Friday, March 24, 2006

Cleantech Venture Forum recap

Quick side note: A couple of days ago, this site hit its first anniversary. So a big thank you to all you readers out there (and there's a lot of you now), I'm always pleased and honored when I hear from so many of you that this site is useful for your own efforts out there. So why don't we keep this thing rolling...

[3/24 update: Neal Dikeman has also posted a good take on Doerr and Denniston's talk, here. Well worth checking out. rd]

[3/24 update II: Matt Marshall has also put up a column about the Cleantech Venture Forum, here.]

As previously mentioned, my colleague Kjartan kindly offered to write up his thoughts on the Cleantech Venture Forum:


Hi all, this is Kjartan again. Rob is away on the East coast and since I had the pleasure of attending the Cleantech Venture Forum IX right here in San Francisco this week, I agreed to write a few words.

First off, this was the largest gathering in the history of CTVN, with ~500 participants. Huge! It is fair to say that practically “everyone” who is anyone in Cleantech VC (except Rob…) was there. Thankfully for those few who did not make it, for CTVN members, transcripts and podcasts will be made available of all the panels and sessions.

As a quick conference summary before delving into details, the space continues to see a very rapid growth in interest, from new and old General Partner’s and Limited Partner’s alike.

Day 1

Tuesday, day 1, kicked off with the first ever Cleantech Limited Partner Salon, which focused on existing and prospective Cleantech LPs, individuals, families, foundations, and institutions.

As an overall summary of this day, LPs are increasingly looking to put money to work in the space. LPs includes high net worth individuals and families (who tend to be early movers), as well as foundations and institutions. A newish, very welcome development is the formation of Cleantech-specific Fund of Funds. There were two present at the Salon: Piper Jaffray’s and Macquarie Asset Management’s.

Instead of boring you with a play-by-play of the panels, the below is a quick summary of some interesting tidbits:

Mark Heesen, president of NVCA, gave a quick overview of the state of the venture market: In the current fundraise cycle (’04-’06), the organization projects ~$68bn of funds raised. While this might seem like a lot, contrast this to the $202bn raised in the ’99-‘00 fundraise cycle…

He went on to warn investors against the level of regulation in Cleantech. Aside from lifesciences, VCs are not used to this level of regulation. I would dispute this point: a) what about telecom? b) more importantly – he focuses on the energy side of the equation only (a common misunderstanding). While energy continues to make up the bulk of Cleantech investing, I see sectors such as manufacturing (where beyond the cost of energy, the uptick and volatility of natural resources drive demand for more efficient products), advanced materials (new materials properties for i.e. solar apps), transportation related technologies (continued strong demand for hybrids, biofuels, etc), and water & wastewater (which grant it does see regulation, but e.g. is in desperate need of infrastructure upgrading) offering equally interesting investment opportunities, and often at more attractive valuations.

Nick Parker, Chairman of the Cleantech Venture Network, always has interesting things to share, and presented his findings from several studies, including the “Exit Study” (pdf of exec summary) from last year and recently released Cleantech Venture Capital Report (pdf of exec summary). Here follows a quick summary of his presentation:

  • ~120 GP’s raising money at the moment, according to a recent NVCA survey (at least three present at the conference announced plans to close funds in the next two months).
    • 20 of venture managers surveyed plan to make a Cleantech investment in the next 4 years.
  • In the period ’99-’05, 43% of all Cleantech deals done by $, and 36% by count, were in the Energy space.
  • Historically, about 95% of all exits in Cleantech have been via M&A.
  • There is a gap in early stage Cleantech investing (many more multi and later stage funds than early stage)
  • However, CTVN projects ~$8.5bn will be needed through ’09 to fund existing companies. This is not a near term problem, but obviously one that needs to be addressed for the long terms sustainability of the space.

Winston Hickock (CalPERS) moderated the financial institutions panel to explore the financial community’s rational for looking at the space, which can be summed up very briefly: it is an area seeing exciting growth, where real money can be made.

The panel (and probably Winston’s background as the former head of California’s EPA) also triggered the inevitable debate on the energy properties of biofuels, which this blog has previously discussed here and here (and probably other times too)…

Ira Ehrenpreis from Technology Partners moderated the Fund of Funds and Family Office panel. A panel that underscored continued interest from families and increased interest from the institutional community. Importantly, during the panel and per my above comments about the definition of Cleantech, Ira really hammered home that the space is not just energy; it is water, it is advanced materials, it is advanced manufacturing, etc. These are the largest markets in the world, and this is indeed an enduring sector.

Unfortunately, I had to duck out for Jeff Leonard’s panel on corporate investors, but will refer CTVN members to the forthcoming podcasts.

Day 2

Presenting companies.

Not going to go into much detail here except to say that these forums continue to see a steep upward trend in the quality of companies, and very importantly, in the management of these companies: several highly successful serial entrepreneurs proudly presented their Cleantech companies.

In what was definitely the most anticipated session of the day, John Doerr and John Denniston of KPCB shared their view of Cleantech and took questions from the audience. I think all 500 participants and then some were in the room for this.

John and John shared with us what they see as the three big challenges / trends / opportunities for the coming century:

  • Our addiction to oil
  • Urbanization and the challenges this brings, from increased energy needs, to water needs, to health challenges.
  • Climate change

For those who did not already know, KPCB’s most recent fund ($600M) has earmarked $100M for Cleantech (they call it “green technologies”) and $200M for Pandemic preparedness and Biodefence technologies. Now you know why.

The duo covered much ground during the hour long session. To me, the most fascinating part of the presentation was when they shared with us the secret of a successful entrepreneur. There are two types of entrepreneurs: mercenaries and missionaries. Mercenaries are in it strictly for the money, whereas missionaries are in it to change the world.

John and John threw up a laundry list of qualities that characterize the missionary vs. the mercenary. And while they did not use these words, what the finding amounts to is that entrepreneurs who focus on building a long term sustainable business, and not just for their wallet’s sake, are by and large more successful financially than those who are not. I have heard this from other extremely successful VC and PE investors as well

Another trend they reiterated is that the markets are now moving investments in a more sustainable direction, regardless of government policies and other external factors.

Day 3

We started Thursday by honoring Dr. Zhengrong Shi, CEO of Suntech, who also gave a very good speech on the state of the solar market. Rob has done a great job of discussing this topic before and I will summarize Dr. Shi’s comments: The current technology is first generation: low efficiency and expensive. Next generation will be low efficiency, but much less expensive. Third generation (within 30 years) will be high efficiency and low cost – this is the true paradigm shift. If I find a link to his excellent presentation, I will post it here.

I also sat in on an interesting panel discussing current exit opportunities and naturally the AIM came up. For those of you who don’t know, the AIM has provided a mechanism by which early stage companies could access public $, and also obtain shares with which to make acquisitions (not too different from the Toronto Venture Exchange).

A key question was why do North American companies list in Europe and not on an exchange closer to home? The answer appears to be: They can access more funds at a higher valuation, and the regulatory burden is perceived as being lower.

Beyond this, much of the conversation centered around PolyFuel’s (one of the panelists) listing last year. PolyFuel is an early stage (pre-revenue at time of listing) maker of membranes for fuel cells. The panelists seemed to agree that it made sense for PolyFuel to list, yet it did come at a cost. The CEO now needs to be in London at least once a quarter, and the cost of auditing has also gone up substantially, in addition to the cost of actually listing on the exchange (approx $1M). That said, PolyFuel will have accessed in excess of $30M of new capital via the IPO if/when the warrants are executed (currently all above water).

Later, during lunch, Expansion Capital Partners' Mark Donohue (self promotion alert) addressed the forum with a speech titled “Solar Panels Made in Sweatshops”, which really elaborated on the above points made by Doerr and Denniston regarding long term sustainable behavior. In short, by paying attention to the broad sustainability of portfolio companies’ activities (including social and environmental in addition to economic criteria), investors can help maximize and de-risk returns. It seemed to be very well received, and nicely wrapped up the official part of the conference.


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