Alternative Profits Blog
Venture Capital, VC Perspectives on Alternative, Renewable Energy
What are the perspectives of venture capital companies that are investing in the alternative energy domain? What are the key parameters used by them for evaluating their investments? What are the key success factors in their opinion? This section provides inputs on these aspects.• Kind of deals VCs are looking to do - "If I was an entrepreneur, I'd jump all over the advanced fuel industry," says Raj Atluru, a Managing Director at the venture capital firm DFJ. He says techniques of cellulosic ethanol production, which uses disposable materials rather than just corn, are being perfected in university labs. Adds Atluru, "Advanced fuels are where solar was three or four years ago." He sees huge growth potential and IPOs in the offing.
• Types of VCs investing in Cleanetch - Aside from the large venture firms like DFJ and MDV, there is a group of smaller, more focused funds that are more likely to fund smaller or earlier-stage projects. The group includes firms such as Nth Power, Enertech Capital, and Chrysalix Energy Management. Nth Power, founded in 1993, for instance focuses on energy and advanced materials and manages more than $250 million and an active portfolio of more than a dozen companies. Although Nth Power's main emphasis is energy production, its portfolio extends to other technologies and advanced materials.
• Types of companies VCs are investing in - Although many VCs have specific sector focus even within renewable energy, their portfolio could extend to related technologies. "We've funded companies in everything from sensor and sensor networks to batteries to advanced metering solutions," says Rodrigo Prudencio, one of the principals of the firm Nth Power.
• Looking for solutions to pain points – According to most VCs, it's critical for entrepreneurs interested in green energy technologies to ask: "Where are the pain points in the energy value chain as they affect oil, gas, and power companies, or how they affect consumers, and how can technology develop a business around that opportunity?"
• Not all opportunities are created equal - But before pounding the pavement for funding, VCs caution entrepreneurs that not all opportunities are created equal, and thus, they don't all require large-scale venture funding. For instance, if you are in a business where accessing $5 million or $10 million will give you access to a $3 billion market, then pursuing venture capital makes sense. If you are pursuing a $200 million market, it may make sense to bootstrap yourself before you go to a VC.
• Angel funding and small VCs - Venture capital is far from the only type of funding available to green startups. Angel investors who support small social ventures are a good source for early-stage green companies. Investor's Circle, a 160-member group made up of socially minded investors, is one such example. Since 1992, Circle members have invested more than $107 million in 171 deals, ranging from renewable energy and organic food to health care, education, and media, says Woody Tasch, the CEO and chairman of the organization. Members team up to gather injections that range from $250,000 to $500,000 for projects that might be considered too early-stage or too small for traditional VC backing.
• High potential in other sectors - Carol Sands is a founder and one of the managing directors of Angels' Forum, a private group of 25 investors who invest in small corporate and family venture funds that in turn invest in green technologies. Sands points to four common segments that make up the bulk of green investing possibilities—energy, transportation, water, and other green sectors. Of the four, Sands says the other sectors, which include energy management, new sensor technology, agriculture, and chemicals, may be the most ignored and thus ripest for entrepreneurial innovation. "It's going to be relatively easy to develop these technologies and isn't going to take a long time to adapt them—it offers a reasonable time frame with a reasonable rate of return," says Sands.
• Need for interaction between entrepreneurs and researchers – Many VCs feel that there needs to be more communication between the entrepreneurial types and researchers, since there's a glut of great ideas just waiting to be discovered, and these ideas will require a research mindset and experimentations before they can be brought into the real-world.
posted by Ecacofonix at
1:53 AM
Thursday, September 10, 2009
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