Clean Technology VC Funds

VC land a coup & A123 loses its CFO

Posted on by S Klamp

Black Coral Capital, Flybridge Capital Partners, Stata Venture Partners landed a coup when they announced that A123 CFO Michael Rubino was going to join their venture backed firm Digital Lumens.

A123 – The consequence
This move may be a blow to A123 but a great opportunity for Digital Lumens. We wrote about ‘The Past, the now and the future of A123‘ earlier this year. With Michael Rubino leaving we feel that A123 has a lot to answer for. A123’s share price is down some 40% since IPO and the future path is somewhat in limbo. Losing a senior executive certainly adds to the uncertainty. Thus it is not surprising that Wunderlich Securities downgraded the stock. The new target price stands at $6! Now, for a company that was never profitable $6 may be considered good (remember those dot.com valuations?) but it certainly does reflect that the growth trajectory and EV/PHEV adoption curve is likely to be slower than anticipated. Arguably, we could see the stock trade lighter than current levels. However, at some point we would think that some large automotive players East (SAIC) or West (VW, Daimler – Smart) may have an interest in looking at the company.

The hard facts are bleak: A123 posted a loss of some $44m, with revenues at $26m. A turnaround seems still some quarters away.  A $6 share price doesn’t sound too bad when compared to our dot.com friends who may have had similiar costs but nowhere near as interesting revenues.

How does A123 business success relate to the EV sector? One of the interesting electric vehicles we have looked at is Th!nk, the Norwegian EV producer. (A HBR case study can be found here; paid content.) In May 2010, Think  presented an update on its business. It essentially announced that another $40m of equity was provided by the existing shareholder base. Moreover, the company projects that it will be cash-flow positive by 2011. A123, Enerdel (promo video) and Zebra will provide batteries ranging from 18 Kwh to 28 Kwh.

Think and Deutsche Bank provide a chart (see above) that summarized EV model releases over the next few years. So is A123 depending on the speed up model ramp up or are EV manufacturere depending on battery capacity? The interdependence is obvious and securing battery supply has long been a key battle ground.

Digital Lumens – Opportunity in the LED & SSL space
Digital Lumens operates in the energy efficiency segment which we consider is more attractive in the near term than betting on technology backed companies alone. Rather, the opportunity to replace existing stock with better materials seems obvious and makes both commercial and ‘green’ sense. LED lighting in particular appears to be attractive for its energy savings potential. The Department of Energy (DoE) has set up the Solid-State Lightening initiative (SSL) that proposes that it can cut US energy lighting usage by 25%. In March 2010, the DoE published a Muli-Year Program Plan for SSL. The report states that ‘[t]he global lighting fixtures market is expected to reach $94 billion by 2010, and SSL is expected to play a substantial role in the market by that time. Sales of high-brightness LEDs (HB–LEDs), the technology associated with LEDs for lighting applications, were $5.3 billion in 2009.” Siemens‘ Osram’s Sylvania program notably focuses on SSL.

Khosla Venture and General Catalyst have both been active in the LED space: both funded LumenZ, a Boston based University start-up. Checking on Khosla’s website, we fail to find it in their Portfolio section. However, in a presentation delivered in 2009, it is still in the portfolio. Highland Capital Partners made an investment in QD Vision. QD’s pitch is interesting ‘QD Vision is developing quantum dot solutions for efficiently backlighting mobile phones and other mobile displays, as well as LCDs for desktop and notebook computers and LCD television screens. These initial applications alone represent an addressable market exceeding $2 billion by 2014 for quantum dot-based components’. According to some news sources, QD Vision has raised a total of US$33m to date.

Overall, as costs of LED is coming down the adoption curve is likely to increase significantly. For now, technology hurdles, costs, and general consumer/ commercial acceptance are issues that need to be addressed.

Clean.Invest – RSS Feed for our Cleantech & PE/VC Fund and Company Blog

Posted on by S Klamp

We have reached 50,000 readers on our blog – we are surprised about the level of interest and like to thank our readers for the continued support. If you haven’t subscribed to our RSS feed yet, you may want to consider to add https://cleaninvest.wordpress.com/feed/ to your RSS feed either in MS Outlook, netvibes.com or any other news/content aggregator. Alternatively, you can click on the link on the left navigation pane to subscribe.

We have also enabled the tweets, email, facebook and print functionality for all our content. Use it if you think others may be interested in the same stories and research.

Again, many thanks for your support. If you have any suggestions for topics, insights or critique, please feel free to get in touch. We welcome your thoughts.

Chinese 12th 5-year plan – New Energy, New Energy Cars

Posted on by S Klamp

Are the days counted for China’s top-down macro economic decisions and for its state-owned monopolies? The next 5-year plan proposed by the Chinese Government focuses its attention on new energy and clean-energy cars. According to China Daily the government intents to ‘speed up new energy development and promote clean and efficient use of traditional energy, develop hydroelectric and nuclear power, and increase strategic oil reserves’.

Alongside new materials, high-end manufacturing, next generation information technology, and biotech,  these industries form part of the “new magic 7” emerging strategic industries. (The old magic 7 consisted of national defence, telecom, electricity, oil, coal, airlines, and marine shipping.) It appears that the new magic 7 are more focused on bottom-up drivers and allow companies to use their ‘innovation’ process to drive capital allocations.

Ahead of the Chinese party conference, HSBC published a report titled ‘China’s next 5 year plan – what it means for equity markets‘ which investigates the new proposal in some detail. Specifically, the overall objective of the 12th five year plan (2011-2015) lies in the pro-rate increase in domestic demand to total demand and secondly, and as importantly, the overall reduction of the carbon footprint (CO2) by 40%-45% by 2020.

Source: HSBC, China's 12th 5-year plan, New Magic 7

Further, the proposal projects that urbanisation will march on. HSBC estimates that a further 200-300m people could be urbanized over the next 20 years. If the hukou or registration simplification process moves in line with this shift, the projection suggests that consumption should increase significantly. The caveat here is that the property market development should ensure that the property bubble itself can be contained and price movements are more gradual going forward.

More importantly, there appears to be a continued drive to allow private capital to compete in what once were state monopolies or controlled industries. This should be great news for China focused private equity funds. From our view, there are still many low hanging fruits to be harvested by the largest funds in the region, including John Zhao’s Hony Capital for example. The investment pace has slowed a little since 2007 but funds are still putting capital to work. We need to wait and see whether some assets were overpriced and IRRs for Investors will be meaningful. Our views is that funds that put money to work throughout business/ macro cycles will do well for the time being.

We also note the drive to reduce high pollution and high energy consuming industries. For one, any energy price subsidies should be reviewed to allow a ‘fairer’ market price. Regrettably we feel that this process will take longer than currently proposed. We see a risk that some local producers/ polluters input cost competitiveness may be at risk on the global stage. In particular, pharmaceutical, the glass and other high water/power consuming sectors could lose some of their appeal. Can the government afford this – yet?

Source: HSBC, China's 12th 5-year plan, Roadmap

Certainly, the governments objective to double or indeed triple per capita income can only be a welcomed target. With that, domestic consumption levels should raise dramatically allowing for more propensity to consume (let’s hope little will be used for gambling!). Overall, the plan is intriguing and we look forward to seeing particulars.

To sum up, the China Council for International Cooperation on Environment and Development (CCICED) suggests four scenarios for a low carbon economy until 2050. Although not that specific yet, it demonstrates the authorities focus on renewable energy and commitment to cleantech. The four scenarios proposed split into four categories: (i) BaU (business-as-usual) under high growth rate (BaU), (ii) Low Carbon Scenario under high growth rate (HCL), (iii) Enhanced Low Carbon Scenario under high growth rate (HELC), (iv) Low Carbon under high growth rate (LLC). See the link above for more details.

China’s Pathway Towards a Low Carbon Economy

China’s Pathway Towards a Low Carbon Economy

CleanTech Investing in 2009 & 2010

Posted on by brettalan

356 investments in CleanTech occurred in 2009, a new high. However the dollar amount is down to $4.85B from $7.6B in 2008 over 350 deals comparatively, according to a new report from GreenTech Media. The downward trend over more deals may reflect the global capital markets as much as it does the CleanTech sector itself. Or, the optimist could point out that overall investment was nearly $5 billion in spite of the global economic crisis!

According to several VC firms spoken to on a recent trip to Silicon Valley by the staff of this blog, investors are seeking less capital intensive opportunities while seeing an influx of opportunities. Partnering with firms that have smaller capital needs, VCs may play a more significant role in their management and development, while lessening the potential for large, future capital re-investments. This trend may in part be a result of the challenge to raise capital most funds are facing as well as their preference to maintain control.

Source: GreenTech Media

The solar sector is generally viewed as capital intensive, but despite this was the largest sector accounted for in 2009 investments with 84 deals over $1.4B. Biofuels was second, and energy storage, smart grid and automotive rounded up the top CleanTech sectors. Water now is on the radar with $130MM over 33 deals.

Things to look for in 2010:

1) Codexis IPO? Tesla Motors IPO? Solyndra IPO? (all 3 have reportedly filed)
2) Will oil price fluctuations help CleanTech?
3) Will a recovery of the capital markets occur to help encourage the flow of seed money?
4) Introduction of more electrified automobiles effect on energy storage and transportation (many new models expected this year)
5) And much more! (water, smart grid, government mandates, materials and infrastructure)

(CMEA Ventures invested in A123, and is also invested in Codexis and Solyndra- a nice, potential 3 firm IPO streak for 2009-2010!)

Clean Energy Patent filings expanding despite capital markets

Posted on by brettalan

With less capital flowing from investors to inventors, clean energy patents are still flourishing. According to a recent report from Heslin Rothenberg Farley and Mesiti, the index of Clean Energy Patent Growth (CEPGI) had its best quarter since its inception in Q2 2009 with 274 patents granted, up from 217 year over year. Fuel cells, solar and hybrid/electric were the most active categories of patents filed. Company wise, Honda led with 14 fuel cell patents and 3 hybrid/electric patents. GM was second place with a total of 15 patents granted. Geographically, Japan led with 75 patents, and California was second with 29. This CEPGI is a good indicator of innovation and development providing future opportunities for investors and funds.

patents

Source: http://cepgi.typepad.com/heslin_rothenberg_farley_/

Khosla Ventures announces $1.1 billion cleantech funds

Posted on by matthewlim

Finally, on 1 Sep 2009, Khosla Ventures has announced that it had raised more than $1 billion for 2 new funds focused on cleantech and renewable energy. Khosla Ventures III and Khosla Ventures Seed raised more than their targets of $750 million and $250 million respectively. The investors include the California Public Employees’ Retirement System, Michigan’s State Employees’ Retirement System and the Regents of the University of California, Vinod Khosla said in an interview.

The $800 million KVIII fund will make initial investments of $5 million to $15 million in early and mid-stage clean energy and information technology companies. The $275 million KV Seed fund will finance what Khosla called high-risk “science experiments” that may exist only in a university laboratory with investments of about $2 million. About two-thirds of the investments will be devoted to green tech, with the remainder invested in more traditional technology firms.

The new funds fly in the face of two of the prevailing investment philosophies in Silicon Valley. In response to diminishing venture capital returns, investors have been advocating small funds of only a few hundred million dollars and staying away from high-cost, high-risk alternative energy companies. Khosla advocates precisely the opposite. Harnessing technology to address climate change will require the big risks that venture capitalists were once known for, he said. “We’re really about reinventing the infrastructure of society, which is the only way we’ll get the carbon footprint down, and we’re not afraid to fail.”

This is the largest amount raised by a VC firm since 2007 and the largest first-time fund raised since 1999, according to the National Venture Capital Association. This was also the first time Khosla Ventures has raised funds from outside investors. Previously the VC firm had invested hundreds of millions of dollars on behalf of its partners, including Khosla himself (which is quite unusual for a VC firm).

But Khosla is more interested in uncovering technology breakthroughs than in latching onto the latest green trend. “Things that are too much in fashion are things that I would shy away from,” he said in an interview. “Whatever the press calls hot are areas that I’m less interested in.” “I like to call it ‘main tech,’ not clean tech,” Khosla said. “We’re doing bioplastics, lighting, engines, water and air conditioning — almost anything that can be made renewable, sustainable, more efficient and cheaper.” “There’s an opportunity basically where technology innovation changes economics. In our business you can’t get in and out when the markets are bad. In some sense, when most people aren’t investing, it’s a good time to invest.”

The chance to invest in a broad-based portfolio was attractive to CalPERS. “Vinod Khosla’s opportunity set is larger than anyone else in the business because it goes beyond alternative energy to materials, water and other areas,” said CalPERS spokesman Clark McKinley. “There’s high risk, but high return. Some companies won’t pan out, but there could be great returns if he’s able to create the next Exxon of the alternative energy field or the next great concrete company.”

“The terms I used to describe our seed fund were, ‘We don’t expect to be fiduciary all the time. We will often invest in things that have a high probability of failure,’ ” Khosla said. Yet to his surprise, there was more interest in that fund than the other. “We insisted on being in a fund like that,” said Joncarlo Mark, head of private equity investing for CalPERS which invested $60 million in Khosla’s riskier small fund and $200 million in the big fund. “The opportunity to partner with Vinod in his science experiments to us is as attractive as having a later-stage fund investing in more established businesses.” One reason Khosla’s investors are comfortable with the firm’s high-risk bets is that the partners have invested at least $100 million of their own money in the fund, Mr. Mark said.

In addition, Khosla Ventures is bringing on 2 new partners to help manage investments: former Facebook CFO Gideon Yu, and former senior partner with CMEA Capital, Jim Kim. Kim has a cleantech background, having worked with A123 Systems, Danotek and Solyndra at CMEA and before that GE Capital. Yu will probably look closely at IT startups, which will get part of the new Khosla funds.

See my previous blogs:
CalPERS invests $60m in Khosla’s closed $250m seed-stage fund
Khosla Ventures

Sources:
Khosla Announces $1B in Funds, Partner From Facebook
Khosla raises $1 billion for renewables, cleantech
Khosla Raises More Than $1 Billion for Energy Funds
Khosla Ventures raises $1.1 billion to invest in green technology
Venture Firm’s ‘Green’ Funds Top $1 Billion

Why Invest in Water?

Posted on by matthewlim

“When the well’s dry, we know the worth of water.” – Benjamin Franklin

If you read “The State of the Water Industry” and the “Introduction to Water Investing 2008” reports on the Summit Global Management’s website, you might go away feeling depressed about the current or future state of our water.

If you think the report is quite doomsday in its predictions, the guys from the UN issued similar warnings about the state of water. You can check out “The 3rd United Nations World Water Development Report: Water in a Changing World (WWDR-3)” just released by the UN in Mar 2009.

I’ll briefly highlight “recent trends and highlights” from the report:
1. Water investments gain attention as economy falters
2. Renewed focus on the environment
3. The intertwining aspects of water and global food production
4. Water to make oil, oil to make water
5. Growing concerns about global climate change
6. The bottled water craze cools off
7. New policies and new ways of thinking about water
8. Public versus private ownership

The key drivers behind the water business:
1. Water quality and scarcity problems are reaching crisis proportions
2. Public awareness and understanding of water problems is increasing
3. Regulation and enforcement will continue to intensify
4. Huge economic and human capital investments are required in the water industry

Industry trends and key issues:
1. Increasing regulation and government oversight
2. Our dilapidated infrastructure
3. Conservation and efficiency
4. Focus on recycling and re-use
5. Better measurement and monitoring
6. Technological solutions
7. Residential water consumption
8. A surge of investment in the industry

One of the amazing item on the report is that it shows the high returns of US water utilities compared to major indices like DJIA, S&P500 and Nasdaq, achieving 104.4% returns over 5 year period and 383.06% returns over 10 year period. See the picture below.
US Water Utilities Outperform
In the report, it claims “a striking and very illustrative fact is that in any randomly examined 5-year period in the last 25 years (1982-87, 1993-98, 1979-84, etc), water utilities topped the list of the best performing industry groups in the US stock market on a total return basis. Why? The simple answer again is that water utilities have always done very well in good times and bad.” Now, if only I could get the latest data to 2009 (since the data above was until 2006 at near the height of the bubble)…

I’m trying to reconcile two facts here: on one hand, these utilities are cash-rich and gives out dividends regularly, and on the other hand, water is underpriced and underinvested as well as it costs a lot to maintain and upgrade the dilapidating infrastructure. So where’s the money coming from and why the extremely high returns?

Nevertheless, with the water crisis looming, there are unique attributes specific to water investing, as described in the report:
1. There is no substitute for water and users cannot postpone purchases; price-inelastic demand
2. Conveyance and resource assets create a natural monopoly with huge barriers to entry
3. Demand is unaffected by inflation, recession, interest rates, changing preferences, or inventory loss
4. A history of strong and consistent growth under all market or economic conditions
5. Price of water does not yet reflect real economic value: huge room/need exists for asset price expansion

India to launch green tech venture fund

Posted on by matthewlim

Just last week I wrote that the Indian Prime Minister’s Council approved in principle a 1 trillion rupees ($21 billion) Solar Mission over a 5-year period ending March 2012 to make India a global leader in solar power.

Now, according to EETimes report on 14 Aug 2009, the Indian government plans to launch a venture fund to promote green technology research. This fund is separate from the government’s 2007 plan to subsidize new companies to manufacture solar cells and panels.

The size of the fund and other specifics will be determined by the National Mission on Strategic Knowledge for Climate Change (NMSKCC). NMSKCC, which is currently preparing a mission document with milestones for promoting green technologies, will identify and designate key institutes to be centers of excellence in climate research.

The India Semiconductor Association (ISA) praised the government’s green technology plan. “The clean tech sector has seen huge interest from venture funds and private equity investors globally. This is the right time that this is happening in India.” said ISA President Poornima Shenoy. Earlier in the week, NXP Semiconductors agreed to provide electronics components for the manufacturing operations at Tata BP Solar.

Comment: To add on to the earlier blog, there is currently no funding for the $21 billion Solar Mission and India expects the West to fund its solar energy plan. Guardian argues that India should not rely on the West for funding if India is genuinely wants to meet the challenge of climate change. To me, it’s mind boggling that one should announce a $21 billion plan without any confirmed funding (or is there?). In this new green tech venture fund, its source and size of funding is not known yet. We’ll just have to wait for the details.

Sources:
India to launch green tech venture fund (EETimes)
India to go toe-to-toe with cleantech VCs (Cleantech Group)
India shouldn’t rely on the west to fund its solar energy plan (Guardian)

CalPERS invests $60m in Khosla’s closed $250m seed-stage fund

Posted on by matthewlim

In my earlier blog, I mentioned that a Forbes article on 20 July 2009 reported that Vinod Khosla is near to closing $1 billion in new funds. He is on the verge of announcing 2 new funds with money from outside investors: $250m vehicle for seed-stage investments and a $750m fund called “KVIII” for larger deals. California pension giant CalPERS said several months ago it had committed $200m to a new Khosla fund.

Now, more details have emerged on 12 Aug 2009 that CalPERS disclosed it committed $60 million in June to Khosla Ventures’ $250m seed fund, which CalPERS said has finished fund-raising. Khosla Ventures Seed LP will focus 75% on clean technology and 25% on information technology. See the CalPERS pdf document here (page 22 onwards).

CalPERS in February had recommended committing $200 million to the later-stage fund, Khosla Ventures Expansion Fund, which CalPERS disclosed then was targeting $1 billion (comment: is this the same as KVIII?). The 2 new funds are the first time that Khosla Ventures has raised outside institutional capital, and CalPERS would participate in the expansion fund as an anchor investor.

Cleantech is a classic venture capital industry, with high risks and high rewards, according to Vinod Khosla. “What’s amazing about this is the size of the markets,” he said at a recent AlwaysOn conference. While the failure rate in cleantech is likely to be high, he said, “the wins will be bigger. More money will be made in cleantech than in traditional areas of Silicon Valley – by far.”

Earth2Tech reported in its article, “But while Khosla has earned a reputation for putting his money where his mouth is -– he’s invested hundreds of millions of dollars of his own cash into startups -– CalPERS’ assessment of the firm as having a diversified cleantech portfolio is another story (note: see page 23 of the pdf document). Khosla has disproportionately bet on biofuels, with more than a dozen startups including Mascoma, Range Fuels and Coskata in his portfolio, many of them now in the capital-intensive project development stage. Still, to be fair, Khosla has made investments in lighting (Lumenz), engineered geothermal (AltaRock), solar (Ausra) batteries (Sakti3 and Seeo) and other sub-sectors, but the heavy focus on biofuels still stands large. The good news for venture capital watchers is that with CalPERS’ investment, Khosla Ventures’ performance will be more transparent as a result of the pension fund’s filing requirements.”

Sources:
One Down: Vinod Khosla Closes $250M Seed-Stage Fund
Khosla’s $250M Seed-stage Fund Closed, CalPERS Invests $60M