Newsweek's Eco-Friendly Companies, plus Aerogel Composite and P21

• In case you missed it last week, here are Newsweek's profiles of "Ten Eco-Friendly Companies," many of which will be pretty familiar to regular readers of this site.

• GreenShift announced a $500k investment in Aerogel Composite. We've discussed aerogels before, with Aspen Aerogels. GreenShift, which previously provided bridge financing for REC intermediary Sterling Planet and has made investments in a number of other cleantech startups, is taking 25% ownership.

• Germany's P21, which is developing stationary fuel cells, announced a 5M euro raise from existing investors Target Partners, Conduit Ventures, and Tech Fund Capital Europe. There appears to be room for a similar investment from a new investor.
  

Random articles on alternative energy

Below are some links to articles that have come along in the past few weeks:

• Red Herring had a couple of good surveys of flywheels and fuel cells. Interesting quote from the latter article: "While the technology might still be shaky, its promise is certainly large enough to be worth pursuing, even if early adopters have to endure a few moments of shaking, tapping, and cursing." Fuel cells, of course, continue to have their critics.
  

• Stirling Energy Systems has been in the news a bit lately. Here's the latest such mention. It's a different take on solar from what you might usually picture -- far different from panels on rooftops.

• As CleanEdge noted, BP has made a big commitment to commercializing alternative energy technologies, pledging to invest up to $8B over 10 years, in large part through their newly-formed division BP Alternative Energy. Notably, they expect BP Solar to hit $1B in sales in 2008. This is all a big deal for clean energy investors, since it not only provides further momentum, but could signify good M&A exit dynamics. Coincidentally or not, one academic believes that "peak oil" happened over the Thanksgiving weekend -- did you notice?
  

Bill Gates invests in Pacific Ethanol

Pacific Ethanol, which is building a series of ethanol plants in the west coast region, announced an $84M investment by Cascade Investment, LLC (note: opens PDF), which is owned by William H. Gates III.

Pacific Ethanol, which is publicly traded (Nasdaq: PEIX), is building sites in the west coast to try to capture first-mover advantage in building out ethanol production capacity in what they see as an untapped region. This points to the fact that much of ethanol production (and biofuel production in general) is a very well-understood, mature process, so the competitive advantages for winning players are more likely to be due to location, feedstock costs, financial engineering, operational excellence, customer relationships, etc., rather than a proprietary technological advantage. Also, the investments tend to be project-oriented by nature. As we've discussed before, it can make it tough for technology investors (ie: VCs) to participate -- with exceptions, of course.

The price per share of the transaction was at about a 20% discount versus the closing price on the 15th, when the deal was announced.

Gridpoint has $9M reasons to give thanks

According to yesterday's Washington Post, Gridpoint Inc., which sells computerized power backup systems, raised a $9M round Series A recently. The article mentions that "a few" venture capital firms including Advantage Capital Partners participated in the round, but that most of the round was raised from individual investors. There are a number of other interesting details as well:

• Gridpoint is raising another $6M in addition to the current round, to "increase production" and increase headquarters staff
  
• Revenues for 2006 are anticipated to be $10M, off of 2,000 units sold
  
• The appliance is about the size of a refrigerator, costs $6-16k (based upon the above revenue estimates, the channel must be taking a pretty big cut), is being sold directly to customers through hardware stores such as Lowe's, and in high-end versions can help manage on-site solar or wind resources.
• Where time of use pricing is in effect (which is certainly not a given, especially for residential and smaller commercial users), 10-15% electricity bill savings can be gained by moving electricity draw away from peak periods, and potentially by selling power back to the grid from the unit's storage.

The company's last raise was a $1.8M angel round in 2003. Given the pricing data given above, interested readers who want to put such a unit on their own home might contact Gridpoint to see if they can buy one direct from the company... probably not, unfortunately.

Coaltek's $7.7M Series A, and other items of note

• PE Week Wire revealed today that Coaltek has raised an approx. $7.7M Series A from funders including Technology Partners, DFJ, Braemar Energy Ventures, and Warburg Pincus. Coaltek's proprietary treatment process for coal allows dirtier Western coal to much more closely resemble Eastern coal, providing economic and pollution benefits. We last saw Coaltek at the spring Cleantech Venture Forum, where the clean technology implications of such "incremental technologies" were debated (scroll down to "Alternative Fuels" to read about it).

• Can't link to it, but if you get the chance, see the WSJ's column today on "Where the Bets Are," which describes where VCs are shifting their attention these days. Of course, clean technology is prominently highlighted, with a nice quote from Ira Ehrenpreis of Technology Partners.
  

• Cleantech investors EnerTech Capital Partners announced that Wally Hunter is coming over from RBC to become a Managing Member and open up EnerTech's Canadian office in Toronto. Everyone seems quite pleased at what seems like a good fit, compliments all around.

• For those following fuel cells as an investment area, there was this interesting overview of the 2005 Fuel Cell Seminar. Quite useful reading. It appears that the critical hydrogen storage issue remains unresolved...
  

SunPower's IPO, silicon supply, and cleantech investing

The long-anticipated IPO of SunPower happened today, and it shot up more than 40% in one day.

This will undoubtedly bring even more mainstream VC attention to the clean energy market in general, and solar energy in particular. After all, SunPower, with annualized revenues of around $65M, now carries a market cap of $1.5B -- even if that valuation goes down over time as the euphoria wears off, that kind of "pop" will get any investor's attention.

SunPower is certainly a great example of the business opportunity presented by the rapidly-growing solar market. According to Solar Buzz, for instance, solar installations grew 62% from 2003 to 2004, and by all reports the industry has continued to grow rapidly this year as well.

Investors need to realize that it will be difficult for the industry to continue this level of growth, however. Much of this growth has been due to specific regulatory incentives -- solar power is not yet competitive in cost with grid power in most cases, so the pure economic case alone isn't driving most of this growth. Nevertheless, demand for solar is growing quickly and won't stop growing anytime soon.

But then there's the silicon supply issue.

As Tyler at Clean Break and Jim at the Energy Blog pointed out a while back, Piper Jaffray put out a research report on the solar industry last month (pdf available here), with some pretty interesting conclusions:

• PV modules based upon polysilicon currently make up 91% of the market
• The supply of polysilicon is constrained, and available polysilicon is sold out already through 2007
• Polysilicon feedstocks are only expected to grow at 12% through 2007 -- but demand has been growing at least 30% per year

Based upon this information, the report concludes that solar market growth will only be in the single digits next year, and that prices will likely continue to increase for solar modules. They also conclude that PV technologies that don't depend upon silicon are going to see more rapid growth.

What conclusions should venture investors be drawing about the solar market?

First, the good news: PV technologies that minimize or eliminate the need for silicon (so-called "second and third generation" solar) are earlier in their development, and thus are more readily available for venture-stage investments. Even without shortages of silicon, the high cost of silicon was already driving significant innovation in the search for alternatives. If silicon-based PV is going to be unable to meet demand in 2006, then any commercially-available 2G or 3G solar technology is going to see pretty rapid market acceptance. Thin-film and concentrator technologies that are "ready for prime time" may be at an inflection point. And even earlier stage technologies will undoubtedly garner a lot of attention going forward.

But the bad news is that the silicon situation points to a very basic fact about the solar industry going forward -- it is essentially a semiconductor industry. The technologies, manufacturing processes, and even some of the players are the same (SunPower, for instance, was funded in large part by Cypress Semiconductor). And just like with semiconductors, there will be capacity-driven boom and bust cycles. The supply of silicon will be subject to capacity-driven booms and busts, which will flow down the value chain. And then the building of larger and larger PV production lines will also drive periods of undersupply followed by overcapacity, and vice versa. Underlying these cycles will be continued fast growth. But there will be significant price and production fluctuations around that growth trajectory. SunPower picked the right time to IPO, given where we are in the cycle right now...

Finally, while solar has been getting a lion's share of the cleantech investing press lately, I would expect to see SunPower's successful IPO as having a somewhat counter-intuitive effect of broadening mainstream VC interest into other areas of clean energy. The successful IPO will help draw attention to clean energy technologies, but there's already been a lot of recent funding activity in 2G and 3G solar. There will be increased capital deployed in solar, no doubt. But mainstream VCs will be forced to also look elsewhere within the clean energy sector if they are to find significant new opportunities. And that's a good thing, for everyone involved in the industry -- innovators, entrepreneurs, LPs, specialized funders, and mainstream funders with an interest in the space.

Now, let's all hope we see continued strong performance out of SunPower going forward.

Tuesday deals and other notes

• Last week, Solar Integrated Technologies announced they raised a $37M private placement of 6.5% 2010 convertible notes. Goldman Sachs and Crestview Capital participated. SIT is developing building-integrated photovoltaic (BIPV) systems, which many point to as the future format for solar power -- the thinking being that BIPV can lead to lower PV system costs by helping to reduce the costs of system installation (a significant portion of the total system costs), if the right form function can be developed. SIT is traded on the AIM.
  

• PE Week Wire reported yesterday that BioCare Solutions Ltd., a developer of environmentally-friendly household cleaning products, raised Gbp 4M. BioCare also anticipates an AIM listing.

• Metara, which provides systems for inline chemical metrology, raised an $11.5M Series E round. VantagePoint Venture Partners and Cipio Partners led the round, which also included Compass Venture Partners and Merifin Capital NV. Metara's systems are used to monitor the use of chemicals in semiconductor manufacturing, so that the use of chemicals is minimized and processes are optimized. Metara is an example of where manufacturing technologies can overlap with sensors and monitoring, with resource efficiency benefits.

• Seahorse Power Company announced a $1.1M raise of venture capital and angel funds, with funders including the Massachusetts Green Energy Fund and Jim Gordon, President of Cape Wind Associates. Seahorse's solar powered trash compactors are designed for outdoor applications.

• Here's an interesting article on the potential for coal-powered fuel cells.

• Last but not least, here's a nice interview with fellow cleantech investor Vincenzo La Ruffa that appeared in Red Herring a while back -- nice work, Cenzo.
  

Advent Solar raises $30M Series C

In a long-awaited announcement, Advent Solar today put out the news that they have raised a $30M Series C round. Battery Ventures led the round with fellow new investor Firelake Capital, and existing investors EnerTech Capital Partners, CMGI's @Ventures, the New Mexico Co-Investment Partners, and Angels with Attitudes also participated.

The capital is going to be used to build a 25MW manufacturing plant for the company's emitter wrap-around solar modules. Want to see a close-up picture of one? Steve Jurvetson has posted a picture on his Flickr account. He has posted a lot of other interesting pictures as well... DFJ, of course, has invested in Konarka, another high-profile solar startup.

The Advent raise follows on the heels of the other major solar fundings this year, and is in advance of the announced IPO of SunPower. Certainly, solar is getting the most attention right now among the many cleantech investment areas.

For those following the cleantech-cluster debate

[Update: this is a guestblog entry by Kjartan (it's nice to be back), sorry for not mentioning this in the original post...]

I had the pleasure of hearing San Francisco Mayor Newsom speak today at a luncheon. Mayor Newsom is a very skilled public speaker and always entertaining.

In addition to other good topics such as homelessness and hotel strikes, he reiterated the city'’s Cleantech initiative, which if you missed it, Joel Makower has already summarized nicely here.

For Cleantech investors this is interesting on a couple of levels: The initiative stands alongside three others, namely Biotech, LifeSciences, and Nanotech -- clearly the Mayor believes Cleantech as an investment area will continue to grow significantly in coming years. Also, will this help incentivize entrepreneurs to locate or re-locate to San Francisco? There are good arguments why it should: It's a great town; Good eats; Easy access to VC's; 10 year payroll tax credit for qualifying Cleantech businesses; etc. On the flip side: Prohibitively high cost of living.

In our outsourced world, the Mayor realizes that the city will never compete with low cost manufacturing jobs, and thus seeks to attract talent and creativity through initiatives such as this. Stay tuned.

Hydropoint raises $5M Series B

HydroPoint Data Systems, which sells remote-controlled, weather-activated irrigation systems that promote water efficiency, announced a $5M raise led by existing funder Monitor Ventures, also including Toro, Shea Ventures, Firelake Strategic Technology Fund, and Scenic Ventures. A pdf of the press release is available here.

Nanosys closes on $40M

Nanotech developer Nanosys, which has offerings across a number of industries including several cleantech applications, announced a $40M raise today. El Dorado Ventures led the round, which also included new investors Masters Capital, Medtronic, and Wasatch Advisors, as well as previous investors Alexandria Equities, ARCH Venture Partners, CDIB BioScience Ventures, CW Group, Harris & Harris Group Inc., In-Q-Tel, Intel Capital, H.B. Fuller Company, Lux Capital, Polaris Venture Partners, Prospect Venture Partners, UOB Hermes Asia Technology Fund, Venrock Associates, and others.

This brings the total amount of capital raised by the Palo Alto-based company to almost $100M so far.

[11/10 update: This article has more interesting details]

Motorola Ventures invests in Tekion

It's been a big day for energy storage/ portable power.

Motorola Ventures announced today that they have made a strategic investment in Tekion, which is developing micro fuel cells for battery replacement in devices like PCs and cell phones. Tekion claims to be pursuing a "fuel cell on a chip". Terms and amount of investment were not discussed in the announcement.

Power Paper raises $30M

Israel-based Power Paper, which is developing thin, flexible micro-batteries, announced a $30M round. The company's products are used in RFID, as well as in some cosmetics applications. The round was led by Apax Partners, which put in $16M, and included Clal Industries and Investments and the Infinity Venture Capital Fund ($12M total between the two), as well as existing investor BancAmerica Capital Partners ($2M). Existing funders included Amadeus Capital Partners (UK), PolyTechnos (Germany), the Millenium Fund (Israel), Yasuda Enterprise Development (Japan), EDB (Singapore), and Toppan Forms (Japan). Total investments to date are almost $60M.

Lilliputian reportedly raises $30M

Lilliputian Systems, which is developing fuel cells as battery replacement for portable devices, has reportedly raised a $30M round of financing, which would bring total investment so far to $40M. Investors include Atlas Venture, Kleiner Perkins, and cleantech-focused Rockport Capital Partners.

Yellowstone, and catching up

Work and work-related travel have made it difficult to post lately, so here's a laundry list of recent items of note:

• Houston's Yellowstone Capital Partners, a private equity firm with broad interests across several industries, announced the final close of their $10M Yellowstone Energy Ventures Fund. They also announced six investments made to date, including Protonex Technology Corp (fuel cells -- see previous mentions here and here), Fideris Inc. (fuel cell-related testing equipment), and Solaris Nanosciences (solar-related advanced materials).

• Following up on the previous post on the Energy Venture Fair in Boston, here's Bob Bellamare's take.

• Following up on their previous discussion of the impacts of Katrina on clean energy markets, Red Herring has put up a more thorough discussion here.

• While we're on the topic of solar, SunPower has priced their IPO.

• If this is true, it should be pretty entertaining. Start working on your elevator pitch now... And forget about an NDA.
  

• Last, but certainly not least, the ever-knowledgeable Joel Makower has put up a couple of very interesting posts lately. First of all, here's his discussion of the San Francisco city government's efforts to help promote a clean energy cluster in the area (take note, Matt) [update: see Gavin Newsom and William K. Reilly's announcement here]. Secondly, he discusses a recent report put out by REN21 that concludes that global investments in renewable energy reached $30B in 2004. That number seems a bit high given other data points out there, and as an investor I can't draw necessarily positive conclusions from Joel's inference that this remains an industry with more investment dollars than revenue dollars coming in the door. But it's certainly worth checking out.

The NREL Industry Growth Forum is in the bay area this week -- I look forward to seeing folks there.

Notes from the Energy Venture Fair

Had the pleasure of attending the Energy Venture Fair in Boston this week. As always, it was a good opportunity to network and to see a lot of promising energy-related startups (something like 70-75 this year) do a very brief presentation, so it's a very useful survey. One fellow VC described it as a "speed dating conference."

One of the more interesting segments of the conference is always the panel of VCs who give their impressions of the market, what's hot, etc. Some of the participants have been on the panel several times now, so it's a good way to not only hear their interesting thoughts right now, but also to see how interested investors' outlooks might be changing.

What I find interesting about this conference in particular is that, unlike some of the cleantech or clean energy focused events, the Energy Venture Fair attempts to address the full spectrum of energy-related investments, from oil and gas to solar to more exotic technologies. That sets up a fascinating diversity of attitudes, both among investors and other participants. The VC panel discussion was no exception. This year the panel was moderated by Robert Bellamare of Utilipoint, and included Phil Deutch of NGP Energy Technology Partners, Ira Ehrenpreis of Technology Partners, Mark Riser of Hamilton Robinson, and Bryant Tong of Nth Power.

The panel was generally "skeptical, but optimistic" in the words of one participant. But there was a wide range of just how skeptical, and just how optimistic, these investors were. Some selected quotes that caught my attention and I jotted down (and as always, apologies for paraphrasing poorly, I am decidedly not a journalist):

"Every year we talk about how 'this is the start of the energy tech era.' But this year, we're seeing more mainstream VC activity, and strong performance by public companies like Evergreen Solar, so it really does appear to be picking up."

"There's a bluntness to the interest right now. We see high energy prices, high spending on energy reliability, and movement toward things like the Kyoto Protocol. My view is that those are dangerous catalysts. Those can go away. The interest is driven by front page coverage in the New York Times, but my concern is that expectations are too high. There are still a lot of obstacles. All the excitement has to be tempered by how complex these issues are."

"It's encouraging to see companies with real revenues targeting significant market needs. More of these companies exist this year than last year."

"We see a lot of crossover of companies using technologies from other fields. Just like materials sciences enabled the semiconductor industry and other traditional VC investment areas, we see the same thing going on in energy."

"There's still no Google in energy technology... Or at least not in clean energy technology."

"This is an industry with a history of the 'Pop and Flop'. That's discouraged people, raised skepticism. But we're seeing good growth in the underlying fundamentals now."

"Energy is a market that adds up to trillions of dollars worldwide. It's easy to look at that and see a huge opportunity. But unlike a Google, with few inherent limitations to its business model, there are limits to the applicability of any one energy technology. So I don't see a Google ever happening."

"The energy bill isn't a driver. We don't want to have to predict who's in a majority next year, or if it's a presidential election year. In some selected areas, regulations definitely area plus and will continue to be so in some form, such as the strong support for solar and wind. But when it comes to specific legislation or regulations, we don't ever consider it as part of our investment decisions."

"For a room full of smart people here today, if we're really interested in venture investing in energy, we need to think about what it means that so few of us are investing in nuclear, coal, natural gas, and the like."

"The bar has been raised for pre-revenue companies in this space. The management team must have very related experience, they must know their markets well. The business plan must recognize the slow adoption rates and slow absorption rates we see in these industries. By that I mean that utilities are slow to adopt a technology, and even when they do, they're slow to roll it out across their network."

"The big mistake is that we see entrepreneurs thinking about their story in a vacuum. If it's a pre-revenue company, they need to provide a list of good industry references who can validate the opportunity."

"The business plan needs to be blunt. It needs to have a full recognition of the competition and risk."

Some of the audience comments were thought-provoking.

One participant wondered how energy startups could possibly compete in oil and gas and coal against such entrenched big players. The general response from the investors was that there are a lot of opportunities to play around the edges, in enabling technologies, rather than take such companies on head-to-head. And one investor pointed out that these large companies tend to spend most of their efforts being defensive, protecting their existing businesses, opening up opportunities for more aggressive technologies to be led by smaller firms.

Another comment challenged the investors' outlook in general, charging that "there is a problem with the model. We need more patient capital to make things happen. But VCs only want to invest in things that are successful."

This speaks to the general variety of philosophies and outlooks prevalent in the emerging cleantech investing space today. For what purpose, to what end, are investors looking at this space?

The short version of the much longer answer that this question deserves is that, simply put, VCs are generally speaking looking to maximize returns because that is their mandate. There are certainly organizations that promote and enable "patient capital", and other classes of investors may have different investment timeframes. But VCs, whether cleantech-focused are not, are almost invariably tasked with maximizing financial returns, and while there are good win-win opportunities for them to invest in, that doesn't mean that every socially valuable technology is a good fit for VC investment.

As one panelist put it:

"One reason we don't mention things like climate change as a driver of our investments is that investors have been burned by looking at such things in that way in the past. We believe in it as a driver. But we don't talk about it."

Fortunately, while investors may not be able to back every opportunity they would personally like to, the conference served to demonstrate that there are a lot of compelling "win-win" opportunities out there regardless. Overall, it was a valuable conference with a lot of interesting companies and viewpoints represented.

A123 emerges

Battery maker A123 Systems put out a press release yesterday describing the company's efforts and progress to date. Using proprietary nano-scale electrode technology, the company promises dramatic performance benefits for its products, and has already locked in a couple of key customers.

Also mentioned is that the company has raised $32M so far, from investors including Desh Deshpande (the founder of Sycamore Networks), Qualcomm, Sequoia Capital, Motorola, North Bridge Venture Partners, MIT, YankeeTek and U.S. Army-funded OnPoint Technologies.