The Cleantech LP Conundrum

Cleantech limited partners have a big conundrum. It’s called unrealized gains.

After years of struggling, cleantech investors are now quietly but optimistically beginning to talk about impressive gains in their funds. Unfortunately, the elephant behind them that LPs are beginning to talk about is the prevalence of massive unrealized gains from the behemoth solar, biofuels and automotive startups in the portfolios.

The question is simple, and much debated. Are the unrealized gains real, or unreal?

The naysayer argument runs something like this:

  • Many of the companies are pre-revenue, certainly pre-profit, and tons of them are scary early stage when it comes to actually proving the technology OR the business at scale.
  • There’s still not much in the way of IPO market or M&A market backing up the levels of these valuations (one vicious example is the massive downround valuation smash A123 took in its last round, once you dig into the the prospectus).
  • The energy business doesn’t tend to pay huge tech multiples for exits, and even business successes may get crushed (think Aventine and Verasun at the end of the day).
  • The amount of capital many of the key companies in the portfolios will still need, and the limited GP funds raised in the last couple of quarters, may put a lot of downward pressure on price for the more capital intensive deals.
  • There is a sneaking suspicion among some LPs that if you looked at it from a concentration risk perspective, a quite small web of large deals has been bid up among venture capitalists, causing a bit of a valuation bubble in the portfolios.

The cleantech is finally coming into its own argument, runs like this:

  • The combo of policies around the world is now a heavyweight, from Stimulus to FIT to Climate Change to PTC et al, and those dollars are starting to tell.
  • The consumer and business shift to things green, and the rebounce in oil prices (though not gas or electricity) is underpinning the future growth to justify the valuations.
  • The valuations are based off of big successes like First Solar’s IPO, and are legitimately derived.
  • Some of the early big deals in key areas like thin film solar and automotive are finally beginning to deliver production, and will walk the walk, deserving the kinds of multiples that First Solar got, and underpinning valuations in an IPO market.
  • GPs are increasingly raising later stage funds, and that money has got to go somewhere.

Which argument you buy on the subject may frankly make or break you as an investor. If you believe the naysayers, and a couple of these deals realize out and make half a dozen or a dozen funds, you may be on the short end of the fundraising / returns bragging rights stick for years. If they don’t come through, anyone not in the “Big Bad Bets” (taking that “Bad” either as a pejorative or as BadA**, depending on your perspective), may look like a braniac. And regardless, if some of these big returns do realize, LPs will have plenty to debate about the “quality” of those earnings. Were they good, or just lucky? And how do you tell?

Neal Dikeman is a partner at Jane Capital Partners, and has cofounded, run, invested in, or served as a director of multiple startups in cleantech and technology, and has advised a number of large energy companies on venture investing. He is Chairman of Carbonflow and, and a Texas Aggie.

The Rules in Cleantech

I’ve now been asked enough times, that at the risk of destroying what little edge Jane Capital may have in cleantech, I finally got around to blogging our “Rules” in cleantech investing and business in general. Hopefully it will stimulate some good debate.

One of the things that makes cleantech different from other investing areas, is the best practice rules are the opposite of what the best investors have grown up with. Maybe that’s because cleantech IS energy and energy IS different.

Here is our version of the Rules:

  1. Energy is slow and big – Energy technology R&D and commercialization time frames are longer and costs higher
  2. Technology is “cheap”, the scale up is where all the risk is
  3. There is no disruptive technology in energy, only disruptive policies and resource shocks that make certain technologies look disruptive after the fact – aka, “it’s the policies (and subsidies), stupid”
  4. At scale, there is no capital efficient investing in energy
  5. Commodity prices and policy tend to be more important variables than technology and management
  6. Energy is at heart a resource play, the price you pay matters more than what you do with the resource

As a result we’ve worked out a strategic playbook:

  1. Look for mature technologies – if it’s not 10 year old technology, don’t touch it.
    Limit scale up risk and look for technology with few dependencies for scale
  2. Embrace policy – solid policy frameworks are much better bets than great technologies. In fact, most of the serious money in cleantech has been made by being in the right place when the policies or subsidies hit critical mass, not by developing technologies after the fact.
  3. Expect lower exit multiples, and target lower burn rates over a longer commercialization time as a result
  4. Discipline wins. Think Stage Gate and SPC instead of venture style “massively parallel” R&D commercialization strategies
  5. Don’t be afraid to play a diversified investment strategy
  6. Don’t ignore Acquisition & Development as a viable growth strategy
  7. Don’t be afraid of good low tech deals, that’s where many the cleantech hits have been (if we haven’t heard “that’s not a venture bet” 3 times, we tend to stay away.)
  8. “Powder dry approach” – deploy limited capital early on for larger stakes and focus on returning capital quickly, not rapidly deploying capital
  9. Secure vastly superior market intelligence before moving – stealth is pretty much a worthless strategy, you’re too likely to miss key things that way.

And I thought I’d share a few paraphrased quotes told to me over the years that have helped bring these thoughts home:

A former boss, now an executive at a major utility – “the only thing that matters to the bottom line of the company are the rate cases in front of us. Nothing else we can do with customers, finance, or technology will make a difference if those don’t go well.”

A former head of oil company venture fund on why it takes so long to get technology into the energy sector – “we figure we are taking enough risk just letting a vendor touch our $1 billion platform.”

My father in law, a long time refinery engineer and manager on what small scale means in energy – “let me take you on a refinery tour during a turnaround sometime and show you what half a billion looks like lying on the ground.” Corollary, “you can’t do anything serious at a refinery for less than $100 mm.”

Electrochemist and long time fuel cell researcher on the challenges of making a FC last – “if you could perfectly control humidity and temperature, a PEMFC will run forever.” He was pointing out that it’s much easier said than done.

Energy company technology head – “I don’t want to see the business plan, just show me the energy balance and the engineering behind it, and the data backing it up.”

I’d welcome other people’s thoughts on investing in cleantech and energy technology. So comment away.

Neal Dikeman is a partner at Jane Capital Partners, and has cofounded, run, invested in, or served as a director of multiple startups in cleantech and technology. He is Chairman of Carbonflow and, and Texas Aggie.

Cleantech Blog Power 5 – Top Investors in Cleantech

I’ve been warning about a massive mispricing of risk in cleantech investing for years.

Cleantech Venture Capitalists Beware – What You Don’t Know About Energy Can Kill You

Beware the Allure of Ethanol Investing

Is there a cleantech bubble? Experts don’t think so

That certainly doesn’t mean that cleantech investing is bad. On the contrary, I’m very very bullish on cleantech. The question is which cleantech investors are following my rules on what’s good about investing in cleantech, and which ones are just following the old style IT rules of venture capital and taking that mispriced risk for their LPs.

In the cattle business, a bad rancher judges the cow by the quality of cow, a good rancher judges the cow by the quality of the calf. That’s how this Power 5 Ranking and Big 5 Question Mark Ranking of cleantech investors was constructed. Quality of the calf.

The Cleantech Blog Power 5

  1. GFI Energy – The top private equity shop in cleantech in my opinion. Caminus, Noreseco, Xantrex, et al. Been doing it quietly for over a decade creating great companies. A shop that doesn’t miss often, and doesn’t bother to show up at the cleantech conference circuit. Maybe they don’t need to.
  2. MissionPoint Capital Management – SunEdison, Ecosecurities, APX et al. Great discipline, great picks. They actually seem to know something about the areas they invest in.
  3. Clean Pacific Ventures – Early stage, see things others are going to see about 4 months before they do. Backed one of my companies. Show the love.
  4. Acorn Energy – The place where Comverge was borne. Publicly traded, now investing in cleantech. I love this portfolio. John Moore has a nose for deals. His card says “CEO and Evangelist”. Most people will ignore him because he’s publicly traded. But if it works, so what?
  5. Goldman Sachs – Their name is on or in half of the marquee deals in the sector from First Solar to SunEdison, Horizon Wind, Suntech. Hard to leave them out.

Honorable mention goes to the AIM market. The whole market. It’s better for founders, better for investors, took HUGE market share from the venture capital community in cleantech. All around eating VC lunch for breakfast. And yes, there is liquidity. Stop saying there’s not in the same breath you ask me to sell you preferred stock with cosale rights. It’s obnoxious.

And the Big 5 Question Marks

  1. KPCB – Bloom Energy? EEStor? 5 different stealth thin film plays? Et al. How many stealth science projects in cleantech can dance on the head of a pin? Let’s work on a very mixed metaphor/cliché of sorts – you shall not crucify this crown of venture upon a cross of cleantech. Too many of the technologies in Kleiner deals are only sexy because Kleiner’s name is attached. Come on guys, you’re better than this.
  2. – The world is rooting for you to succeed. And Silicon Valley needs a poster child for cleantech. How about articulating a strategy that the market understands? Maybe “sustainably energizing the web” or some such? When people ask me what does invest in and why, there should be a clear answer.
  3. Khosla Ventures – How many odd ways are there to invest in ethanol? Do we really think being in refining is a good business? And no, it’s not cheaper than gasoline. Can we lobby our way out of it? There are some gems in here, but the weighting may catch him. Kudos though for doing it with large chunks his own money instead of my grandmother’s pension fund’s money.
  4. VantagePoint Venture Partners – The anti Kleiner? Lots of strategics involved, and taking very, very large, very, very risky bets. Perhaps they better hope Vinod’s lobbying comes through. But it only takes one, right? If they can find the discipline of the Power 5, this could be good.
  5. Nth Power – Where’d you go? You were the acknowledged market leader when cleantech started in the first part of this decade. At one time virtually every strategic that mattered was an LP. The cleantech market needs you to be bigger than you are today.

So yes, invest in cleantech. But pay attention to the risk not just the management fees when it’s OPM.

Neal Dikeman is a partner at Jane Capital Partners LLC, and Chairman of Carbonflow and And he has the utmost respect for the guys behind these firms, regardless of whether or not he thinks their investment strategies are pricing risk well.

Cleantech Crunched

The cleantech crunch is on. And a few juicy tidbits are coming to light.

Optisolar – Crunched. Several 9 figures into it, what do we find? The only thing of real value are the development deals in a post subsidy boom year. Is it a “financial market” issue? Only if manufacturing and technology development are “financial market issues”. Several of my long time clients have deep pockets actively looking to finance “financial market issues” for renewable power plants – assuming the numbers actually stack up on the project, that is. Actual returns have proven to be quite skinny in many cases. Buyers from the energy sector looking under the hood can be such a downer.

Tesla – for all intents and purposes looking for a bailout. But at least they’re shipping now, sort of. 100 cars I think? Good money, if the margin is positive. Keep this up and they should be at several percent of tiny little Jaguar’s US sales volumes with a year or two. Why do sane people want to be in the automotive business again? Oh – that’s right, because it’s not really the automotive business – it’s the ELECTRIC automotive business, and we can really outcompete those dinosaur automotive companies in EVs. And I’m sure the new batteries will just solve everything. I wonder who will sell us the materials for those new batteries, maybe the oil companies, here, and here whom we are going to replace and our automotive competitors? Wow. That’s a business plan that gets me really, really excited. Not.

Solyndra – the bailout came through. Yippee! Will it be enough? I’m sure coating CIGS on 1,000s of cylinders is a brilliant way to be cheaper than CdTe and A-Si on large scale glass. The sounds like a great way to make replicable, scalable 30 year devices.

VeraSun – the deal that helped build the investor craze for ethanol – finally sold off in pieces in bankruptcy. To whom? A Texas refiner known for picking up refining assets on the cheap. Note to Vinod, yes, ethanol is much, much more expensive than gasoline, any way you cut it. And no, refining feedstocks into fuel is not a wonderful new business that should trade at tech multiples. Way to go Valero (VLO)! But don’t worry, all the “good” deals are doing cellulosic ethanol – you know the btu poor, hard to transport, pain in the rear to refine feedstock which we don’t own using technology currently at 0.25% of the scale of the average oil refinery. That’s where we’ll make our “smart” money.

MMA – Along with SunEdison one of two companies to create the solar PPA model. Sold off.

What are we learning? Energy – and yes, I’ll say it again, cleantech is energy – is all about owning the resource. Not the technology. In energy technology follows resources, not the other way around.

And lots of deals and money are there to be had, maybe just not for the cleantech venture capitalists who insist it’s all about the technology and the startup, not the resource. I guess it is if you like to gamble.

Learn people, learn. Or you could just follow Kleiner into their next Energy Bloom.

Neal Dikeman is a Partner at Jane Capital Partners LLC.

Cleantech’s Solar Conundrum

The solar market is still going strong, despite the financial crisis, and turmoil in some of its key markets. But that doesn’t mean all is well on the venture financing end.

As a number of longtime Silicon Valley solar darlings start to demand even more serious money to build plants for commercialization, the financing picture gets clouded. Conventional wisdom has been suggesting it’s market issues. Maybe so, and then again, maybe not.

Greentech Media has been reporting on the funding efforts of Solyndra, including a recent discussion of struggles by Goldman Sachs to raise structured finance for the startup, which claims it is shipping some of its very weird looking CIGS product, though little evidence let alone field data exists.

It’s not the only one. Recently CPV darling SolFocus was reportedly struggling to raise capital arranged by Advanced Equities. The cash was to fund the buildout of a commercial manufacturing plant, and at least twice the company drastically cut its pre money valuation ask.

The conventional wisdom is that the finance crunch is hurting solar. I have another thought. Perhaps its just the riskiest solar technologies and businesses coming home to roost. Both of these companies have been pitched to investors as late stage, helping to justify massive capital needs and valuations. I’d argue they are actually very, very early stage, with all the risk still in front of them.

Maybe it’s not the market? Maybe its the ludicrous suggestion that the first plant should be 420 MW in size. How about two new ideas: 1) Stage gate, or 2) Walk before you run.

Take Solyndra, which has raised hundreds of millions to coat CIGS on a glass cylinder. Perhaps the question shouldn’t be is solar getting hurt by the credit crunch, but should be who exactly thinks its a good idea to invest hundreds of millions to build a plant to coat CIGS in a circle, at “pre IPO style prices”? The question everyone I know has been asking is, if they really can coat CIGS with good yields, why didn’t they just do it? That’s world beating on flat plate glass, if it works as advertised. Why wrap the same amount of solar material around a long glass paper towel roll?

With SolFocus, maybe its just that CPV isn’t as good an idea as applying manufacturing process improvement to CdTe and tandem cell thin film?

Who knows, but let’s look a bit closer at the particular technologies before we just blame it on the the financial crisis.

Neal Dikeman is a partner at cleantech merchant bank Jane Capital Partners LLC, and Chairman and CEO of Carbonflow, Inc. He edits the Cleantech Blog and chairs

GE: Doing Cleantech The Right Way

I have long had a respect for GE (NYSE:GE), and how it runs its business. In cleantech, I am very, very jealous. They have made themselves into the company to beat. Whether by plan, luck, or simply applying sound business discipline, GE has made itself into a top 3 global cleantech player no matter happens. And they did it for a fraction of the price, and a lot less risk than anyone in Silicon Valley or the energy sector. Venture capitalists beware, in cleantech, the behemoths have beat you to the punch, have done it cheaper, faster, and with more grit than you realize.

5 step Cleantech Program by GE

Wind – In 2002, GE bought Enron Wind out of Enron’s bankruptcy for about $300 mm, making GE one of the top 5 wind players overnight (it’s now well in excess of a billion in revenue). It was their first cleantech steal, right before the wind industry got amazingly tight (and huge).

Power – In 2003, GE acquired one of the leading gas engine manufacturers in Jenbacher, making GE an overnight leader in small, clean power systems, and powering their way into everything from distributed generation to landfill gas markets.

Solar – In 2004, just before the solar boom, GE acquired Astropower, one of the top 5 solar energy companies in the US, for less than $20 million out of bankrupcty, after the company was delisted following accounting irregularities. You cannot even build a single solar manufacturing line for $20 mm. Only the subsequent silicon supply shortages, and a lack of the needed investment in the business and next generation technology kept GE from making a homerun out of it. But despite that, there will never be another steal in solar quite like this.

Water – In 2005, GE acquired one of the largest water technology businesses in the US, Ionics, to complement its previous acqusitions in the water sector. Paying a full price of $1.1 Billion, it virtually guaranteed GE a top 5 position in the reverse osmosis, desalination, and water purification markets going forwrad, right after Ionics was shored up through a merger with Ecolochem.

Ecomagination Brand – Then on the back of these deals, in 2005 GE launched its Ecomagination initiative, and anchored the entire company’s image around its new cleantech empire.

That, my friends, is the way you make money in cleantech venture capital. I would venture to guess that GE has made 10x its money, no matter how you spin it. Or put another way, an IPO of the GE cleantech business would be the hottest thing in years.

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 Editor to Alt Energy Stocks, Chairman of, and a blogger for CNET’s Cleantech blog.

Fear Triumphing Over Hope in Capital Markets

by Richard T. Stuebi

Those of us in the cleantech arena frequently tout that we’re in one of the hottest sectors of investment. But, apparently, not the hottest.

It seems that an even hotter investment market deals with private security and defense technologies. So says a recently published article entitled “Guns Beat Green” in The Nation by noted author Naomi Klein.


“So why is ‘homeland security,’ not green energy, the hot new sector? Perhaps because there are two distinct business models that can respond to our climate and energy crisis. We can develop policies and technologies to get us off this disastrous course. Or we can develop policies and technologies to protect us from those we have enraged through resource wars and displaced through climate change, while simultaneously shielding ourselves from the worst of both war and weather….In short, we can choose to fix, or we can choose to fortress. Environmental activists and scientists have been yelling for the fix. The homeland security sector, on the other hand, believes the future lies in fortresses.”

In our capitalist economy, money flows to the area of greatest perceived opportunity, and the market in 2007 is saying that fortresses are a better bet than fixes, with $6 billion in venture capital going to security/defense vs. $4.2 billion for green. By contrast, in 2006, these two sectors were neck-and-neck. For those deploying capital, fear has thus leapt ahead of hope.

I’ve often said that cleantech is getting only a small fraction of the capital investment it should be getting. These numbers only convince me further of my sentiments.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc.

A VC Going Carbon Neutral?

I have mentioned my friend Justin Label, one of the partners at Bessemer Ventures, before. Among other things he writes the Venture Again Blog. Bessemer is a highly respected old line Silicon Valley venture capital firm. They have been an active investor in cleantech for a while, and are backers of Miasole as well as SV Solar. I found myself on a plane recently with one his colleagues, Ted Lin. But more than their investments, Ted was describing to me a new carbon friendly initiative that Bessemer itself is undertaking internally.

Their logic is simple, if they are investing in cleantech because they believe in being part of the global warming solution, not only making money, then they should practice what they preach. While still early days, they are targeting both their power and travel usage, and expect they will likely implement an internal reduction plan as well as purchasing offsets.

I asked Ted where this came from, and he said this initiative has come down from the top of the firm. It makes sense, and it is good to see the activity happening. My hat is off to them.

Ted also pointed out that Bessemer is also going to be buying offsets for their smaller portfolio companies (those under 50 people). “The goal is that when these companies grow into bigger companies and leave the nest, they will continue the tradition. We want them (our portfolio companies) to lead the next generation environmentally responsible enterprises.”

One of the things he did ask, did I know any good offset providers, because as with any venture capitalist, they are looking for the “best of breed”. So if you are interested in helping Bessemer email Ted at

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 Editor to Alt Energy Stocks, and a blogger for CNET’s Green tech blog.

Australia the untapped market – new report on Australian Cleantech investment activity

by Nick Bruse

A new report co-authored by the Cleantech Network and Cleantech Ventures will be released today that details the PE & VC investment occuring in Australian cleantech companies.

At the launch breakfast this morning we heard from Jan Dekker (CV) and Anastasia O’Rourke (CN) present the key findings of the study. I’ve summarised some of these below, but you can download the full report from the Cleantech Ventures website.

Key findings

  • A$540m of venture capital dollars invested from 1999-2007
  • 174 rounds in 75 companies
  • Around 3% of total VC invested
  • 66 IPOs between 1974-2006 and 24 in 2005-06 alone

The Cleantech space in Australia is becoming more and more interesting as international and domestic investors are realising that Australian cleantech investment opportunities are relatively untapped, compared with the rest of the world.

Key drivers that are seeing a growth in the sector in Australia are:

  • commodity boom increasing economic activity
  • technology readiness from research institutions
  • environmental pressures including water shortages and climate change impacts
  • increasing policy push as a result of upcoming election
  • strong media interest in the sector
  • increasing capital availability

However there still remains some challenges for Australian Cleantech including:

  • lack of early stage capital
  • more technology transfer to business required from Australian University and Research institutions
  • more corporate venture funds and company investment & engagement required
  • stronger policy particularly around Mandatory Renewable Energy Targets, emissions trading and Kyoto
  • better analyst coverage of listed companies

By way of reference Cleantech Ventures has screened around 450 companies and made 11 investments via its CEGT fund over the last 4 years. In October this year Cleantech Ventures announced it has completed the first close of its new Cleantech Australia Fund.

The fund’s first closing of $50 million is made up of $20 million provided through the Australian government’s Innovation Investment Fund (IIF) program and $30 million from VicSuper, a superannuation fund committed to sustainability.

Article posted from The Cleantech Show

Nick Bruse is runs Strike Consulting, a growth venture consultancy specialising in the cleantech sector and hosts The Cleantech Show, a weekly podcast of interviews with leaders involved in clean technology research, entrepreneurship, commentary and investment.

Cleantech vs. Greentech

Cleantech vs. Greentech

The Cleantech vs. Greentech debate. I chaired the recent Greenvest 2007 conference in San Francisco a couple of weeks ago on investing in green technology. Nick Parker, Chairman of the Cleantech Group did an opening address on the state of the industry – which brought to mind the question of what exactly one should call the industry.

Is it “Green” or is it “Clean” Technology? So I thought that perhaps a brief discussion of the differences and the history is warranted.

Cleantech – Google search 1.24 million results (1.78 million for “clean tech”).

“Cleantech” is a term popularized (and I believe coined) by friends of mine who founded the Cleantech Venture Network (now Cleantech Group) in about 2002 as an umbrella term to describe the “green and clean” technologies that venture capital investors were turning to in increasing numbers as the next big thing in technology investing after the collapse of the tech boom. Before that, my colleagues and I referred to ourselves at Jane Capital as working on energy and environmental technology (a bit cumbersome). And energy tech is still a term used in many investing circles, though it has been quite heavily consumed inside the Cleantech umbrella. As a side note – before it’s coining as an asset class and technology category, “cleantech” as a word was most likely to refer to dry cleaning equipment.

Here’s straight from the horse’s mouth: “The concept of “clean” technologies embraces a diverse range of products, services, and processes that are inherently designed to provide superior performance at lower costs, greatly reduce or eliminate environmental impacts and, in doing so, improve the quality of life. Clean technologies span many industries, from alternative forms of energy generation to water purification to materials-efficient production techniques.” – Cleantech Venture Network

From Wikipedia:

“Cleantech or clean tech is generally defined as knowledge-based products or services that improve operational performance, productivity or efficiency while reducing costs, inputs, energy consumption, waste or pollution.

Cleantech is differentiated from green technology since it generally refers to the emerging financial industry (as opposed to the actual technology in which the industry invests). Specifically, the investment focus includes water purification, eco- Efficient production techniques, renewable energy, green technology, sustainable business. Since the 1990s the financial community began more active interest and investing into the Cleantech space.”

Greentech – Google search 526,000 results (741,000 for “green tech”).

The term “Greentech” on the other hand, popularized by venture capitalists John Denniston and John Doerr of Kleiner Perkins, has become almost a synonym for cleantech since about 2005 as more mainstream venture capital and Wall Street investors began entering the sector increasing numbers – and has been heavily picked up in the mainstream media – as well as new media startups like Inside Greentech and recently launched Greentech Media. Riding on the coattails established by “cleantech” – some have tried to characterize greentech as “different” to cleantech, and as more than just a subset of the cleantech umbrella. It has also been suggested that greentech is the re-emergence of an older term that never quite found broad appeal from its use in the early 1990s or prior – but is now. As a side note: I could find no greentech entry in Wikipedia yet.

““Clean tech,” as many past efforts at environmentally friendly industry have been called, hasn’t panned out from an investment standpoint, said Mr. Doerr, but “greentech” will.

The difference? The word “green” means money is to be made, he said. It’s about advances in areas such as nanotechnology and alternative fuels that mean that companies will succeed in the future where past efforts have failed.” – Red Herring

When I asked my friends Keith Raab and Nick Parker who cofounded the Cleantech Group to comment on why they coined the term “cleantech” – Keith Raab said “”who wants green air or green water”? The greentech term (and we use small caps unless referring to an org) is very retro and smacks of EPA type regulation. The whole reason we brought the cleantech term to market five years ago was to advance a new concept that reflected technological improvement and new concept. As you know, often cleantech is purchased primarily for non-environmental reasons even though it may offer significant environmental benefits. While some media outlets may be using the greentech term, just about all corps, Wall Street players and VCs who are active in the area use the term cleantech. We think there is room for various terms, eg “resource efficient” but from a capital markets perspective its important there is one term so that a defined asset (allocation) category emerges.”

But whichever term you prefer (at Jane Capital the team has been working in energy and environmental technology for over 30 years), it means building and investing in emerging technologies that are better for energy and the environment. And that means better for all of us.

As a personal note on which term I use – at Jane Capital we have founded and I write and edit the Cleantech Blog, one of the leading sites for news and analysis in energy and environmental technologies (available as well on, of course). We are founding a venture on the portal (soon to be launched) and I’ve recently joined CNET’s Green tech blog and write columns for Inside Greentech and, but when people ask me what I do – I say “energy tech” or “cleantech”.

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.

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)
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 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.

Cleantech: The Problem and Solution

Two interesting cleantech reports came out in the last couple of days. One talking about the problem, the other the solution.

On the problem side, as reported in USA Today, a team of researchers working at Texas A&M found that increased pollution in Asia, primarily from the rise of industrialism in China over the last 10 years, is affecting weather patterns over the Pacific and even into the US West Coast.

I guess the last 10 years of environmentalists harping over the growth in “dirty Chinese coal plants” had some real merit.

On the solution side, the 2007 Clean Energy Trends report authored by Clean Edge, came out this week.

The highlights from my review of their document:

$2.4 Billion in clean energy (as distinct from cleantech) venture capital investment in 2006, up 2.4x from 2005.

They project $220 Billion in market for Clean Energy by 2016.

Their 5 Trends to Watch:

  • Carbon Finally Has a Price…and a Market – They note the major advances including California’s GHG law push. We agree. But like wind and solar, we pioneered it, but Europe is leading it today.
  • Biorefineries Begin to Close the Loop – They are big on the advances of cellulosic ethanol. We remain cautious here.
  • Advanced Battery Makers Take Charge – They note the coming rise of lithium ion in the automotive sector. We agree.
  • Wal-Mart Becomes a Clean Energy Market Maker – They note major moves by Wal-Mart to go green. Long a shareholder of Wal-Mart myself, I definitely agree. We have been saying for a while that when it comes to cleantech, startups talk the talk, the big boys walk the walk.
  • Utilities Get Enlightened – They note that utilities are getting on the climate change band wagon. We would add that corporate venture is back, in a new and possibly smarter form.

You can download their report from the Clean Edge website. We have written on each of these topics before. Onwards and upwards in cleantech.

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 and a Contributing Editor to Alt Energy Stocks.

Will Small Wind Get the Love that Solar Has?

Investment and growth in the cleantech sector has been driven in the last 2 to 3 years by the solar photovoltaic, large scale wind, and ethanol sectors. For years solar PV has, on a per kw basis relative to other technologies, received massive rebates and tax credits that underpinned its growth, and large scale wind power has had its production tax credit to anchor the industries’ rise, but solar thermal and small wind systems have been largely left out in the cold in this cleantech boom.

Perhaps that is changing for micro wind?

The CEO of Mariah Power, one of the micro wind turbine startups we follow, turned me on to a recent bill in Congress that might even the playing field for small wind. I’ve excerpted his notes in quotes below.

“Recently, Senator Ken Salazar (D-Colo.), along with Senator Gordon Smith (R-Ore.) introduced a bill that would provide $1500 per 1/2 kilowatt (kW) of capacity to customers seeking to purchase a small wind turbine, the same credit that solar is currently pursuing. In addition to this credit, the bill would provide accelerated 3-year depreciation and an Alternative Minimum Tax exemption.

A press release on this bill, S. 673, the Rural Wind Energy Development Act, can be found here.

This bill will provide an investment tax credit for the purchase of small wind systems (rated at 100 kilowatts and below) for homeowners, small businesses, and farmers. This credit is critical to sustaining the growth of this clean, renewable, and emissions-free energy technology while helping individuals and communities become more independent from unpredictable prices and supplies of traditional sources of energy.

Currently there is no federal support for small wind systems. Residential solar and fuel cell systems, however, which share the same competitive market as small wind, have been receiving a 30% federal tax credit. The federal Production Tax Credit (PTC) applies only to large utility-scale wind projects, not to individuals who want to install their own wind systems for on-site power. Federal support would help broaden the industry on a national scale.”

The growth of our cleantech and alternative energy industries have always been heavily influenced by the policy and subsidy environment, so how the debate plays out is critical to understanding where the product and investment opportunities may lie for any given clean technology.

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 and a Contributing Editor to Alt Energy Stocks.

The Trouble with Water

Previously posted on Inside Greentech.

There was an active discussion around water at the recent Cleantech Forum in San Francisco. As there always is.

Everyone knows the old joke, applied to just about everything at one time or another, that runs: “hydrogen is the fuel of the future… and always will be,” or “Brazil is the superpower of the future, and always will be.”

Well, I wonder if that applies to water.

Will water always remain the “problem of the future,” and not of the present? Despite the maxim that “water is the next oil,” nobody ever seems to put their money where their mouth is in the water sector.

The basic story goes like this:

  • The water industry is huge, mostly public owned by entities that have no money for the (pick your number of) billions in upgrades needed
  • Population is growing every year
  • Population is increasing most rapidly in driest regions
    Water is cheap, so no one conserves it (think about that statement as an economist and ask yourself if we really have a problem yet)
  • Water is even more important than energy as a “basic right,” so no government will let its population run short.

Therefore, investing in water technology (desalination, membranes, remediation, purification, metering, etc.) to create solutions to the coming problem is a good idea.

But it never happens. The investment community just doesn’t walk the walk when it comes to water. Why is that?

Some thoughts on why:

  • Motivation. The water industry, while huge, is not widely privatized and is very fragmented. It’s not been heavily “technology” driven to date, and has proven to be even more cumbersome than the electric utility market to break new technologies into. Investor owned utilities, which are now a very large portion of the electric and gas utility market, are just a few percentage points of the water market. So very few of the potential customers for technology are big enough and profit driven enough to care.
  • Maturity. The technologies these water companies use is relatively old. Membrane technology used in reverse osmosis and more efficient valves and even smart control systems are not new ideas. And a lot of potential “breakthroughs” have been beat out of the industry already. So unless price radically changes – as in several orders of magnitude, it’s likely that the technology we’ve got is “good enough” or at least hard to beat.
  • Price. Water is cheap (see above). Read: nobody’s bearing any real pain today in most of the industrialized world. I’m not. I don’t even get a water bill. I’ll cut my morning Starbucks before I reduce my water usage. It’s a bigger hit on my pocketbook. In pockets of the market, this may be changing (we do read about water crises in Australia from time to time, ultra clean water needed for semiconductor processes and additional water demand for a particular housing development in Southern California), but it is really hard to get a return on R&D when your customer is measured in “pockets” as opposed to “markets.”
  • Solar, ethanol and carbon. Three years ago, water was the buzz of the venture conferences. Money looked like it might flow. Then the solar and ethanol markets took off, carbon trading got traction and climate change grabbed the headlines and the political mindshare (including mandates, rebates, and subsidies). Water – both the problems and the solutions – fell out of vogue.
  • Size and capital intensity. Like energy projects, water projects are often really big and expensive. Scaling up ALWAYS has more risk than one thinks it does. Like in energy, one just doesn’t invest in a pilot for a new technology lightly. And just because one or two projects with a given technology are running does not a successful launch make. When 30 or 40 are running for 5 to 10 years, then you’ve broken through.

So I guess it remains to be seen if water is the problem of the future – or if it really is the next big thing. And it definitely remains to be seen if anyone can make big money investing in new water technologies and solutions.

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 and a Contributing Editor to Alt Energy Stocks.