Looks at how cleantech has the potential to produce the next billion dollar companies and become the engine of growth for the US; and goes on to look at how the entrepreneurial ecosystem can be encouraged, especially in the critical early stage phase. Also provides 12 pieces of practical advice to help you when pitching your own cleantech startup.
This year’s winners of the 6th Annual New Energy Symposium now headed to the Industry Growth Forum in Denver, Colorado in November, are: Rentricity, a New York water technology firm that captures and converts excess pressure in water mains into clean electric power; Versatilis, a Vermont start-up operating in the field of macroelectronics and developing an inorganic solution to address OLED technology challenges affecting lifetime, efficacy and cost; and Phase Change Energy Solutions, a North Carolina nanotechnology company leveraging bio-based phase change materials (PCMs) that dramatically reduce energy usage and lower GHG emission.
Hosted by The College of Nanoscale Science and Engineering’s (CNSE) Energy and Environmental Technology Applications Center (E2TAC) and New Energy New York, with partner support from The New York Academy of Sciences, Clean Energy Alliance, iCLEAN and the US Department of Energy’s National Renewable Energy Laboratory (NREL), this year’s New Energy Symposium featured investment presentations from 21, early-stage, clean energy companies competitively selected from around the country. “Ideally, it [NES] is meant to be a project conduit for investors looking to fund early stage clean energy companies,” said “Nicholas Querques, innovation leader, iCLEAN, College of Nanoscale Science & Engineering, in Albany, NY.
The prize for presenting companies? A trip for the top three finishers to the 2011 NREL Industry Growth Forum (IGF) in Denver, Colorado, November 9-10. Considered a successful national model, NES adopted the model four years ago working in partnership with NREL since then, the IGF is in its 16th year and provides exposure for 30 emerging energy companies to venture capital, corporate investors, strategic partners and thought leaders via panels, one-on-one meetings and organized networking opportunities. In addition to cash prizes, winning companies are provided commercialization services from NREL. Since 2003, presenting companies have collectively raised close to $4 billion in funding, according to Richard Adams, manager, Innovation and Entrepreneurship Center, NREL.
Focused on building and maintaining connections with the early-stage, clean energy business community, and to more efficiently identify clean energy start-ups to feed the IGF pipeline, NREL modified its approach several years ago and actively partners with state and regional competitions, such as the New Energy Symposium. Adams said, “We went from a 1:1 model to 1:many and participate annually in a number of investor competitions around the country.”
I couldn’t help but wonder, as each company pitched to 31 VC investors from across the country, if 1 of the 21 would eventually prove to be 1 of the 30-60 “billion dollar businesses” The Kauffman Foundation says is needed in order to “significantly accelerate the U.S. economic recovery.” According to its 2010 study, Inventive Billion Dollar Firms: A Faster Way to Grow?, the U.S. needs only to produce between 30-60 new billion dollar firms “to permanently increase its GDP by one percentage point” to four percent growth. But the bigger question remains, “How does the U.S. ensure the creation of those firms here in America?
One answer, the Foundation believes, is found in the creation of “entrepreneurial ecosystems.” Forums such as the New Energy Symposium and the Industry Growth Forum are certainly part of these creating and sustaining these ecosystems, feeding the innovation pipeline and building new businesses in an industry clearly capable of generating significant new job growth. The recently released Sizing the Clean Economy: A Green Jobs Assessment by Brookings Institution offers some fodder for both public and private interests to expand, strengthen and maintain an entrepreneurial ecosystem in general, and for clean energy specifically.
According to the report, the clean economy “employs some 2.7 million workers.” The “newer cleantech segments produced explosive job gains… [and]newer clean economy establishments—especially those in young energy-related segments such as wind, solar PV, and smart grid—added jobs at a torrid pace, albeit from small bases.” Albany, New York, captured the top spot with clean economy jobs accounting for 6.3 percent of all jobs in its region. In terms of its overall size Albany, New York, ranks 14th among the 100 largest metro areas.
So how do we sustain and expand this growth? Perhaps one way would be to increase the number of VC investment competitions for early stage clean energy ventures, such as NES, and narrow their focus so each is concentrated on a specific clean energy sector such as solar, wind, water, biofuels, etc. The end goal being to increase the number of clean energy firms created in each sector and potentially speeding the adoption and use of viable clean energy technologies. In short, rather than judging “apples and oranges,” in one competition, technologies within the same sector would compete. George Powch, president and CEO of Versatilis, agrees that forums such as the NES “are great, but by their nature a bit broad—waste water treatment to advanced photovoltaics is a pretty wide technology and business spectrum with different dynamics. I wonder how well such diverse ventures can be judged vis-à-vis each other.”
Related post: “Cleantech Financing Strategies in the Global Economy“, summarizes a round-table discussion about cleantech financing in the global economy held at 5th Annual Babson Energy and Environmental Conference on Entrepreneurship for a Sustainable Future.
Adams said pitch competitions such as the New Energy Symposium and Industry Growth Forum are “focused on drawing the biggest population possible to make these forums and others available to a sector that’s traditionally struggled to find investment.”
Companies presenting at this year’s NES represented all stages of development and offered a wide spectrum of technologies for potential theoretical “investment” from the VC panels. Focused on recycling, reducing or neutralizing much of the waste we create on a daily basis—companies offered solutions from reducing waste streams on site and removing metals from industrial waste water and recycling them, to simplifying solar installations, preparing residential and commercial buildings for alternative technologies and lowering energy consumption, and integrating nano carbon anodes in batteries that significantly increase lifetime and capacity.
Regulatory challenges, of course, present one of the biggest challenges to clean energy companies in general, and “a national energy policy would make a significant difference for cleantech,” according to Adams. “Government plays a significant role of providing the initial leg up and then the private sector continues from there.”
Reyad Sawafta, president and CEO of QuarTek Corporation, parent company of Phase Change Energy Solutions, agreed, “Everyone has an important role to play in preserving and sustaining a healthy ecosystem. The private sector needs to invest more on needed and creative [clean energy] innovations that provide more by using less. The government has to provide more support for creative cleantech research and promote first adoption, testing and validation of these innovations.”
Technology Transfer Coordinator for the U.S. Department of Energy (DOE), Dr. Karina Edmonds agrees. As Coordinator, Edmonds is charged with the goal of “lowering the barriers from lab to market” for clean energy technologies. According to Edmonds, this includes establishing a better working relationship between the DOE and start-ups via the Startup America Initiative. The Initiative’s goals are threefold: 1) reducing barriers; 2) increasing access to capital; and 3) promoting mentor opportunities.
Of course, it’s no surprise that obtaining financing at each stage of development continues to be a challenge for clean energy companies and where much of their “work” is expended. Rentricity’s Chief Operating Officer, Dan Connors, said, “most cleantech investment opportunities simply do not have the scalability or “capital efficiency” that VC’s prefer and have found in other technology industries like IT or communications.”
He noted, “Government needs to provide a set of incentives, with accompanying requirements and rules, which are consistent and long-term. As the solar industry can attest, short term incentives that expire the next budget cycle are a boom/bust cycle of false starts. Additionally, the investment community, from VC’s to commercial banks, should be further incentivized to financially support companies that help the country meet its energy, environmental and economic goals.” For Rentricity, work towards obtaining project finance to support their “PPA business model” to penetrate its Tier 2 market is a continuous challenge.
“Project finance as a planned follow-up step to the pure VC investment is the missing link. For example, Rentricity’s investment needs include a blend of venture capital for equity in the company, plus an investment in Rentricity projects, which is typically a blend of debt, equity, and tax equity. Those are obviously two different types of investors,” Connors added.
In reporting its preliminary 2Q 2011 results for clean technology venture investments, San Francisco-based Cleantech Group said, “Investors continue to favor later-stage deals [with] 87 percent of all capital invested in 2Q11 in Series B or later rounds.” Cleantech Group found total investment in North America, Europe, China and India, for that period reached $1.83 billion.
Powch added that, “VCs no longer seem to [invest] in early stage [companies], leaving it to government through via grants and SBIRs, and Angel [investors]. But government has real difficulty picking winners; there lacks for true early stage technology investing that is deeper…”
Adams said the investor model is changing. “There are more strategic investors and more corporations with R&D interests and the ability to look at technology more broadly than a VC.” With respect to corporate investment, “Again, we’re seeing a trend. Companies investing are making improvements to an existing product, adding a new product line because the distribution and marketing networks are already in place, or they are using the traditional VC model of investing in a new company and eventually spinning it off. All of which reduce their investment risk.”
He also noted that a new VC is emerging. “They are dedicated to cleantech. Limited partners are set up with different return expectations. And they tend to have very large balance sheets w/ ability to support development of a new company and its deployment into a regulated environment.”
Perhaps, with the help of this new VC and companies like Phase Change Energy Solutions, Rentricity, and Versatilis, the U.S. will better its odds of creating those 30-60 new billion dollar businesses.
So You’ve Been Invited to Pitch Your Business
Everyone knows VCs invest in market opportunities and the management team. But your investment presentation is a “big piece of the overall pitch pie.” While it might seem obvious as you read through this list—and by no means a complete list—even the strongest presenters at this year’s New Energy Symposium hid or missed a few key points VCs wanted to hear. Here’s some of what you should keep up front and sharp in your presentation.
- Don’t hide the value proposition.
- Spell out your costs, e.g., raw materials, transportation, etc.
- Tell them how much money you need and what you’re going to do with it if, you get it.
- Address regulatory issues if your technology is focused on a regulated market.
- Provide an overview of your go-to-market strategy.
- Discuss partnerships you are pursuing or have established with corporate partners.
- Differentiate yourself from your competition. This is not the time to be self-deprecating, though
stating why your technology is better than your competition can be done professionally.
- Clearly present your IP situation. Who holds the patents? What do you have? What do you need?
- Talk about the technology’s capability and credibility, and market capability and credibility.
- Give them a road map for getting into the field; how are you going to scale up?
- If your licensing model fails, what’s the backup plan?
- Last, but not least, remember you are delivering a presentation in 20 minutes or less. So, in addition to bringing your energy and passion for the technology, remember: 10-15 slides; white space is a good thing—in other words, don’t load them up with lots of text; don’t read your slides verbatim, color contrast is important; and make sure you face your panel.
Related post: “Renewables Give Us More Power Than Nuclear“, discusses the recent news that renewable energy (including hydro as well) now supplies more electricity to the US grid than does nuclear power.
© 2011, Peg Zokowski. All rights reserved. Do not republish.