The week that was

Tough week for posting this past week -- here's the overdue catch-up:

• PE Hub is reporting that Advanced Electron Beams (AEB) has raised a $17.5mm Series B, led by RockPort Capital, and including existing investors Atlas Ventures and General Catalyst. This follows a $10mm Series A in 2005. The company's technology has applications in sterilization, polymer treatment, and pollution (VOCs) abatement.
  

• Smart-grid technology developer Serveron announced a $5mm inside round of financing. The company's investors include El Dorado Investment Company, Nth Power LLC, Cascadia Pacific Management, Oregon Life Sciences LLC, Perseus 2000 Expansion LLC, Siemens Venture Capital and Ventures West Management LLC.

• inge AG, a Bavarian ultrafiltration technology developer with applications in water treatment, raised a 6mm euro round of financing. Stonefund NV and Dutch Entrepreneurs Fund BV were new investors that came in as part of the round, and existing investors Siemens Venture Capital, Emerald Technology Ventures, SPG Private Investments Ltd., and Taprogge Watertech GmbH also participated.
  

• Siemens Venture Capital also announced an investment in energy monitoring company Prenova, with a $3mm round of financing. The company's systems predict failures in energy-related assets.

• The Brazilian Renewable Energy Company, or BRENCO, raised a $200mm financing via placement of common shares. The company will be developing sugarcane-based ethanol production facilities. According to Goldman Sachs, Vinod Khosla, Steve Case, Ron Burkle, James Wolfensohn, and Steven Bing were all investors in the placement. While $200mm was raised in this placement, "$2 billion is the target."

• General Compression, which is developing compressed air energy storage systems for wind power turbines, raised an initial financing of "over $5mm." The company plans to announce technology development milestones over the next several months.
  

• More on water technology and venture capital: Here's a good RH article on the subject, and a related column by Tyler.

Other news and notes: An interesting column on how the growth of cleantech venture investing has led to a big uptake in related IP legal work... More momentum building behind climate-related policy shifts... An article on the role of business plan competitions and cleantech startups... B-school student readers take note: Lightspeed's Summer Startup Grants... Are gas prices going to be even higher this summer than in recent years?... The latest on the hydrogen highway -- 2025 target for fuel cell cars -- in the meantime, VCs are backing electric vehicles... Finally, Tim Draper on cleantech, and Tim Draper on The Riskmaster.

MIT Energy 2.0 and other updates

Had the pleasure of attending the MIT Energy 2.0 conference this past weekend, which was really a sign of the times -- a rough count appeared to be 500 people in the room on the main day, which was officially sold out, and rumors were that the previous night's open poster session had brought in 700 participants.

Jeff Immelt, the CEO of GE, gave a compelling keynote in which he described GE's rationale for getting into cleantech, and some of their strategies for targeting the market. Good coverage of his speech here and here. Notably, Immelt wrapped up his talk by making a plea for students at MIT and elsewhere to join GE: "Entrepreneurship and venture capital may be fun, but we see how the story ends. Come with me, and you'll have a front row seat to history."

It was a very good conference, but one hopes that next year's will provide panels with more depth, or even separate "tracks" for research, policy and business -- it's too tough to cover all three disciplines across a broad market category such as biofuels or solar with four or more panelists in just one hour. But it's easy to play Monday morning quarterback even on a terrific event like this one -- many kudos to the organizers.

The New England Energy Innovation Collaborative (NEEIC) took the opportunity to announce the winner of their first annual $150k Business Creation Competition -- StarSolar Corp., which is developing technology for the enhancement of solar panel efficiencies, won the prize and the funding from sponsors General Catalyst, ATV and Atlas Ventures. NEEIC is ramping up their efforts and is building a strong network of cleantech investors and startups in the region.

Other cleantech venture financings this week:

• LS9, which is developing advanced biofuels production technologies, announced a $5mm Series A by Flagship Ventures and Khosla Ventures. Jim Fraser speculates that the company is working on biobutanol or a competitive fuel, but the company website only describes the targets as "proprietary biofuels".

• Solar installer Akeena Solar raised a $4.1mm PIPE with participation by the Westly Group. Speaking of Steve Westly, here's a nice update since we last discussed the formation of the Westly Group.
  

• A few deals scooped by VentureWire over the past few days: Microwind developer Mariah Power raised a $750k seed round from Sierra Angels and the Keiretsu Forum -- Neal Dikeman recently spoke with the CEO... AgraQuest, which is developing bio-based pesticides, raised an $8mm insider round... and NextDiesel raised a $9mm Series A to help build their first B100 production facility.

• Backup power storage device Gaia Power Technologies announced the close of a first tranche of a $2.9mm Series B, led by GHO Ventures and the NJTC. The company has raised over $5mm (including the full Series B) for their battery-based energy management system.

Other news and notes: Future Energy, which gives a good overview of the ongoing transformation of the energy industry, is an interesting read -- especially for any readers who are looking for publicly-traded investment opportunities, since there's a very helpful list of them in the book... A nice picture of Andrew Beebe and some of EI's solar concentrators... Maurice Gunderson wants you to suppress your inner lemming... Clean technologies may not be completely dependent upon favorable governmental policies for success -- but the first country-level legally-binding CO2 emissions targets could be a sign of big shifts to come, with positive implications for cleantech investors... Less positive news overall (but still favorable for cleantech investors) are indications that energy prices will continue to rise... An interesting account of GM's recent battery-related announcements... Finally, somebody pointed me to Ecorazzi recently -- for those who want to combine a passion for cleantech with the guilty pleasures of the checkout line tabloid genre.

Cleantech investing this week -- CleanEdge/ Nth Power survey

• Extremely pleased to share this announcement (self-promotion alert): Waste-to-ethanol producer Earthanol has announced a $7.1mm Series A round, including a total commitment of $2mm from @Ventures alongside other investors Nth Power, Sail Venture Partners, and Calvert Funds. The company focuses on technologies for the production of ethanol from alternative feedstocks to corn.

• Algal biotech developer Solazyme has raised an $8mm+ Series B, plus $2mm of debt, according to VentureWire. The Roda Group led the financing, and Harris & Harris contributed $500k of the round (with other undisclosed investors also involved). The company's technologies have applications in biofuels and other areas.
  

• CIGS PV developer SoloPower was revealed by VentureWire on Monday (here's a good article from News.com as well) to have raised a $10mm round of financing from Crosslink Capital, Firsthand Capital Management and individual investors. According to the very informative VWire column, the company's differentiated approach is to use electroplating of the thin film layers rather than sputtering. The company also claims that NREL testing has demonstrated an efficiency of greater than 10%...
  

• Atraverda, a Wales-based developer of biopolar lead acid batteries using advanced ceramics, raised a $12mm Series A round of financing (note: pdf), with participation by EnerTech Capital, OnPoint, Sagentia Group, Scottish Equity Partners and Wales Fund Managers. The Energy Blog did a very good job of explaining the company's technology in this column from a while back. [3/25 update: Fixed the previous error in spelling of the company's name, apologies]
  

• AES has made a $3mm "strategic" purchase of Altairnano stock. Altairnano is a developer of lithium battery technology -- Inside Greentech has good coverage.

• Jonathan Shieber of VentureWire has been on a roll lately -- this time the scoop is that Khosla Ventures has made another stealth biofuels investment, into Gevo... Shieber suggests that the company's approach is possibly related to the microbes termites utilize to break down cellulose. There's also more information in the column about another recent Khosla Ventures investment, LS9...
  

• CleanEdge and Nth Power released their 2007 survey of clean energy markets and venture investments this week. The market survey tallies clean energy markets in 2006 at $55B, and they forecast growth to $227B by 2016. The big three three techs (wind, biofuels, and solar) are all sized at $15-20B, with CAGRs of 13-16% over the period in question. Fuel cells and hydrogen techs are expected to grow more quickly, but off of a smaller base ($1.4B in 2006, "primarily for research contracts and demonstration and test units), reaching $15B in ten years. Good coverage and discussion of the report can be found here, here and here.
  

• Interestingly, for those tracking the numbers, Nth Power's tally of energy tech investments in 2006 showed more than a doubling from the previous year, up to nearly $2.5B for year. That represented, by their total, almost 10% of total venture investments across all sectors (and note that it doesn't include non-energy clean technologies). They counted ~$800mm into biofuels, and almost $500mm into "energy intelligence" (ie: efficiency techs), along with $264mm into solar. There's also some fascinating details about the data, and the following section should be especially highlighted (apologies for it being so long, but it was all worth noting), which go directly to some of the issues we've talked about before on this site (and which Rodrigo and I have discussed before, so thanks and kudos, R!):

Although the number of companies that received VC investments grew from 84 to 140, the average deal size in 2006 took a more dramatic leap, to $17 million, up from $11 million a year earlier. The 2006 average was slightly higher than the 2000 record of $16.8 million per deal.

Should investors be concerned about an energy-tech bubble? Probably not. Aside from a few known deals where valuation was played to the company’s advantage or where some near-term liquidity could be reasonably expected, it appears that investors in the energy-tech category remained realistic about valuations. Our venture data shows that the median deal size grew only slightly from $6.5 million in 2005 to $8 million per deal in 2006. This is consistent with recent data from the overall venture capital markets showing that later-stage deals are showing some valuation inflation, but that early-stage deal valuations have remained flat.

Probably the most curious trend in 2006 was the willingness of early-stage investors to write checks to fund the build-out of ethanol, biodiesel and solar production. While some of these deals had elements of technology development, most were pure infrastructure. Investors poured more than $1 billion into steel, cable, and concrete rather than into intellectual property.

The implication may be that returns for all but the earliest of investors in some of these deals (particularly biofuels) are not likely to be in line with typical early-stage venture investing. Large capital raises typically leave companies with high post-investment valuations that, in theory, come with a lower exit-value expectation, albeit with accompanying lower risk. This kind of risk/reward scenario is appropriate for some investors, but typically not venture capital.

So in other words, a lot of the massive influx of investment dollars has gone to a few late-stage infrastructure-funding deals. I would add that Rodrigo has elsewhere described these infrastructure-related financings as "capacity deals", which seems like a useful phrase (which we will henceforth steal, thanks much), and that it's instructive to note that often these deals include many non-venture players (ie: hedge funds, etc.).

• In another interesting survey, Jefferies released the results of a questionnaire given to participants in the recent Cleantech Venture Forum. Unsurprisingly, the participants held bullish views about the overall prospects of sectoral growth. Surprisingly, 40% of the participants indicated that they expect solar to be the biggest contributor of global renewable energy supplies by 2020. It's a fascinating result, but a bit hard to believe, given that solar is currently about .039% of global energy supplies, wind is .064%, and hydro is 2.2% (2004 numbers, from this source pdf). According to one Jefferies team member, this would require solar to grow at a 30%+ CAGR over the entirety of the next 13 years. Note the CleanEdge data from above... Seems a bit optimistic. But these are optimistic times.

• Cleantech investors in the news: James Kim has joined CMEA Ventures as they expand their energy and materials efforts... The Cleantech Group (d/b/a the Cleantech Venture Network) is launching another new service, an executive search offering, to be led by Ray Fortney. Another strong move by the Group to expand their capabilities and build on their cleantech sectoral expertise (you may be reading this column on their website, e.g.).
  

Other questions from the week: Will the next phase of manufacturing of clean technologies be driven out of the bay area?... "Are America's capitalist titans really going green?"... Is wave energy ready for prime time?... Should we read anything into the fact that the recent DOE grants for biofuels were double those for solar?... Can the importance of this commitment -- especially for the emergence of markets for carbon-related financial instruments -- be overstated?... Finally, what list of questions would be complete without asking, "Is clean tech a bubble?"

Cleantech around the web

Just a few news items of potential interest:

• John Cook of the Seattle P-I laments the lack of a cleantech investment community in the Pacific Northwest.

• The latest "bubble"-talk: Going Private makes the mistake of lumping "green investing" in with SRI (socially-responsible investing) in arguing that there's a bubble of sorts, but it serves as a nice way of once again highlighting the differences between SRI and the "cleantech"/"greentech" kind of investing that John Doerr and others are convinced is a long way away from bubblicity.

• Here's a very thoughtful piece from Sunil Paul about why he's in cleantech for both the value and the values.

• Liquid fuels news: Insurance company CEO to the oil industry: You're at risk... Demand for ethanol is driving up prices for farmland... And T. Boone Pickens thinks we're at "peak oil".
  

• From now on, this website will (probably ineffectively) attempt to straddle the coal debate by referring to it as "cleaner coal." Readers are invited to draw their own conclusions about what it is relatively cleaner than -- but it would be hard to argue that it is not a strong potential market opportunity.
  

• The latest on the carbon offset/ REC discussion (see the second bullet of this link for more background): The Economist's blog has a good discussion of the "rebound effect", whereby purchases of green power-subsidizing RECs would increase energy supplies, leading to lower energy costs and thus increased consumption of all energy types. The problems with the analysis are:
  

a) the authors assume the standard smooth supply curve shifts outward under the assumption that the blended marginal cost curves of new sources of supply mirror existing sources, but in the real world, since solar/ wind/ etc. continue to have higher costs than baseline coal, the marginal cost curve is kinked, differentiated by source, with "cliff" effects as demand grows and higher-cost technologies come online. So, for near-term equilibrium purposes, the marginal cost curve flattens higher up the curve, it doesn't shift out. Yes, that can also end up with a new equilibrium point further down the demand curve (ie: more consumption of electricity), but when the baseline coal load is usually 100% maxed out anyway, such increased consumption comes from the higher cost (ie: cleaner) power supplies. Furthermore, the charts used in the Economist column are misleading, in that they fail to show how inelastic the energy demand curve is in short-term timeframes (most power loads are driven by long-term capital purchases) -- if the charts were drawn more accurately, it would be more obvious that you have to shift the supply curve a lot in order to get a small increase in Q at equilibrium. To put it more plainly: Unless the purchase of a REC leads the buyer to consume more power (less guilt = more lights on?), there's no overall shifting of the demand curve, only supply curve effects felt only in the "clean energy" portion of the curve. Any resulting incremental increase in power consumption comes from the subsidized sources, not the already maxed-out coal baseline plants. Will this increased consumption lead to long-term negative effects of more coal-fired plants being commissioned? ...Maybe, but there are going to be a lot of other long-term effects as well, such as the fact that the REC subsidy helps drive down costs for these emerging clean energy technologies, and accelerating the beneficial effects of the experience curve. At some point, our electricity marginal cost curve may reflect more of a blended mix of low-cost dirty and low-cost clean energy sources, in which case the rebound effect would be much more relevant, but that would be a nice problem to have...

b) Note the passing mention of "unless they are implemented under a cap and trade system" in the Economist column. Why? Such systems are increasingly envisioned in public discourse around climate change. So under a cap and trade system, what would the rebound effect be? Irrelevant. Under such a regime (for purposes of simplicity, let's assume one that caps carbon emissions by the power industry at existing levels), as demand increases, it couldn't come from increased carbon emissions overall.

c) The column's authors also only address carbon offsets where the purchase price is directed toward subsidizing green power production. But in fact, the most cost-efficient offsets right now come from subsidizing energy efficiency investments or other non-supply-related carbon emissions.

d) Finally, as alluded to above, the authors make the specious assumption that buying offsets will lead you to consume more electricity than you would otherwise. In fact, all you're doing when you purchase an offset is imposing an energy tax on yourself, and raising your personal price of power -- and that should decrease your consumption, at least according to the same textbook-level microeconomic theory being deployed by the Economist columnist...

In other words, if you are so inclined, go ahead and purchase your carbon offsets. The Economist article makes some good theoretical points, but as with most economic theory, real world application runs into a lot of complications. In the real world you're subsidizing favorable economic activities, any rebound effect that results in increased carbon emissions is very minor in the near term, and over the long term you're helping to establish a US market for offsets that is already a $3B market across the rest of the world.

• Finally, not to get into politics or policy issues, but this just seems like an obviously correct solution to all of our problems. The first step will be relocating NREL to Roswell, NM...
  

Catchups

Recent deals in the news:

• VentureWire reported earlier this week that CoalTek raised a $33mm Series C, led by Lightspeed Venture Partners, with participation by existing investors Braemar Energy Ventures, Draper Fisher Jurvetson, Element Venture Partners, Technology Partners, and Warburg Pincus. There's been a bit of controversy lately over whether coal-related technologies can be considered "cleantech" or not. However one cares to classify it, in the case of CoalTek, Jonathan Shieber reports in VentureWire that "according to the company, the coal it treats has a BTU content that is up to 33% higher than normal coal, while at the same time has 70% less sulfur dioxide content than untreated coal."

• REC retailer Sterling Planet raised a $7mm Series B financing. Low Carbon Accelerator of the UK provided the funding. Sterling Planet supplied green power certificates to the recent SuperBowl. ...And on the general topic of RECs and carbon offsets, here's a very educational give-and-take prompted by a column by Adam Stein of TerraPass (read the comments section as well). For more useful reading on the topic, here's another good article as well.
  

• ACAL Energy, which is developing "low temperature fuel cell cathode" technology, raised GBP1.6mm from Synergis Technologies, Rising Stars Growth Fund, the North East Co-Investment Fund, and the Carbon Trust. The company claims their technology will allow fuel cells to operate five times longer than currently possible.

Cleantech investors in the news:

• CalPERS announced last week that they are committing $400mm to Pacific Corporate Group, with the funds to be specifically targeted to cleantech investments.
  

• Nomura International plc recently announced that Whitney Rockley has joined the firm as Principal of New Energy and Clean Technology Ventures.
  

• The Cleantech Venture Network is starting a new effort called the Cleantech Innovation Initiative, to tackle key transformational efforts. The first such effort? Smart financing solutions for getting more hybrid taxis on the streets...
  

Other news and notes:

• Looking forward to seeing everyone at the MIT Energy 2.0 Conference next weekend!

• Most readers are probably already aware of the critical role of green power issues in the recently announced TXU buyout. For venture-stage investors, the importance is that it demonstrates just how seriously utilities are taking cleantech these days -- these technologies aren't just on the fringe anymore. Wind power, broadband over powerline, clean coal ("cleantech" or not) are all emerging energy technology areas that have played a major role in the transaction...

• The latest on cellulosic ethanol and biodiesel.

• Finally, here's a very thoughtful piece on clean water technology investments, by Neal Dikeman. Out of the various limiting factors he identifies, price is probably the most important one right now...