This morning, I stopped by the panel on venture capital in cleantech, at the Renewable Energy Finance Forum-West conference at the Grand Hyatt in downtown Seattle. It was moderated by Nancy Floyd of Nth Power and Michael Butler of Seattle-based Cascadia Capital (who’s an Xconomist). The panelists were Raj Atluru of Draper Fisher Jurvetson, Anup Jacob of Virgin Green Fund, and Brad Zenger of Pivotal Investments.
The panelists were optimistic, but also grounded in reality. They touched on their investment strategy, how they position themselves against the cleantech-deal competition, and their favorite areas of investments. Here are my quick Top 10 takeaways from the session:
10. Record investment levels in energy. New records were set in the third quarter for investment in cleantech, with $2.6 billion invested globally, $1.8 billion of that in North America, according to Butler of Cascadia Capital.
9. Cleantech isn’t a sector. It’s many different sectors with very different markets. To name just a few: solar, wind, geothermal, other renewables, biofuels, energy efficiency, green buildings, smart grid, waste, recycling, water.
8. Solar is king. The king is dead. Long live the king. Solar energy has been receiving more than 40 percent of cleantech investments. Yet none of the panelists talked about solar as being their most exciting plays. “We’ve placed our bets in solar already,” said Atluru of Draper Fisher Jurvetson. “You’re going to see solar drop off. People are moving into other categories.” Yet there are clearly still opportunities, as production costs are falling, said Zenger of Pivotal Investments.
7. Biofuels 2.0 is “emerging from the ashes,” said Butler. After the high-profile problems of Seattle-based Imperium Renewables, next-generation biofuels are starting to come on, though the panelists expressed caution because of the high fixed costs needed to build refineries and other infrastructure.
6. Smart grid is getting a lot of attention from info-tech investors, in part because it’s capital-efficient. Waste, water, and recycling aren’t getting as much investment as they deserve, but that may change given the enormous market opportunities worldwide.
5. Because of the downturn, investors are much more cautious about cleantech and other technologies. “We have to sacrifice growth to get to cash flow,” said Jacob of Virgin Green Fund. “We’re only doing deals with revenues and cash flows. We’re very focused on market risk.” Larger energy projects, ones that swing for the fences, may suffer for the next couple years, said Atluru. Also, he said, time horizons for exits have increased to 7-9 years, up from 5-7 years not too long ago.
4. It’s a time of great opportunity. “The needle has moved from optimism to skepticism in cleantech. We’re looking for big winners… and not shying away from failure,” said Atluru. “We expect to see 30 percent [of our companies] not make it. If they all succeed, we’re not taking enough risk.” Zenger, of Pivotal Investments, added, “This is a great time to work with customers. A new company carries its own oxygen and doesn’t depend on the greater markets.”
3. Declining oil and natural gas prices may lead to less investment in certain energy technologies like waste gasification and wind power.
2. Entrepreneurship in the U.S. and around the world is very strong. The energy sector “has globalized really, really quickly,” said Atluru. “The enthusiasm of entrepreneurs in this sector is an order of magnitude higher than any other sector. We’re seeing entrepreneurs who have done it in other sectors, and they’re not going back.” And the panelists agreed that entrepreneurs are ahead of investors when it comes to dealing with the economic downturn.
1. A final thought to the audience. “Don’t give up,” said Zenger. “This is the time to invest in the next cycle.”
[The filing of this story was delayed by a drained laptop battery and lack of power outlets. I’m sure there’s a renewable energy lesson in there somewhere—Eds.]
