NEA partners.
We’ll see if some of NEA’s big energy bets can make it into the end zone. For now, NEA’s massive wins in web and mobile like Groupon are helping the fund move the energy ball forward.