Saturday, February 04, 2006

Notes from Palm Springs

If there was any lingering doubt that the cleantech investment space is hot these days, attending this week's Cleantech Investors Summit event in Palm Springs dispelled it. There were well over 200 attendees for this event, and I'm guessing that the upcoming Cleantech Venture Forum in San Francisco will have even more buzz, given its track record...

Some quick thoughts and reactions coming out of the event:

• Ever wonder if there really is a "herd mentality" amongst VCs? Then you should have seen the flight down from SFO to Palm Springs on Wednesday morning. If the plane had somehow flown into a hillside, half of our industry would have been wiped out in one fell swoop. Imagine several dozen i-bankers and VCs, all wearing the industry standard "business casual plus a coat" uniform, all queueing up to get on the same flight, blackberries in hand. And of course, once the plane landed, all headed directly for the Hertz counter -- no carpooling, of course. Yours truly was no exception on any of the above, admittedly. And the flight back on Thursday was exactly the same. On the plus side, it was good to see everyone, both at the conference and on the flights!

• Overheard between two i-bankers on the flight down: "Yeah, we have a PIPE deal going on now in this space, and it really seems to be getting hot, so we thought we'd come down and check it out. Hey, as long as there're deals happening, got to strike while it's hot, right??"

• One of the more interesting speeches, among several interesting talks and presentations, was Don Paul's. As the CTO of Chevron, Don was able to speak to several interesting questions -- where is Chevron putting their R&D and investment efforts, how do they expect to bring new technologies to market, and have we reached "peak oil"? Some notable statements (as always, I'm not a reporter, so these are directionally correct but not 100% accurate):
The fact is, there's a finite supply of oil available. We can argue about when the production peak is... Some argue that we're at the peak now, on the other end of the spectrum you have Exxon Mobil saying it's probably 30 years away. I tend to come down in the middle somewhere, thinking that it's 20 years or so... One implication is that the future of energy is about diversification of energy sources, we're going to need every molecule and electron we can find.

How are these technologies brought to market? Start with someone's good idea, and someone invests some money in developing it. Then it comes time to build a pilot plant, spend $5-10M to build a plant that can produce one barrel per day. But then you want to build a world-scale plant? That will take billions of dollars. We're missing that intermediate step. That's one reason I'm a big proponent of a distributed system with smaller, precision-manufacturing plants closer to end markets. However, because of economies of scale, we still need to aggregate capital, and expertise in manufacturing to six-nines quality levels is also difficult to find.
• One impression from the corporate panel is that large companies appear to be moving back into making direct strategic investments in emerging technology companies (or alternatively, in venture firms with a similar strategic fit), after a bit of a period of retrenchment. As one panelist pointed out, while VCs get a lot of attention for their investments, it's very often the large corporations that end up bringing these technologies to broad market acceptance.

• Heard some pretty clearly expressed ambivalence among dedicated cleantech VCs about all the new attention being paid to the space. On the one hand, those I spoke with clearly welcomed strong cross-segment technology contacts and expertise (especially valuable when the clean technology in question is a cross-over with other technologies), as well as the presence of co-investors with deep pockets. On the other hand, some worried that the space could get too crowded... Interestingly, some of the more broad-based investors also mentioned concern about the rise of cleantech-focused funds:
"The fact that LPs and institutions are now specifically targeting cleantech helps the industry develop quickly... But it's also a challenge -- am I going to pay a 200% markup because I'm up against some new cleantech-focused fund in the market?"
(For myself, I tend to think that cleantech remains a long way from being overcapitalized relative to the huge markets and unmet needs, and thus am in the "welcoming all co-investors with open arms" camp.)

• As always, despite this being a "cleantech" event, panelists' and attendees' interests were clearly focused on energy technology. Also clear was the increased blurring between clean energy and other energy techs, mostly as mainstream energy investors have accepted alternative energy technologies as also fitting into their mandate: "We have invested in many major hydrocarbon sources, most of the major coal basins, in midstream production, etc. With cleantech, we see it as part of that effort."

• Matt Simmons, author of "Twilight in the Desert," is a really smart guy who gives a very entertaining and highly educational presentation about the timing of peak oil, and its implications for our economy. But I couldn't help thinking about "Expert Political Judgment" while he was talking, as visions of foxes and hedgehogs ran through my head...

All in all, it was a very worthwhile event (although I unfortunately had to miss major portions due to other work needs, and to catch that last direct flight), and it will be great to see everyone again at the Cleantech Venture Forum in a few weeks!


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