Clean tech investors finding opportunities at nexus of energy and information technology
By Mark Golden
STANFORD, Calif.--U.S. investors in clean energy technology are looking to make only modest financial commitments to startups currently, but they still expect nothing less than total passion from entrepreneurs.
Most early-stage investing in clean tech today focuses on energy startups that leverage information technology not currently used in the energy sector, according to several fund managers who spoke at the Silicon Valley Energy Summit at Stanford University. The focus is due in part to a cautious U.S. investment environment, especially in clean tech, which has watched some big bets fail and seen government retrench support.
“IT is a big part of all the talk because we are capital light right now. It’s hard to get the $1 billion investment,” said Josh Green, a general partner at Mohr Davidow Ventures. A typical investment target should need tens of millions of dollars to become cash flow positive, not hundreds of millions, he said, “so the nature of the product we work on is different.”
Nevertheless, fund managers look for target companies with leaders who are passionate that their products can be profitable and benefit the environment. The United States alone spends more than $1 trillion annually on energy, so the clean tech market could be worth tens of billions of dollars for even modest gains in energy efficiency.
“If entrepreneurs want to make a boatload of money, then they have to solve a major problem, and there’s no bigger problem than our dependence on carbon-based energy,” said Dave Graham, a founding partner at start-up accelerator Greenstart.
Good target investments do exist, the speakers said. Graham pointed to car-sharing company Zipcar. “They’re making money, and they’re changing the world.”
For companies earlier in development now, the analogy to Zipcar might be Zimride or Getaround, both of which take an IT approach to reducing the number of vehicles on the road without needing to buy a national fleet of cars.
Some Good Targets
The nexus of clean tech and IT tends to take two forms, according to Green. The first consists of companies that are software-based, like Opower, which partners with utilities to tell customers how their energy use compares with that of their neighbors and to provide personalized tips for saving energy and money. The second group, said Green, looks like classic hardware startups in Silicon Valley from the 1980’s with low capital requirements while already generating revenue. He gave as an example of the second group a company his firm has invested in, Xicato, which manufactures light-emitting diode (LED) modules.
Opower, which has received financial backing from venture investment firm Kleiner Perkins Caufield & Byers drew complements from several members of the investment panel at the annual conference. Two other KPCB investments also garnered positive remarks: Enlighted, which makes advanced lighting control systems; and Nest, which manufactures a thermostat that combines learning software, sensors and Wi-Fi on the inside with a user-friendly design on the outside.
“Digital energy” is how KPCB partner Trae Vassallo describes companies like Opower. “They are companies taking great information technology and using it in how we interact with our environment. My motto is: Now that we have everyone online, let’s get everything on line. Customers demand more control of their energy use. I’m looking for anything in this theme of getting everything online and of using mobile for green technology.”
Investing at the nexus of energy and IT, thinks Vassallo, is just beginning. “We’re just now outfitting this old web of stuff to get the data. Nobody’s been able to get it before,” she said. “Once that happens and we deliver that data to people in a secure way, then we will have a lot of exciting new opportunities.”
Getting data and breaking it up into useful pieces for utility customers does present some prospects, said Larry Kelly, who is managing partner of Kelly Ventures and a member of two angel funds. But, according to Kelly, the breakthroughs still need time. “So many companies are doing it, but none of them are making a real dent,” he said. “Probably it will happen on the commercial and industrial side first,” rather than with homeowners.
For a while, anyway, IT-energy startups may be a good match for investor appetites.
“The period of irrational exuberance has ended, and now we’re in the valley of despair, but we’re slowly climbing our way out of it,” added Green, who has worked in Silicon Valley for 30 years. “You need to go through these elements of an investment cycle to ultimately get to something of value. Oscillations are particularly severe in a nascent industry, and clean tech is still nascent.”
The capital-light environment for venture investing will inevitably come to an end, Green added, and the focus will return to the more intensive area of electricity generation.
The Silicon Valley Energy Summit, which is hosted annually by Stanford University’s Precourt Energy Efficiency Center, covers the best practices, technological advances and policy developments related to more sustainable energy use.
(Mark Golden works in communications at the Precourt Energy Efficiency Center at Stanford University.)
Media Contact: Mark Golden, (650) 724-1629, firstname.lastname@example.org