Monday, April 30, 2007

Putting cleantech VC in perspective

From a study released today by Lux Research, here's a picture that's worth a thousand words...

A pdf of the press release can be found here, and there's much more to the report than the above graph. But it's always interesting to see how the scale of VC investment in cleantech, in relation to other forms of funding, stacks up against the attention VCs get in the media and elsewhere...

Friday, April 27, 2007

Arcadian's $90mm Series A

  • "Smart grid" M2M wireless network developer Arcadian Networks announced the closing of the last tranche of their $90mm Series A round with an additional $30mm from Goldman Sachs. Other participants in the full round included Gilo Ventures and Clal Industries and Investments. For those with VentureWire subs, Jon Shieber had a nice write-up about the deal today, where he points out that Goldman Sachs has been doing a lot of smart grid investing lately.
  • In other news today, Michigan's non-profit group NextEnergy announced a mutual sourcing and support relationship with Nth Power. As part of the agreement, each group is pledging to send dealflow to each other, and NextEnergy will be helping any Michigan-based Nth Power portfolio companies to access in-state financial resources and business relationships. It's an interesting announcement, and shows one investment firm's answer to the challenges of coastal VCs interacting with more geographically-distributed clean technology startups. There are good clean technology solutions to be found all over...

Thursday, April 26, 2007

Lamina Ceramics, Power Efficiency Corp, eMeter, Gordon Murray Design, LanzaTech

  • LED "light engine" developer Lamina Ceramics announced a $7mm round of financing, led by Easton Capital, and including existing investors Morgenthaler Ventures, Granite Global Ventures, RedShift Ventures, and CID Equity Capital. The solid state lighting industry has seen increased interest lately thanks in part to recent regional efforts to ban incandescent bulbs -- here's a good example... Lamina's focus is on bringing LED lights to market with sufficient brightness to replace incandescent bulbs for general illumination.
  • Power Efficiency Corp., which offers "cruise control"-type energy efficiency solutions for electric motors, raised a $4.2mm PIPE. Individuals, insiders and hedge fund Marathon Resource Investments provided the funding.
  • AMR software vendor eMeter announced a Series C financing, led by Foundation Capital. The amount of the round wasn't disclosed, but PE Week Wire reported it earlier this week as $11.79mm.
  • Gordon Murray Design Ltd. raised a $10mm+ Series A from Mohr Davidow and the Caparo Group. Matt Marshall has the scoop on what the venture is all about...
  • LanzaTech, which is pursuing a bacteria-based approach to the conversion of waste flue-gas carbon monoxide into ethanol, raised a $3.5mm Series A led by Khosla Ventures. Since the bacteria can process CO, syngas is also a potential feedstock. LanzaTech is based in New Zealand, and two local investors also joined the funding.
  • Useful sectoral updates: Progress on plug-in hybrids... A good summary of the potential for wave energy and the challenges for venture investors... The latest update on nanotech's potential regulatory and market challenges... And a good report from a recent MITCNC panel on energy storage.
Other news and notes: Check out the upcoming California Clean Innovation 2007 conference, coming up next month in Pasadena... Here's a great summary by Joel on some recent polling on Americans' attitudes toward environmental issues... The Cleantech Group continues to expand, opening up an office in London... Finally -- Amen, brother.

Q1 2007 numbers

Over the past week or so, many of the various groups who track venture capital investments put out their Q1 numbers. Below is a brief re-cap, for those interested. (For those interested in a discussion of the differences in the various approaches, see this previous posting)
  • As previously noted, the Cleantech Venture Network announced this week that Q1 totals for cleantech investing were $903mm across both North America and Europe, representing a 16.5% increase versus Q4 numbers and a whopping 42% increase on Q1 2006. In both regions, energy generation technologies were the largest category, with a little more than half of all capital going into that segment of the market.
  • Eric Wesoff's Venture Power newsletter reported $760mm of clean energy venture capital in Q1. Eric's always-insightful commentary notes that: "Q1 looked a bit like last year -- with a mix of investment sectors and a disproportionately high biofuel figure skewed by a few very large deals... [three of the deals] account for nearly half of the total. It is arguable that these deals don't qualify as VC investments despite the fact that they have VC investors -- they look more like project finance." Eric also notes that Venture Power has "joined forces" with Greentech Media, so "look for big changes in the coming weeks."
  • As provided by Dan Primack at PE Hub, the Moneytree (PWC/ NVCA/ Thomson Financial) survey for Q1 was also released. In the Industrial/Energy category they counted slightly more than $500mm of venture capital financings, a 20% increase on Q4, and a 75% increase on Q1 2006. This would make the category the fifth biggest category tracked, behind biotech, software, medical devices, and telecom. Across 44 tracked deals, the average deal size was higher than $11mm, which is an interesting contrast with the category's $6.2mm average deal size for 2005. 44 deals, however, is less than Q4's 50, and not that much higher than Q1 2006's 39. One useful feature of the Moneytree data is that they also track "first-sequence" financings (the first institutional investor money into a company). Among these first-time financings, Industrial/Energy was actually the third biggest category, at $176mm -- 13% higher than Q4 totals, but 145% higher than Q1 2006 totals. Intriguingly, the average deal size for these 19 earlier rounds was also quite high, at $9.3mm, versus 2005's average of $5.6mm. This suggests that while capacity deals may be inflating the sectoral totals as Eric descrbes, there may also be some significant additional rise in valuations...
  • E&Y and VentureOne also put out their quarterly survey results. Unfortunately for them, most cleantech still appears to be categorized as "Other" in their survey (really? still?). So we'll just leave it at noting that Q1 "Other" total investments were the highest for any quarter they've tracked since beginning in 2001. How much of that is cleantech is impossible to say... This press release seems to suggest that about 64% of the category total was in 10 "alternative energy" and 8 "environmental technology" deals. [4/26 update: Note additional info on this survey appended below]
  • We previously noted NEF's numbers here. They counted $2.2B total private equity financings into clean energy worldwide in Q1. That's 58% above Q1 2006 totals and 60% higher than Q4 2006. Helpfully, they note that the big totals were driven in large part by three major transactions: Silicium de Provence ($394mm) and Solyndra ($79mm) in solar, and Imperium Renewables ($113mm) in biofuels. Differentiating between VC and private equity, "early stage venture capital" was tracked at $303mm (23% higher than Q1 2006), with Series A and seed tracked at $80mm -- "almost double" Q1 2006, but around half of Q4 2006's $159mm. Interestingly, PIPEs grew sharply, at $446mm, about triple from a year ago. Also a little bit of a dampening in the IPO market, with $899mm raised in initial offerings.
[4/26 update: Received a very fast reply from Michelle Jeffers at Dow Jones VentureOne who reminded me that they do indeed break out cleantech venture capital in a separate set of reported numbers. In fact they are attempting to address the overlapping nature of clean technologies and other technologies via their methodology, something we've written about before on this site. So I wanted to post Michelle's email, since I hadn't done justice to the Dow Jones approach in the original column:

Hi Rob

Saw your post regarding our quarterly data.

I thought your parenthetical comments indicated that perhaps you thought we were not taking Cleantech investing seriously.

In fact we are extremely serious about our methodology and the recognition of the importance of cleantech investing and release an entirely separate report on cleantech investing with Ernst & Young on a regular basis, in addition to this quarterly data.

This quarterly report breaks down the rounds (and companies) into very specific single industries – in fact into approximately 140 different industry sub-segments, and from there even into even more subcodes. The companies we identified and made mention of in the press release in the cleantech field were in our Energy or Environmental segments, which, because they do not meet the exact criteria we set for IT, Business, Consumer and Retail products and services, or Healthcare, are considered an OTHER category. Of course, there are always judgments that must be made for the appropriate sorting when dealing with the volume of financings that we track.

That is why I want you to know that when we release our Cleantech data, we look at all companies throughout every industry from IT to Healthcare to Products and Services for aspects of cleantech in their business. I think you’ll find if you look at all our data releases that we take a very thoughtful and careful look at each venture-backed business—and we research them with direct primary contact with the companies themselves, to verify their financings and their business descriptions—before determining how they should be categorized, in our effort to provide the most accurate tracking of the venture capital industry.

... Thanks to Michelle for a very helpful and thoughtful reply. To see an example of the reporting she is referring to, see this write-up of their 2006 totals. rd]

Friday, April 20, 2007

Cleantech investors and carbon and RECs (pt 3)

It's been more than a week since the second installment on this topic (and you can find the first installment here), but if anything, it's an even more relevant topic after a week's worth of news developments. After all, as Kevin, a "serial entrepreneur", says in this WaPo column, "The venture capital community's appetite for green-tech deals has skyrocketed since the Supreme Court ruling."

Given the emerging momentum behind carbon and REC markets, and if it's true that carbon credit markets are particularly well-poised for significant growth in the US, what are investors doing about it?

Some are, naturally, investing directly into carbon sequestration-related technologies and startups like Kevin's. And not just into the sequestration technologies, but some investors are also investing directly into some of the financial service companies (see Sterling Planet's March funding announcement) that are looking to take advantage of the development of trading markets for RECs and credits.

Other cleantech investors are figuring out how their portfolio companies can position themselves to capitalize on these markets when they become more developed. In some cases, the venture firms are looking to partner with the financial traders who will eventually be active in these commodity markets, once they reach a viable point. One good example from last year is EnerTech's strategic partnership with Cantor Fitzgerald (note: link opens pdf).

Finally, cleantech investors are drawing their own judgments about how the shifting landscape in carbon credit and REC markets will impact the sectors they are interested in. At a high level, the emergence of a strong REC market favors electricity generation technologies, since that is the primary focus of renewable portfolio standards. On the other hand, the emergence of carbon emissions reductions credits may favor energy efficiency technologies, since the reductions are easier to quantify, monitor and verify than any reductions associated with "green" generation projects that may or may not be cannibalizing "brown" generation capacity.

The short answer is that both markets are developing, as we've discussed. But in the long run each investor's view of the strength of the eventual market for each type of financial product may color their perspectives on the technology sectors that will be looking to those markets as an additional source of value.

Either way, the inevitable emergence of carbon credit and REC markets is a major factor that all cleantech investors are focusing heavily on these days.

Deals announced this week:
  • Semprius, a North Carolina-based semiconductor manufacturing process startup, raised $4.1mm in venture financing from Intersouth Partners and Arch Venture Partners. The company's printing approach to semico manufacturing has potential applications in other similar types of devices, such as solar cells.
  • VentureWire also reported that solar test and measurement equipment vendor Solmetric raised a $250k angel round. Such equipment may be increasingly in demand with the implementation of performance-based (versus capacity-based) governmental incentives for solar.
Cleantech investors in the news:
  • The Cleantech Venture Network announced this week that Q1 totals for cleantech investing were $903mm across both North America and Europe, representing a 16.5% increase versus Q4 numbers and a whopping 42% increase on Q1 2006. In both regions, energy generation technologies were the largest category, with a little more than half of all capital going into that segment of the market. Other coverage this week suggested that European cleantech investments are falling behind U.S. activity. We'll dive more into the numbers next week...
  • A couple of smart cleantech investors with some cautionary words about the challenges to investing in the sector and the dangers of the "fad of the month" (er, carbon?), in this article.
Other news and notes: For those following the "smart grid" market and its implications for cleantech, the news of IBM's new coalition effort around the technology was another strong validation point... And GM may be taking the old "think locally, act globally" saying to a new level.

Friday, April 13, 2007

Smart energy gets a comp: Comverge IPO

For those (like yours truly) who find "Smart Energy" (IT-enabled energy efficiency and demand automation) technologies to be a compelling investment space, it will be very interesting to watch today's IPO by Comverge.

So far, so good -- trading in the early hours is above the $18/share pricing, which itself was a revision upward from earlier guidance. Apparently not everyone is convinced... But even if the price doesn't hold up over time, the exit is still a good validation for the entire smart energy space.

Wednesday, April 11, 2007

Cleantech with your latte

- Thanks to Kristian Hanelt for scanning in his mid-morning Starbucks receptacle...

Cleantech investors and carbon and RECs (pt 2)

In the last post, we described the differences between carbon offsets and RECs: How the former are financial instruments based upon physical commodities, and the latter are more of a bundled concept.

But what impacts do these differences have in the burgeoning markets for these somewhat competitive products?

Regulations and restrictions (whether governmental or self-imposed) are having a significant impact on the early evolution of the markets for carbon offsets and RECs.

In Europe, where they are operating under the requirements of the Kyoto Protocol and other climate change-focused mandates, an EU Emissions Trading Scheme has been implemented. This is essentially a region-wide "cap and trade" carbon emissions scheme, with specific requirements as to what kinds of emissions credits can be traded, and with limits as to the total amount of region-wide emissions. Thus, in the EU carbon emissions rights are a scarce commodity. As Charles Morand at AltEnergyStocks has described in this very helpful column, the EU ETS market was estimated to be about $27B in 2007.

In the U.S. the major mandates made to date are on utilities, and are geared around "green energy" generation requirements. Most states are adopting Renewable Portfolio Standards (RPS) which require local utilities to source up to 25% of the electricity they sell from renewable sources by certain dates ("20 by '20" appears to be a popular political phrase in state legislatures right now). As utilities scramble to find those sources, the market for RECs has taken off.

In terms of carbon markets, on the other hand, the U.S. still remains at a very early stage of development. The Chicago Climate Exchange has been making headway, and efforts like the Regional Greenhouse Gas Initiative (RGGI) are starting to come together. But in the absence of commonly-acknowledged definitions of acceptable carbon emissions reductions projects, not to mention the absence of a national limit on carbon emissions, offset credits are not a scarce commodity. Thus, the price remains significantly lower for a ton-reduction of carbon emissions in the U.S. versus much the same ton-reduction in the EU ETS. That seems strange, given the fact that carbon is a global pollutant, but as the experts at last week's NEEIC event pointed out, it's not really an apples-to-apples asset comparison, since there are different standards/ definitions/ certifications/ etc.

So does this mean that in the US investors should pay more attention to RECs, while in the EU they should pay more attention to carbon emissions credits? There are several reasons to believe that the long-term end point for both regions is a vibrant carbon emissions credits market and a less trafficked market for RECs.

First of all, RECs are subject to a lot more subjective definitions than are carbon emissions credits. Granted, right now definitions vary widely for both. But in the end, a ton of carbon is a ton of carbon -- it's a physically-defined commodity. Whereas RECs bundle together a lot of other factors. Therefore it will be harder for large-scale stakeholder negotiations to arrive at commonly held definitions of RECs (say, at a national level) than for carbon. While regional carbon emissions trading schemes are coming together even in the US, RECs remain a state-by-state defined market, dependent upon the specifics of each state's RPS definitions. For example, in some markets waste coal is counted as a legitimate source of RECs, whereas for other states that's not allowed. Such fragmented markets stymie efforts to create a large, liquid market. Europe helps prove this point -- there are national RPS schemes there and a variety of REC markets that all pale in comparison to the EU ETS.

Secondly, carbon emissions are easier to offset (yes, an offset of an offset) against all existing forms of electricity generation. Heat rate, utilization and fuel mix are all well-understood factors by energy traders, and when a viable consistent financial product which can be geographically arbitraged against transmission-constrained generation assets is available to these traders, they will jump on such assets and drive up the liquidity in such markets. It's tougher to think about such traders being able to trade off a solar REC against utilization of a coal-fired plant. Liquid fuels markets are also easier to integrate into a carbon market than a REC market, further lending potential liquidity to a future carbon market. And the thing about financial markets is that liquidity drives even more liquidity, due to positive network externalities.

Thirdly, given all the emphasis now being put on climate change at a federal level, it's becoming more likely that industry will soon have to operate under some form of cap-and-trade scheme or other limitations on carbon emissions, whether it's a national mandate, a region-level mandate, or even voluntary schemes within certain industries. As these limitations gain more teeth, carbon emissions will become a scarce commodity in the U.S. as it has been in Europe.

Finally, RECs have a hard time dealing with energy efficiency "sources" of carbon emissions reductions. So-called "white tags" have been established in some RPS systems that would allow for a separate set of products for negawatts via energy efficiency projects, but it's tough to gel these different green tags and white tags, etc., into a single viable market (is there going to be an exchange rate for green tags versus white tags?). But again, a ton of carbon emissions reduction is a ton of carbon emissions reduction. And energy efficiency is perhaps the most feasible form of carbon emissions reductions, so it can't be an ignored factor.

So it would appear that, given the increasing concerns about climate change and the resulting political pressures, we can start to plan for a long-term market for carbon emissions credits that will grow more quickly than the market for RECs. Maybe. Of course, this is all based on assumptions that might change -- a national RPS with federal-level definitions for RECs, for example, could change a lot of the analysis from above. But you can see why investors are paying close attention to the development of the carbon market in particular, even if RPS schemes and other incentives have driven adoption of green generation technologies to date.

In the next post, we'll see what all this means for investors.

Also in the news:
  • VentureWire reported that hybrid vehicle manufacturer Aptera has raised "under $20mm" in a new round of financing from Idealab and an undisclosed angel investor. Nifty-looking car, expected to be available sometime in 2008...
Other news and notes: Interesting thoughts from Paul Holland of Foundation Capital... Interesting thoughts from David Hochschild on the solar market... And interesting thoughts from Xzibit and the Governator... Finally, a Fortune article on the "green bubble".

Friday, April 06, 2007

Cleantech investors and carbon and RECs (pt 1)

Investors and entrepreneurs have been having a lot of conversations lately about the carbon offset and green tag markets and where they're headed. For example, last week NEEIC organized a very well-organized event at Foley Hoag's Waltham office with several expert speakers, who addressed a room full of investors about the general topic. It seems like most cleantech investors are trying to get smart on what exactly carbon credits and RECs are, and what they could mean for their investments. This week's supreme court ruling on the subject (note: pdf) just added further fuel to the fire (so to speak)...

To start with -- what are carbon credits, and what are RECs, and why are they different? It's a confusing issue right now. You can get some useful descriptions here, but let's break it down into the differences from an investor's perspective:

Carbon credits ("offsets") are a representation of a physical commodity (albeit in this case a "negative" one). If you own a 1 ton carbon emissions reduction credit, you literally own that physical attribute -- one ton of avoided emissions of carbon into the air. In this way, they're similar to NOx, SOx and other pollution emissions credits. Or like selling a ton of corn or metals or any other physical commodity. Now, measuring and verifying an absence of a physical commodity like atmospheric carbon emissions is tougher than measuring a ton of corn or metal, but the principle remains the same.

Renewable Energy Certificates ("RECs" or "Green Tags") are a representation that the electricity you are using came from green power. That's a very different proposition -- essentially, the REC is a way of branding the electricity. Indeed, in most cases the kwh you actually consume came from a blended mix of fossil fuel-based and renewable sources (mostly the former), so buying a REC is a way of paying extra money that then gets transferred back to the renewable generators in particular (and through other hands along the way...). It's not a physical commodity you're buying. You're buying a label that shows your money went toward something you want to encourage.

It may seem like an esoteric difference, but one way to think about it is this: Carbon credits are related only to climate change; RECs bundle in a lot of other issues as well, such as local air pollution, energy independence, etc. The various differences (physical commodity versus labeling, and climate change-focused versus broadly conceptual) are important for investors, as we'll discuss in the next post on this topic. (Part Two) (Part Three)

In other news this week:
  • We've talked before about the rise of online green media. This week came announcements of two more fundings in the space: PE Week Wire reported that SustainableCircles (d/b/a SustainLane) raised a $3.5mm Series B. Also announced this week was that PointOV (d/b/a, which aims to be the "ethical Amazon") raised 800k GBP -- 500k GBP from the NorthStar Equity Investors, and 300k GBP from angels. NSEI had previously backed the company with a 200k GBP investment in June, 2006. PointOV reports that they now have a 1mm GBP annualized gross revenue rate.
  • Jon Shieber at VentureWire reported earlier this week that Biodiesel Technologies has raised "under $5 million in an institutional round of funding." Adirondack Venture Fund and Roberts Mitani LLC provided the financing, and the company expects to raise a larger round later this year. The company estimates their modular approach could provide 4mgpy biodiesel plants at a cost of $1.25mm per plant (full production costs were not provided).
  • SJF Ventures (f/k/a Sustainable Jobs Fund) announced successful fundraising, with $28mm of new capital, about half of which is to be devoted to cleantech investments. Interesting quote from David Kirkpatrick on the topic of rising cleantech startup valuations: "That's why I'm glad we're not cleantech only."
Other news and notes: Upcoming conferences to take note of -- Cleantech Forum XIII in Frankfurt, Germany... and the Clean Energy Venture Summit in Austin, TX... Congrats to the Kellogg MBA team in the recent Sustainable Venture Capital Investment Competition... And finally, the quote of the week: Rex Tillerson, CEO of Exxon Mobil, on the subject of biofuels: "I don't know much about farming, I'm not an expert on biofuels and there's not a lot of technology I can add to moonshine."

Monday, April 02, 2007

Akermin, Thin Battery, United Villages

Only a few announced new deals over the past week:
  • Enzyme-based fuel cell developer Akermin raised $3.5mm in funding (VentureWire indicates that it was the second tranche of a Series A) to add to a $3mm round from 2005. The company's alcohol-based system has been proven out at a lab level. Someday you might recharge your laptop's fuel cell power supply at the airport bar... Investors in the round included Chrysalix, OnPoint (see more on them below), Prolog Ventures, and the St. Louis Arch Angels.
  • The appropriately-named Thin Battery, which is developing ultrathin carbon zinc batteries, raised a $6.2mm round of financing. SunBridge Partners led the round, which also included Early Stage Partners, Key Capital, Orix Capital, and individual investors. Powering RFID tags and medical devices are the first targeted applications for the company's technology, which can use "traditional printing equipment". The company, which was spun out of Eveready in 2002, has raised "nearly $8mm."
  • Here's a neat marriage of solar power and IT: United Villages is using wifi-enabled buses (or motorcycles, or even a donkey, according to AlarmClock) to drive through rural areas, downloading and delivering emails to and from solar-powered computer kiosks that have been installed in isolated villages (residents pay per use of the kiosk). Omidyar Network, Cambridge Light & Power, and Gray Matters Capital Foundation provided $2mm in Series A financing for the endeavor.
Cleantech investors in the news:
  • Emerald Technology Ventures announced a final close on their 135mm euro cleantech-focused venture fund. LPs in this latest fund included Caisse de dépôt et placement du Québec, GIMV of Belgium, Rabobank of The Netherlands, Axpo Holding of Switzerland, Springbridge Limited (Advised by Consensus Business Group) of UK, Credit Suisse of Switzerland, Deere & Co., DSM Venturing of The Netherlands, Dow Chemical Co., KPC Energy Ventures, Inc. of Kuwait, Piper Jaffray Private Capital, Suncor Energy Inc. (Canada), Unilever Technology Ventures Advisory Company LLC, and Volvo Technology Transfer AB of Sweden. Emerald has already made two investments out of the fund, in Identec Solutions AG and Vaperma.
  • It may be impossible to find a conference these days that Vinod Khosla isn't keynoting, but you have to admit he's putting his (firm's) money where his mouth is. Here's a helpful list of his 26 portfolio investments thus far. It's especially interesting to note the internal distinction made between "sugar/corn fuels", "cellulosic", and "future fuels."
  • Regular readers of this site will have noticed how active OnPoint Technologies has been in the energy technology space recently. So it's interesting to note the top column on this PE Week Wire from Tuesday...
  • A new nanotech-focused firm, NanoDimension, closed on a $60mm first fund. Nanotech, as we've discussed before, has a lot of potential cleantech-related applications.
Other news and notes: More good analysis of the challenges of water tech investing... More and more students looking to get into cleantech (which probably explains why readership of this site is pretty high these days) -- so check out this column, which is still pretty relevant... Finally, here's a good cleantech April Fool's Day joke.

NEF's Q1 global cleantech private equity numbers

Interesting numbers released today from NEF, who track dealflow alongside other efforts we've discussed here before (Cleantech Venture Network, Nth Power, etc.):
  • $2.2B total private equity financings into clean energy worldwide in Q1. That's 58% above Q1 2006 totals and 60% higher than Q4 2006.
  • Helpfully, they note that the big totals were driven in large part by three major transactions: Silicium de Provence ($394mm) and Solyndra ($79mm) in solar, and Imperium Renewables ($113mm) in biofuels.
  • Differentiating between VC and private equity, "early stage venture capital" was tracked at $303mm (23% higher than Q1 2006), with Series A and seed tracked at $80mm -- "almost double" Q1 2006, but around half of Q4 2006's $159mm.
  • Interestingly, PIPEs grew sharply, at $446mm, about triple from a year ago.
  • Also a little bit of a dampening in the IPO market, with $899mm raised in initial offerings.
Lots more info found here (note: opens a pdf).
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