Water notes

For anyone watching the tragic situation on the gulf coast, the critical need for clean drinking water has been made crystal clear. It reminds us that the role of technology in providing, preserving, repairing and securing water supplies is an important one, as many have recognized (example: see the Sensicore funding announced earlier this week).

While this week's events are dramatic and heartbreaking, they are not isolated. Broader global and national trends on water are just as problematic. Here are some other recent water-related headlines:

• The global area affected by drought has doubled since the 1970s.
• Las Vegas is struggling to find enough water to support its growth.
• Choked storm drains (in part, blocked up by plastic bags) are blamed by authorities for floods in western India that left more than 1,000 people dead.
• In the US, water mains break more than 200,000 times per year, and an average of 30% of all water is lost to leaks on its way to the tap. In NYC last week, a water main break left 5,000 people without water for 16 hours.
  
• Plans are in place to spend more than $20B cleaning up the Great Lakes.
• A San Francisco city audit found that not enough is being done to protect the security of the city's water supply.

Water and wastewater technology has a strong potential role to play in all of the above and many more stories, and in addressing broader water resource and usage trends...


[PS: Another reminder today, donations in support of Katrina relief can be made here.]

Methanotech and Turtle Island Recycling

• Per Dan Primack's PE Week Wire, "Methanotech Inc., a Pasadena, Calif.-based startup focused on producing methanol via 'biological processes,' has raised $500,000 in Series A-1 convertible preferred funding, according to a regulatory filing." Methanotech doesn't appear to have a website up yet that I could find. Dan writes that Vinod Khosla of Kleiner Perkins participated in the round, and that Kleiner itself may or may not have participated (given the stage and amount, I'm guessing not, but I don't know).

• PE Week Wire also noted that Ontario's Turtle Island Recycling announced they have received funding from Whitecastle Private Equity Partners. Terms were not disclosed.

• Finally, our hearts go out to those affected by Hurricane Katrina. You can make donations to the Red Cross in support of those so devastatingly impacted here.
  

Sensicore announces $12M Series C

In water technology news, Sensicore has announced the close of a $12M Series C round. Sensicore has water sensor technology which allows them to monitor a wide range of contaminants and conditions, all on a single chip. Eventually, the company plans to enable their devices to work remotely, and will evolve into more of a broader water information play. It's an intriguing approach that reflects the general merging of sensors, communications and IT systems in a number of clean technology areas.

Ardesta, Firelake Capital, NGEN Partners, Topspin Partners, and Technology Partners participated in the round. All were existing investors from the company's last round back in 2003.

Notes from the week: International Mezzo, Intellon, Intechra

• International Mezzo Technologies, which uses nanotechnology to develop efficient heat exchangers, announced a $1M first round of funding earlier this week. Funds were provided by individual investors, Louisiana Fund I, and the Louisiana Technology Fund.

• More information came out about Intellon's recent Series B, in which Motorola Ventures participated. Now it's been announced that the total round was $24.5M, and was led by BCE Capital (affiliated with Bell Canada), and also included Goldman Sachs, Intel Capital, and existing investors Comcast Interactive Capital, Duchossois TECnology Partners, Enertech Capital, Fidelity Ventures, HydroQuebec CapiTech, Liberty Associated Partners, Philips Venture Capital Fund, TL Ventures and UMC Capital Corporation. The presence of EnerTech Capital among the funders speaks once again to the cleantech (or at least energy-related) aspects of the broadband over powerline technology.

• Intechra, a recycler and remarketer of computers and other IT equipment, received a $4M Series B led by Chrysalis Ventures, along with existing investors Votum Capital and Clayton Associates. The funding will be used for expansion and acquisitions.

• Novariant (we've mentioned briefly before) announced the acquisition of Cultiva into Novariant's ag division AutoFarm. The company provides technologies such as GPS and autosteering technologies for the agricultural industry, increasing efficiency of chemicals applications and reducing soil erosion, etc. According to PE Week Wire, "Novariant has raised over $33 million in VC funding from firms like Clearstone Venture Partners, SpaceVest, Marubeni Corp., Kirlan Venture Capital, Arcturus Capital, Pacifica Fund and Yasuda Enterprise Development."

More on ethanol

Matt Marshall, as usual, on the spot with some news about ethanol research coming out of Berkeley.

Want to design a fuel cell?

Medis Technologies wants your help!

Interesting article on biomimetics

Here's an interesting overview of biomimetics in the Boston Globe today. We've touched upon the subject before.

Verdiem raises Series B

Verdiem, a Seattle-area firm with energy-efficiency solutions for large corporate computing networks, announced that they have raised a second round of funding of an undisclosed amount. Catamount Ventures and the Angeleno Group invested in the round, which brings the total amount of funding that Verdiem has raised to $6M. Phoenix Partners and Falcon Partners were previous investors in the firm.

Verdiem has developed software which allows IT departments to remotely control the energy management settings of computers in their corporate networks, which helps enforce energy savings efforts (how many computers in your office are left on all night, with some graphic-intensive "screensaver" running?), driving cost savings. The company's offerings currently target desktop PCs, but they are also developing solutions for servers and other energy-using portions of computing networks.

It's official...

"Water is the New Oil" is the most popular catch-phrase for water venture investing. Witness this article from Red Herring today. There's not a lot in the article that hasn't been described here before, but it's a good overview.

What's happened to cleantech dealflow?

Observent readers of this site may have noticed that there haven't been as many announcements of new cleantech-related deals recently. In fact, since the beginning of August we've tracked only 3 such announcements, whereas for July the number was at least 16. And June had a number of notable deals, reflecting a generally strong Q1 and Q2.

Is cleantech dealflow drying up?

Most probably not. It is, after all, August, which means the lawyers, PR folks, and even (shhh) a few VCs are on vacation, which will push off deal closings and announcements for a while. It also makes due diligence efforts a little tougher, because customer references and other important contacts are out of the office.

This is one reason why Q3 has always been the slowest quarter -- looking at PWC Moneytree Survey data, and using the Industrial/Energy category as a (admittedly poor) proxy, since 1995 the average number of deals in the space by quarter has been:

Q1 = 40.8
Q2 = 40.6
Q3 = 37.6
Q4 = 42.5
(Note, excludes Q1 and Q2 '05, to help make comparisons fairer)

Which makes it look like a likely pattern is that Q3 deals are delayed by vacations, etc., and end up slipping into Q4 often enough to make a slight difference. Since July and September are probably not the down months out of Q3, this shows that August is the real doldrums of dealflow in this sector.

But still, we are more than halfway through the month, and 3 seems awfully light. Is there something else going on?

Probably (hopefully) nothing too severe. Certainly my firm, Expansion Capital Partners, and -- anecdotally -- others have seen strong dealflow over the last few months, which should be converting to closed deal announcements in September/ October. For there to have been a non-cyclic dip in deal closings now would imply that dealflow slacked off significantly in the May/ June timeframe. That just didn't seem the case. Instead, there are a few other factors probably at play:

• A significant minority of VC firms in the cleantech space appear to be temporarily pulling back on new deals while they undertake new fundraising efforts. All of the firms who are in such a situation that I've spoken to plan to get back into full-scale investing soon (if all goes well), but are right now simply in between funds. That could have a general slight dampening effect on Q3 and Q4.

• The new energy bill's timing may have affected a few deals, if investors saw the policies and regulations as having a significant impact on the prospects of their investments. Such VCs may have played a bit of wait-and-see to find out what the final bill would look like. Now that it's signed, if there were any deals that had been held up they should soon be given the go-ahead.

• There's a general trend toward deals being kept unannounced. There may be deals that have been completed recently that are being kept "stealth" for whatever reason.

• Finally, the randomness factor. Timing of deals is always a bit random. And then there's the randomness involved in yours truly's ability to ferret out all the deals -- we try our best, but we undoubtedly miss a few deals that should have been reported.

Again, however, these wouldn't seem to be critical factors, and yet still 3 announcements so far in August is pretty light, a lower number than this observer has the impression of from previous years.

Has there been a sudden general pull-back in cleantech venture investing? Or is this just a particularly light August, and September dealflow will be robust again? We'll have to wait and see. But my guess is that it's the latter.

Cleantech incubator for Sonoma County?

In news of interest to northern California and bay area cleantech followers, we've recently heard about a forthcoming incubator/ real estate development ("Sonoma Mountain Village") which Codding Enterprises is planning to build.

Codding Enterprises is a local developer, whose CEO Brad Baker is also a partner at American Biodiesel, and you can see a pdf presentation about the Village here. The intention is to provide working space, (relatively) inexpensive living space for workers, and other support for cleantech, socially-responsible and other startup businesses. The site is a former Agilent campus. There's also a description in this article from back in May, along with some news about some potential (as well as some no longer interested) tenants. It's unclear what kind of funding, if any, will be part of the "incubator" offering, but Business Cluster Development (BCD) of Menlo Park is pulling together the business plan.

We also hear from Robert Coleman at the Pacific Venture Club that Baker will soon be featured as one of their internet audio programs, where he's been invited to describe the project, so look for that in the coming weeks.

Wednesday tidbits: Dirty silicon, coal-powered SOFC, Ecomagination, and more

It's been a slow month so far for cleantech deals, at least the ones that have been announced. But there have still been some news items of interest over the last few days:

• The high cost of high-quality silicon has been a big challenge for the solar industry. Many of the recently-funded solar startups are working to avoid the use of silicon altogether. But now comes word of another alternative, as UC Berkeley researchers have developed a way for PV to work with low-grade "dirty" silicon.

• Here's a cover article in Forbes on GE's Ecomagination effort, following up on what we've previously said about its importance for cleantech investors. (Registration req'd to read the article)

• We've talked before about the debate out SOFCs. In a bit of a mixed signal, here's news of a DOE contract being awarded to GE Energy to pursue coal-fueled SOFC. It's a mixed signal because, while it's a good forward movement for the technology overall to see such attention and resources devoted to the space, it's also a sign that a significant share of the funding and endorsements are already going to large players, even before the smaller startup vendors can get good market traction for themselves.

• With thanks to Tyler Hamilton (Clean Break) for the heads up, MIT Technology Review has an interesting article about advanced materials being used on surfaces to be both self-cleaning and clean the air.

• The emerging solar industry ecosystem continues to come together. Public policies are increasingly being put in place to encourage adoption, technology continues to advance, and now there's even more word of financing options being made available, this time by Nationwide Mortgage. This follows on the emergence of financial-focused developers such as SunEdison, and the news that GE Commercial Finance is developing options to finance rooftop systems. Now if mounting systems and installation costs could be better optimized, the broader feasibility of solar would really start to improve...

• Finally, Joel Makower as usual has something insightful to add, this time about the educational challenges that are proving to be an obstacle to broader adoption of clean energy technologies.
  

Red Herring: Water -- Nanotech's Promise

Interesting article on the potential application of nanotechnologies in the water industry:

The technology and the business case are there, says Mr. Harper; they just need capital to get going. Mr. Harper is behind a global organization called Nanowater.org, which acts as a bridge between water remediation companies and nanotech firms. “If we could get funding now, we could have initial results in six months, field trials in 12 months to 18 months, and be saving lives within two to three years,” he says. “Nanotechnology is developed, but not for water.”

Harper appears to be bringing strategic investing into the industry, but his point is just as true for VC funding.

Sensys Networks raises Series B

According to PE Week Wire, Sensys Networks announced a Series B round of funding led by the communications-focused venture capital firm ComVentures. Sensys Networks has a wireless traffic sensor for monitoring congestion on freeways, allowing commuters to spend less time idling in traffic jams. We've mentioned this kind of application before, and it continues to be an interesting area for potential investment...

The clean manufacturing opportunity

8/17 update: Speaking of e-waste, here's another example of the looming pressure on the issue.

Update: Here's another good example of the ways and reasons why many manufacturers are interested in clean technologies.

Over a long weekend off the grid (apologies for the lack of posts), spent some time thinking about how this site tends to reflect what gets reported in the cleantech investing world, and that for whatever reasons such reporting tends to focus on the clean energy segment in particular.

Clean energy is a very interesting area right now, but there are other big investment opportunities in the cleantech universe as well.

For example, manufacturing can be a lucrative area for cleantech innovation. As this article describes, large industrial manufacturers are constantly looking for ways to reduce their costs by reducing waste and materials use. The costs of waste disposal alone can be severe. Thus, large manufacturers are always looking for new innovations that will help them achieve leaner, less wasteful production.

The opportunities for investment can range widely across types of offerings, business models, and investment models. Some examples would include:

• Software designed to help manufacturers run or improve lean processes. At the broadest level, this could include inventory-tracking software and general factory conditions tracking. More narrowly-defined, software solutions to specifically identify potential waste reductions opportunities clearly fit in the cleantech investing theme.

• Sensors and factory automation technology. These applications have a strong role to play in waste reduction, as the machine-to-machine (M2M) communications systems they use and enable can recognize wasteful situations quickly, provide more adaptivity and responsiveness, and allow more finely-tuned and accurate manufacturing techniques. This is something we've talked about before. If something goes wrong in a factory, and the manufacturing line is making unusable products, you want to know about it quickly. And if possible, fix it remotely. And even better, avoid it in the first place. This article describes one innovative approach to the problem, using M2M solutions.

• Materials recovery and recycling technology. With so much wasted material at the factory level, not all of it can be re-used easily. Furthermore, thinking more broadly about the problem, what about being able to close the loop even after a product has been successfully used out in the marketplace? Some innovative companies are looking at ways to collect and re-use wasted materials. They may take waste straight from a particular manufacturing process, and use that extra material for a different type of product (such as DuPont has done for years with its Corian products). Or they may collect a variety of materials from a variety of sources and harvest what value can be found. The e-waste problem is a good illustration: Computer and other electronics contain a large amount of toxic chemicals, which if put into landfills can leach out into water supplies. On the other hand, they also contain a lot of valuable precious metals. Current methods for recovering the valuable material are not very efficient, but some innovative companies are tackling this problem.
  

• Building a better mousetrap. Rather than helping existing manufacturers incrementally improve their processes, some companies are aiming to re-design the product, manufacturing it themselves. Such efforts can be found in shipping pallets, in building materials, automobiles... you name it, almost every product-based industry has its examples.

And there are other potential areas besides those above. The point is, the potential markets for clean manufacturing-related technologies are numerous, large and innovative, and should be of interest to cleantech investors, even if they don't get the press attention they deserve...

For those interested in the current state of solar technology

The DOE released a consensus report describing the research needs for bringing solar costs down to levels competitive with fossil fuels (5-10x cost reductions, as the report describes it). An interesting identification of research priorities and obstacles. Here's a pdf of the report.

Norm Wu on nano and energy

In a previous post, I mentioned that Norm Wu (Managing Director at Alameda Capital) has been writing a 4-part column on emerging nanotech opportunities. The lastest (part 3) is directly about nanotech and energy, check it out. Norm discusses many of the energy-related issues that have been discussed on this site, and it's great to see his take on them.

Tuesday tidbits

• Sterling Planet announced a $1M bridge financing from GreenShift. Sterling Planet is a reseller of RECs (renewable energy credits, see a blurb on them here), with utilities and large corporations as their largest customers.

• Keeping his ear to the ground, Matt Marshall at SiliconBeat reported today that Pashu Gopalan, the SVP of Sales & Marketing at Kleiner-backed SOFC startup Ion America, has resigned. With the headline "What's going on at Ion America," Marshall seems to imply that this may have significant implications for the company. But it may very well be simply that Gopalan has decided to move on for personal reasons (as a couple of people I've spoken with have mentioned), with nothing more to be read about IA's prospects.

• Motorola Ventures announced a Series B investment in broadband over powerline technology provider Intellon. We've discussed before why BPL is of interest to cleantech investors.

• This Wired story about a very early solar-hydrogen technology makes for an interesting and entertaining read. Note the mention about how early-stage VCs have already started knocking on Nocera's door...

• This Washington Post story has an interesting take on cleantech and similar investing, talking up the "doing well by doing good" angle. Which brings up an important point. Certainly such motivations are often felt by cleantech entrepreneurs, VCs, and those who invest in their funds. And that leads to the kinds of questions that I and others often get, such as those asking if we are more patient investors than VCs in other sectors, or if we have lower goals in terms of returns to investors. Definitely not. First and foremost, most cleantech VCs I speak with (and including the firm I work for, Expansion Capital Partners) are focused on delivering competitive returns. Since the effort to provide strong returns through cleantech investing most often dovetails with the motivation to add value to society, it does provide "more meaning" (as the quote from John Doerr mentions). But for the most part, as the article describes, for many of the VCs involved or thinking about getting involved in the space, "the shift is as much about helping themselves as it is about helping others." And that's to be expected. The cleantech investing thesis is about identifying critical resource and infrastructure trends that will have negative impacts on the economy and peoples' lives, and investing in technologies that address those trends in some way. It is a lens by which investors can identify smart investments, and in the process promote social and environmental benefits. It is about identifying where market forces and societal needs are both driving toward the same ends. So bear that in mind as you read this interesting article (good mentions of Pionetics and Ion America as well).
  

Hoku Scientific update

Just an update on a previous item about Hoku Scientific, to note that the pricing and amount of their IPO came down a bit before they went public on Friday. The Honolulu Star-Bulletin contrasted the performance of Hoku with that of Baidu, the China-based search engine, which also IPO'd on the same day. It's a bit of an unfair comparison for reasons the reporter then clarifies later in the article, but striking nonetheless. The IPOs of both Hoku Scientific and PolyFuel are being watched closely by fuel cell venture investors...

If you have 18 minutes to kill...

For those who may be interested, the Pacific Venture Club has put an audio interview with yours truly up on their website (self-promotion alert), discussing trends in clean technology investing. It's an honor to be included in PVC's ongoing interview series -- look for an upcoming interview with Brad Baker, President and CEO of Codding Enterprises, and Co-Founder and Chair of American Biodiesel, which promises to be very interesting.

The PVC used to hold regular venture capital get-togethers in the bay area, and now appears to be enjoying a bit of a rejuvenation through the web -- in addition to the audio interview series mentioned above, they are providing an online gathering place for entrepreneurs and investors in the region, as well as some other nice features. Robert Coleman, the head of the PVC, says that they are looking to create "the Craig's List for venture capital," which would be great to see. It's worth checking out their website; and there's a link to Robert's blog over on the right side of this page -->

Cleantech VC investments rise 4.8% in Q1

According to the Cleantech Venture Network's Q1 report (released yesterday), cleantech VC investments in the first quarter of 2005 were $335.9M, up a reported 4.8% from the same period a year earlier.

While clean energy investments went down slightly, investments in advanced materials and nanotech rose the fastest among cleantech segments.

For the period, cleantech investments were 7.3% of all North American VC investments -- up from 6.6% a year earlier. Still a small portion, but continuing to grow.

WorldWater & Power completes a recapitalization

WorldWater & Power, which builds solar-powered water pumping systems and grid-tied solar farms, announced a $4.45M financing and recapitalization last week. The company is publicly traded over the counter (OTCBB: WWAT), but this private placement was led by a hedge fund, CAMOFI Master LDC. It's a tranched placement with certain performance conditions.

What's driving rising VC interest in cleantech

In an era of high energy costs and rising energy, water and other resource shortages, it is perhaps not surprising that venture capitalists are starting to take more of a look at cleantech investments.

However, that's not the whole story. For everything that is pulling investors into the cleantech space, there appears to be an impetus to look beyond the traditional areas as well.

The NVCA yesterday released the results of their quarterly returns study for private equity firms. The results for overall venture capital were not very positive, with one-year returns to venture investors at 3.6% (down from 15% for the same period a year before). As this Red Herring story notes, some of this is attributed to the IPO market drying up.

Which makes the article on mainstream VCs getting into cleantech investing in the August Venture Capital Journal ("Mainstream VCs Hope to Clean Up with Clean Tech") very interesting. Unfortunately it's available to subscribers only, but if you can get access to the article it is worth checking out. The article describes how investors in traditional tech/ telecom are increasingly looking into -- and to an early extent, investing into -- clean energy and cleantech in general (at this point, more the former than the latter). For instance, the article cites NVCA survey results which show that "21% of VCs worldwide plan to invest in energy and the environment over the next five years, up from 12% annually." There are some supportive statements by several investors in the space (and a link to this website: self-promotion alert). And as the article points out, investors in cleantech aren't necessarily dependent on IPOs to make their returns... [ed. note: Here's a similar recent article from CNET News.com from a couple of weeks ago, also worth checking out. rd]

Yesterday's NVCA announcement didn't break out returns in cleantech investments (although as the recent Cleantech Venture Network study mentioned here -- co-edited by one of the partners at Expansion Capital Partners -- shows, returns in the space can be very competitive). But there are reasons to believe that cleantech investments may compare favorably with recent mainstream VC performance. The underlying markets are growing quickly, while other tech areas have reportedly slid sideways somewhat. The dealflow in clean technologies, at least anecdotally (including our own experience here at Expansion Capital Partners), remains very strong. Large, cash-rich and acquisitive companies are active in the space, improving exit potential. For these and other reasons, it is perhaps not surprising that there is increasing interest in cleantech among the broader VC community.

Dan Reicher on the cleantech investing impacts of the new energy legislation

This site does not aim to discuss political issues, but the passing of a national energy bill is an impactful event.

Here's a story from this past weekend's Seattle Times with the thoughts of Dan Reicher on the subject. Dan is the president of Vantage Point Venture Partner's New Energy Capital. The article gives a good overview of the potential effects of the new legislation.

A VC's view on the current state of nanotech

Regular readers of this site will already be aware of the connections and overlaps between cleantech and nanotech investing.

For an interesting take, read the recent write-ups by Norm Wu of Alameda Capital (part one here, part two here, and two more parts to follow soon). A good discussion of the space, with some mentions of specific cleantech-related companies such as Nanostellar, Hyperion Catalysts, Nanomix, and others.

Alternative fuel column in last week's WSJ

Just catching up from a few things last week, it's worth noting even belatedly the column in the 7/25 WSJ about the current state of alternative fuel vehicles. Not a very in-depth piece, but a good overview, albeit necessarily with some gaps.