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Cleantech Venture Backed M&A Exits? Well, Yes, Sort of . . .

When people ask me, are investors making money in cleantech, I tell them yes, but not by whom or in what you thought they were.

Most of the analyses of cleantech exits do not differentiate for venture backed companies.  So we conducted our own study.

In the last 10 years, Cleantech.org’s Cleantech Venture Backed M&A Exit Study shows a grand total of 27 venture backed cleantech deals > $50 mm.

All in all, very tough returns.   A number of 8 to 10 figure fortunes made, just laregly not by the investors spending the 9 and 10 figure investments.

19 where we had data on both exit values and venture capital invested, 8 where we had revenue estimates.

We found a 2.78x Median Exit Value Multiple on Venture Capital Invested

– Those exit numbers include the founders and management’s shares, so average returns to investors would be somewhat lower.

We found a 2.2x Median Exit Value Multiple on Revenues.

$13 Billion in total M&A exit value.  Not bad, until you realize that’s over 10 years where cleantech has seen tens of billions in investment, and we used a pretty broad definition of “venture backed”.  To get there we included Toshiba’s Landys+Gyr, Total’s Sunpower, EDP’s Horizon and ABB’s Ventyx deals.  Those are the top 5 deals by value, and represent 60% of the $13 Billion.  None were backed by investors you would normally think of as cleantech venture capital powerhouses (Bayard Capital, Cypress Semiconductor, Zilkha and Goldman Sachs, Vista Energy).  Three of them included prior acquisitions themselves.

Excluding those and looking at only the transactions where we had both valuation and exit data we found and even weaker $3.8 Billion on $1.8 Billion in venture capital, 2.1x.

Most surprising, if you looked at the list of investors in these Nifty 27 exits, you’d have heard of very few of them.  This is truly not your father’s venture capital sector.

The exits have a surprisingly low tech flavor, and were carried by renewable energy project developers, ESCOs, and smart grid, and solar balance of system manufacturers.

If we had limited this to Silicon Valley venture investors in high tech deals, well, you’d have wondered if M&A were a four letter word.

Interesting, isn’t it?  Contact me at dikeman@janecapital.com with any questions or if you’ve got deal data you’d like to see included.

Cleantech Venture Capital – Still Rising

As part of our ongoing series on stories on investment in the cleantech sector, we had a chance to discuss the sector with one of the venture capitalists at Emerald Technology Ventures.

Scott MacDonald is an Investment Director with Emerald Technology Ventures, a global leader in cleantech venture capital. Founded in 2000 under the name SAM Private Equity, Emerald is a pioneer in this rapidly emerging sector and is focused on innovative technologies in energy, materials and water. With offices in Zurich, Switzerland and Montreal, Canada, Emerald manages three venture capital funds and two venture capital portfolio mandates totaling over US$380 million. Scott currently serves as Chairman of RuggedCom and as a Director of Solicore and SoftSwitching Technologies. Prior to joining SAM, Scott held the position of Managing Director at OPG Ventures Inc., the venture capital subsidiary of Ontario Power Generation. Previous to OPG Ventures, Scott worked for ACF Equity, an early-stage venture capital company focused on investing in information technology companies. Scott graduated with a Bachelors degree from McMaster University and an MBA from Dalhousie University. He is a member of the North American Advisory Committee of the CleanTech Venture Network.

I know a bit about the history of SAM and Emerald Technology Ventures, and as one of the oldest cross-border investment groups in the cleantech area, I am very curious to get the Emerald Technology take on a number of issues. So we put to Scott a few thoughts and questions to get their take:

Emerald sponsored the San Francisco GreenVest 2007 conference I am chairing in June, and you are speaking there – can you share a few of your insights on the future of the cleantech area as an investment asset class?

I think we are in the early days but there is certainly an element of notoriety that the sector has attracted over the past 12 months with scientists, politicians and venerable VCs claiming action is required now to save the planet from global warming. A reputable and experienced LP in the venture asset class told me just last week that every generalist fund they speak with mentions an initative in cleantech. I think the great generalist funds will invest in the sector (as you know a few already are) and they will likely be successful. The specialist funds like Emerald will continue to map out and invest in innovating technologies because of our technical expertise and experience. Based on a number of successes exits to date in our first funds (Evergreen, Schmack Biogas, Pemeas), the specialization strategy seems to be working well. A really exciting development is that we are starting to see repeat entrepreneurs. Cleantech entrepreneurs that have successfully exited and are looking to try it again – and we couldn’t be happier. This was a key factor in the growth of the IT sector in the late 80s and 90s.

And can you fill me in a bit on the ins and outs of the recent fund history – the mandates with CDP and Ontario Power, your fund raise last year, and the subsequent MBO to form Emerald?

In 2000, SAM Group (Sustainable Asset Management), a leading asset management company specializing in sustainability investments and headquartered in Zurich, launched SAM Private Equity as its venture capital arm. That same year SAM Private Equity closed the SAM Sustainability Private Equity Fund and the SAM Private Equity Energy Fund with a combined EUR 90 million in commitments from leading institutions and strategic corporations. Both of these first funds are fully invested. In 2004, SAM Private Equity was awarded the portfolio management mandate from la Caisse de Dépot et Placement du Québec (CDP), a large Canadian-based pension fund, to manage its direct energy technology venture capital portfolio. Following the awarding of this mandate, SAM Private Equity increased its North American presence with two former members of the CDP team and established a North American office in Montreal, Quebec. In 2005, SAM Private Equity was awarded its second portfolio management mandate from Ontario Power Generation, a large Canadian electric utility, to manage its direct energy technology venture capital portfolio. To further strengthen its North American investment focus, two members of the former venture capital arm of Ontario Power also joined the team.

In March we announced the final close of our latest cleantech focused venture fund with commitments of EUR 135 million (US$180 million). We are going through a name change but the fund will be renamed Emerald Technology Ventures Fund II. Strong investor demand helped us exceed our original target for the new fund of EUR 100 million. Investors in the new fund are leading investment companies, financial institutions and multinational corporations from around the globe including: GIMV – Belgium, Rabobank – Netherlands, Caisse de dépôt et placement du Québec – Canada, Axpo Holding – Switzerland, Springbridge Limited (Advised by Consensus Business Group – UK), Credit Suisse – Switzerland, Deere & Company – USA, DSM Venturing – Netherlands, The Dow Chemical Company – USA, KPC Energy Ventures, Inc. – Kuwait, Piper Jaffray Private Capital – USA, Suncor Energy Inc. – Canada, Unilever Corporate Ventures and Volvo Technology Transfer AB – Sweden.

I have to ask, the name change – Sustainable Asset Management was an old brand in the cleantech investment sector, why the name change to Emerald?

Following the buy-out we are a private independent VC manager now and as such can no longer use the SAM brand. The SAM brand is powerful but it also was the source of some market confusion for our venture capital division. It’s clear now that Emerald is an agile and independent global VC manger with in-house expertise in the cleantech sector focused on investing exclusively in the cleantech sector and we have a new fund to do deals.

How many deals have you done from the new fund, how much capital have you employed, and what are you expecting to do over the next 12- 24 months?

We have made three investments out of the new fund and are closing on two more which should be announced within the month. We have only announced two of the investments to date – Vaperma and Identec (details of each is on our web site) www.emerald-ventures.com
I would expect we will invest in about 6 portfolio companies in total this year. We like to invest between US$2 -5 million in the first round depending on the opportunity and the stage. Technology, market and management are what’s important to us – we will consider all stages. Well…if it’s just a conceptual idea on a bar napkin we need to know the entrepreneur has made himself and others very wealthy in the past (preferably us – back to the serial entrepreneur comment).

What’s your passion these days? What technologies are you focused on?

I think there is an incredible opportunity for new technologies to help upgrade the antiquated electricity grids in Europe and North America and to leap frog into the incredible build-out that is going on in countries like India and China. China last year built an average of five 300 megawatt electricity plants a week and energy consumption is expected to continue rising fast as China aims to quadruple the size of its economy by 2020. This means a lot of new grid infrastructure technology will be deployed. We have a number of portfolio companies in the “smart Grid” space and will continue to seek out investments in this space.

You’ve had a couple of recent exits in fuel cells – what fund were they from, and has that changed your appetite for similar technology areas in the future?

We have had recent exits in this area: Pemeas which we sold to BASF and Cellex which we sold to Plug. We still have an number of other FC investments in our portfolio that we are bullish on – Angstrom Power and PolyFuel. I would say we have learned a lot about the general FC market and understand many of the technology challenges and market adoption risks much better. We are still interested in the FC space – I would just say we are a more sophisticated FC investor now.

What does Emerald see as the main differences between investing in cleantech in Europe versus the US?

The topic of an article in itself but quickly: Deal structure, Corporate governance model, Company history (many family business in Europe), labour laws, language, proximity and access to stock exchanges which are more accommodating to VC backed companies (Frankfurt Prime Standard, AIM), valuations (typically more favourable than the US – comparable to Canada where we are also very active). The short answer is lots but both regions provide great opportunity to generate investor returns. Again or investment thesis is based on the fact that unlike IT, cleantech is a global business and as such, investment opportunities are not limited to Silicon Valley or any other specific geography. At Emerald Technology Ventures we have taken a distinctive approach to addressing the challenges associated with technology specialization and geographic diversity. Our approach includes having technically competent people in-house and locating our Partners and Technology Specialists in two of the most important Cleantech markets in the world: North America and Europe.

We have done a lot of writing at Cleantech Blog on topics including ethanol, solar – so I’d like to get your 1 sentence rapid fire take on a couple of always topical cleantech investment debates:
– Thin film vs. Conventional PV – Thin film if you have deep pockets and patience
– Solar concentrators vs. Flat Panel – No comment, yet.
– Cellulosic vs. Corn Ethanol – Science project vs. commodity. I’m a VC…science project always wins.
– Cleantech vs. Greentech – Make great products, build great businesses and provide great returns to investors (and hopefully help out our world along the way) and no one will care what you call it.

Thanks Scott. Especially with those last comments, you’ve provided some good food for thought. The venture capital sector is built around high risk, high reward, and you guys are certainly in the mix. We continue to keep our fingers crossed that cleantech sector can deliver on the rewards side. You can find more on Emerald at www.emerald-ventures.com. And don’t forget to visit GreenVest on June 25 in San Francisco.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Author for Inside Greentech, and a Contributing Editor to Alt Energy Stocks.

Which Way to the Sun? Where is Solar Headed?

I had a chance to talk with David Hochschild, the outgoing Executive Director of PV Now about his thoughts on the solar industry and recent changes. PVNow is an industry association that, among other things, helped lobby for the net metering and the solar initiative in California and increased RPS standards in Texas and New Jersey. David is a well-known advocate and speaker on solar issues.

David, can you give us a bit of background as to PV Now, and your role in the industry?

Sure. I co-founded Vote Solar in 2002 after working on the $100 M solar bond campaign in San Francisco. More info at http://www.votesolar.org/. For the last year, I have been Executive Director of PV Now, the consortium of major solar companies, working to promote pro-solar policy at the state level.

While PV is the only viable solution for small point of use electric generation, solar thermal is generally considered a hugely more economic solar solution at multi-megawatts scale than PV, but PV gets all the press in its drive to compete with the grid at large scale. Why is that? Understanding that your focus is PV, how would you like to see solar thermal fit in the solution set?

Am a huge fan of solar thermal and am getting a thermal system installed on my house this weekend, actually. I think PV gets more attention in California partly because we experienced an energy crisis that was really an electricity crisis and the blackouts were an electricity problem. But the contribution solar thermal can make is very real and very important and I think the passage of the ITC bill this year, if it happens, will do a great deal for solar thermal. States like Hawaii and countries like Israel already have a 30% market penetration for solar thermal and there’s no reason CA couldn’t as well. A little known fact – the country with the most solar thermal in the world is China. My personal view is that US should be leading in both PV and solar thermal and that if we can get the 8 year solar tax credit bill passed this year (HR 550), we will be in position to retake the lead.

It feels like there has been a changing of the guard in terms of the leaders in PV module production. What’s your take? Who would you rank as the up and comers?

I think China is emerging and we’ll see companies like Suntech really continue to grow rapidly. Older industry leaders, like BP, that used to dominate, are now sliding down the rankings of PV manufacturers. It’s also a good time for American solar manufacturers like SunPower and Evergreen, which are growing fast and are aided by the emergence of more state-based US PV markets like PA, TX, NJ, and AZ, in addition to CA.

And similarly on the integrator and installer side – what does the future hold? How do these companies best survive in a much more competitive environment?

I think there will be a major changing of the guard here too and things will get more sophisticated, which is long overdue. The installation cost of PV in Germany is about 30% less than the US so there is a lot of cost cutting to be found in installation. The savings are not just going to come from better manufacturing. Things like mountings systems, electronic shade analysis, snap-connects, better installation methods, customer energy calculators, reducing the # of site visits, all these factors bring down costs.

PV concentrators – I have long felt that concentrators are in a catch-22: if PV module costs don’t fall rapidly (as the industry works hard to drive them down), then the solar industry will struggle anyway, but if PV costs do fall as rapidly as expected – then why would the industry need concentrator technology whose primary advantage is reducing the amount of PV module? What’s your take?

If you are referring to technologies like Solaria’s – that take a concentrating lens and amplifly the amount of light on a PV panel – that will move forward and be important no matter what happens to the cost of PV because the lens will always be cheaper than silicon and the benefit you get from them is profound. I am optimistic about this sector in particular because, if they get it right, it could bring PV costs for conventional silicon technology down by 30% or more, fairly quickly. But there are still obstacles to be worked out such as heat gain and how you deal with that, which is a major issue in PV performance.

And where the rubber meets the road, do you have a PV system on your roof? If so, who did you buy it from, whose technology did you pick and why? If not, whose technology would you use?

I live in San Francisco by Dolores park and my wife and I have a 2kW system on our house that we installed in 2000. BP panels. If I were doing it today, I would opt for a higher efficiency panel such as SunPower.

After thinking about it a bit, I’d asked David to clarify a couple of his comments.

Can you elaborate a little on large solar thermal – like parabolic trough projects. I see little reason to do a large grid connected 5-10+ MW PV system, instead of a solar trough system. What are your thoughts on the competitive situation between PV and solar thermal trough power as PV tries to get to “grid scale”?

You’re absolutely right about CSP. I just visited the new CSP plant outside Las Vegas – 64 MW. And it is a superior technology for central station solar generation. No question. And that will only get better as newer synthetic oils come on to the market that can be heated to hotter temperatures than are currently possible (750 degrees is about the limit and that is a major constraint on how much power CSP can produce but this is likely to change soon). The federal ITC was the only reason that Nevada CSP plant got built so we can expect a lot more if the ITC gets extended.

I think the role that PV is best suited for is rooftop applications and there is so much available roofspace in this country, it’s ridiculous. So large scale PV is great, but in my view, it is best for rooftops rather than deserts.

Also, as to our discussion on changing of the guard, BP Solar among others has announced some major expansions.

Does this indicate that the “old guard” is likely to retake market share? It has been suggested to me that the some of the market share changes were related to silicon supply constraints that are now easing.

Regarding BP, yes they are making capacity expansions, but so is everyone. Nobody in this sector is NOT growing. The question is how fast they are growing. And I do think we are witnessing a major shakeup and many of the companies that were top market leaders over the last 5 years will not be over the next 5 years.

Myself, I tend to agree with David on this. While it is hard to pin down winners and losers, rapidly growing markets and changing competitive dynamics and cost curves do not make for stable market shares. It will be interesting to watch.

Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is founding contributor of Cleantech Blog, a Contributing Author for Inside Greentech, and a Contributing Editor to Alt Energy Stocks.

Cool Commutes

Innovative solutions for energy independence and ending the climate crisis are manifest in Silicon Valley: breakthrough energy storage, biotech conversion of waste to fuel, electric vehicles, fuel cells, materials science, converting sunlight to energy and more.

200 members of the Silicon Valley Leadership Group (SVLG) convened to advance a different type of innovation – programs that make employees more effective anytime and anywhere. Organizations are increasing productivity whether employees are at a primary work location, secondary, home, customer site or other remote location. Work Anywhere and Cool Commute programs get increased job results with fewer wasted hours from people trapped in gridlocked traffic.

“Cool Commutes” was the title of the January 31 meeting. “Cool Commutes” is a friendly competition between Bay Area employers to determine which can encourage the greatest number of employees to commute without driving solo. Several attending corporations and government employers shared their success in helping thousands reach work using ride sharing, public transit, bicycling and walking. One CEO in Redwood Shores even canoed to work. Employer programs are both reducing the fuel wasted in commuting and eliminating unnecessary commutes.

Cool commuting is improving the profits of a number of Silicon Valley companies. The new workforce is mobile, at times working at their office, other times at home, other times at a customer site. Effective mobile working often requires wireless services, Internet services, VOIP, VPN, security, laptops, mobile devices with better energy storage and so on. Companies benefiting from secure mobile commuting include the meeting host Hewlett-Packard (HP), plus IBM, Oracle (ORCL), Hyperion (HYSL), Lockheed Martin (LMT), Sun Microsystems (SUNW), Cisco (CSCO), Google (GOOG), Yahoo (YHOO), Symantec (SYMC) and hundreds of others.

In addition to revenue improvements, many of these corporations and government employers are seeing cost savings. Healthcare costs lower when employees get more exercise walking and bicycling. Productivity goes up when the stress of rush hour commutes goes down. Mobile workforce strategies coupled with commute programs has allowed many to reduce facility costs. Reduced parking saves up to $2,400 per space. Shared facilities have a much higher payoff.

Cool Commute and flexible work location programs helped several participating high-tech firms with employee recruiting, retention and productivity. The programs did more than benefit employers; all of us benefit from reduced burning of fuel that results in more energy independence and reduced greenhouse gas emissions.

Ann Zis detailed a number of areas of success at Applied Materials (AMAT). Their program, “Applied Anywhere,” addresses their global business environment and provides agility to be closer to the customer as well as supporting the needs of many employees who perform some or their entire job outside the traditional office place. Through the program Applied Anywhere supports eligible employees that at different times may need to work from one of several corporate offices, at home, at an airport, or at a customer site.

“Applied Anywhere” is far more comprehensive than traditional telework programs. The program has made global teams more effective, reduced commute hours, increased productivity, saved gas miles and jet miles. Ann Zis advised workshop attendees to start by interviewing senior executives and to make a program align with corporate and executive goals and objectives. Conduct design workshops to facilitate the creation of program policies, places, technologies and details. Periodically, validate the program goals with focus groups.

All workshop attendees agreed that flexible work location programs fail when the approach is “one size fits all.” In some countries, the management culture requires most employees to be together most of the time. Yet, even in those countries sales and customer engineers are often mobile and at various locations so drop-in centers and satellite office could be a better alternative to solely a “work from home” approach. The nature of the job dictates where people need to be. All attendees also agreed about the importance of technology enablers to support flexible work location programs.

Ann Zis recommended a phased implementation, starting with a group near headquarters that is likely to succeed. It often takes four to six months for people, both managers and employees, to adjust to a new style of work location flexibility. Over time, categories of employees emerged including those that could work from home, mobile, drop-in, while for some, it is still appropriate for them to retain a dedicated seat in an Applied building. The policies, practices, technology and locations were created to support each category.

Currently, over 2500 Applied Materials employees now participate in Applied Anywhere, including over 1400 located outside the U.S.

Flexible work locations reduce unnecessary travel. When travel is necessary, organizations are innovative in making commutes better from employees, employers and the community.

36% of Yahoo headquarters employees get to work without driving solo, reported Danielle Bricker with Yahoo! This is double the 18% mode-shift that the corporation committed to the City of Sunnyvale when building permits were first issued. Yahoo’s cool commute program is comprehensive, popular and getting results.

As one of two dedicated Commute Coordinators at Yahoo, Daniel practices what she preaches. For three years, she has commuted 90-miles daily without owning a car. She commutes by train, using her bicycle to handle the “last mile” at both ends. Intermodal commuting is used by many.

Yahoo provides employees with free VTA Eco-Passes for bus and light-rail. Many of the Yahoo commuters are able to get extra work done using laptops and other mobile devices while commuting on public transit.

Yahoo’s results are impressive considering that Silicon Valley workers are widely dispersed in search of affordable housing. Technologists work long and irregular hours, which makes ridesharing more challenging. Many Silicon Valley locations provide a long and uncomfortable walk in the dark to public transit.

Yahoo addresses these problems in a number of ways. One is that it provides a guaranteed ride home. Yahoo will pay for a late worker’s taxi or rental car. Many at the workshop agreed that a guaranteed ride home is critical to a commute programs success. All agreed that employees rarely use the guarantee, making the cost minimal.

Yahoo has a fleet of shuttles to get people to and from transit, between Yahoo locations, to airports and sometimes providing an emergency ride. Some of the shuttles run on B20 biodiesel.

It is not easy to get employees to change their commuting behavior. Yahoo used surveys, education, an intranet website to help people find others for ridesharing, and YahooGroups to encourage collaboration, and monthly reward competition for those who avoid driving solo.

Yahoo encourages the use of the zero-emission vehicle owned by one billion people on this planet – the bicycle. Yahoo provides bicycler riders with secure storage of their bikes. Free lockers and showers are available. To help people quickly navigate Yahoo’s campus of buildings, loaner bikes are also available.

Many meeting participants recognized the value of the humble bicycle. SVLG CEO, Carl Guardino, commutes to work emission-free three times weekly, riding his bike 30 miles roundtrip. Lockheed Martin will make it easy for employees to zip across its campus with 200 yellow bicycles available for anyone.

Many presenters and attendees praised the non-profit organization “511.org.” 511 is an example of friendly systems that allow people to easily travel without getting in their car. 511 allows you to put in your departure and destination locations, then see or hear the best way to travel with public transit, train, even carpooling and bicycling. It even includes current traffic conditions. I have used this wonderful system with everything from an Internet browser (511.org) to my cell phone (dial 511). 511 is widely used in Northern California.

511.org offers consulting to employers. Employee surveys, employee home locations, flexible work locations and plans are all considered. Plans and recommendations often include public transportation, carpools, vanpools, bicycles, guaranteed ride homes. Employers like Genentech (DNA) and Stanford University have custom 511 implementations as part of their employee intranets.

Nationwide there are many organizations that offer some of the services provided by 511. Using your favorite search engine type “rideshare” plus your zip code.

Cool Commutes is just one of a dozen exciting initiatives included in SVLG’s “Clean and Green” Energy Action Plan. You can join Cool Commutes at SVLG.

John Addison is the author of Revenue Rocket and the upcoming book Save Gas, Save the Planet. He has conducted workshops for several of the firms mentioned in this article. He publishes the Clean Fleet Report.