General Catalyst invests in Robotics: CyPhy Works and iWalk

I am  very proud of GC’s investments in these two companies: iWalk and CyPhy Works. Breakthrough deep technologies with a potential to change peoples’ lives in big ways: one would save peoples’ lives, and the other would give them a more dignified living. We continue to look for more such disruptive innovations across the various spaces.

Obviously John and the team looked at the investment opportunity in many different ways – dissecting technology, markets, financials etc. But it is important to note what John highlights below: At the end of the day it was the entrepreneurs that got us excited. We invested in the people, their visions and their ability to execute.

Talking both about CyPhy and iWalk (which I initially covered in 2008), he said, “They both definitely have the market size we like — the potential to build a business that generates hundreds of millions of dollars a year. These are technically disruptive technologies, in UAVs and in prosthetics and orthotics.”

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Simon added that a key question when the firm puts its money to work is “do we get inspired by an entrepreneur? Can they pain a vision that we get excited about, that this could be something big and game changing?”

via General Catalyst invests in CyPhy Works, new venture from iRobot co-founder Helen Greiner – Innovation Economy – Boston.com.

Some more on why ‘Cleantech VCs Are Bullish on Exits and New Deals’

Just a few more words on my comment that appeared in a recent Reuters article on the outlook for  cleantech investments:

1. Cleantech deal flow in the US seems steady and strong. A lot of companies that typically would have raised series B/C in 2009 tried to pull out of a difficult fundraising climate, and are going to try again now in 2010.
2. A123 IPO and news of others in the pipeline (Solyndra, Silver Spring Networks, etc) is giving hope and boost to those looking for funds.
3. We should expect to see more “Cleantech 2.0 entrepreneurs”. What I mean is that the first  generation of cleantech fails has happened, and the entrepreneurs that participated in that first wave will now return for their second and third attempts. They have wisened up, sharpened their focus and are developing business plans with scars on their back guiding them to quick paths to cash, and lower reliance on externalities. These guys should not be underestimated, and will come up with some excellent ideas that will be practical, capital efficient, and customer-focused.
4. Gov’t spending on cleantech is not showing signs of weakening (not as yet). I think we all agree gov’t support is critical for several cleantech sectors to climb out of their valleys of death. That said, there is a bit of (a) schizophrenia and (b) do a bit of everything in gov’t funding and that is in fact slowing down progress. An example of that: $20/ton of CO2 does not push carbon sequestration, nor is ~50 cent/gallon penalty enough to make oil companies serious about supporting cellulosic ethanol scale-up. They can probably just pass those along to consumers.
5. Capital for demonstration and first-commercial plants is starting to look so much attractive outside the USA. e-Solar is building their first full-scale solar-thermal plant in China, so is Great Point Energy with their coal gasification technology. India is committing to 20GW of solar and EXIM/OPIC seems more aggressive in those countries than project finance funds in the US to fund renewable energy.

Countries such as China, India and Brazil will adopt such technologies not just to combat climate change, but also because of the sheer energy demand their economies are generating, wrote Bilal Zuberi, a principal with General Catalyst Partners.”Pressure from these countries will force the developed world to also adopt renewables and energy-efficient technologies at a faster pace,” Zuberi noted.

via American VCs unfazed by China cleantech: Reuters survey | Reuters.

Not surprised. BYD to bring plug-in car to the U.S. by the end of 2010

Nothing surprises me much when it comes to how fast Chinese companies can ramp up. Below, the introduction of the BYD plug-in electric car is just one example. The other day I was on a customer due diligence call with an Asian customer for a potential investment trying to get a sense of how much revenue can they potentially bring to a young start-up over the next 3-5 years if the technology worked as promised. I was expecting an answer of max $10-30m since the customer is also a barely 2-year old  manufacturing company. Guess what number I got back: $300m. I was speechless for a few seconds. I would laugh or joke about it, but the guy on the other side was dead serious!

BYD is planning to bring Chinese-built electric cars to the U.S. market by the third quarter of this year, the company has announced. The one-time maker of batteries for mobile phones, now sells gas-powered cars in South Africa, South America and in China. While the plug-in model it plans to release in the U.S. will lack the polish of Toyota and Nissan’s impending offerings, BYD says its battery life will be double that of its competition.Short for Build Your Dreams, BYD started out with just $300,000 and a goal: to compete with Japanese battery imports. Founder Wang Chuan-Fu began by taking apart Sanyo’s batteries to see how they were made. Just give years after it was founded, the Chinese company became the largest cell phone battery supplier in the world. Today, you’ll find its batteries in your iPhone. It also makes them for most of the Motorola Razrs produced today. So when it says its mission is to become a major auto vendor, it doesn’t seem like such a long-shot.

via BYD readies its plug-in e6 for the U.S. by the end of 2010 | VentureBeat.

More reasons: “Why do VCs Blog and Tweet?”

Jeff Bussgang, Flybridge Capital, has a nice post on why VCs blog/tweet. According to his back-of-the-envelope calculations, 10-15% of all VCs blog or tweet. I would add a few more reasons why they do so:

• VCs in competitive markets, now more than ever before, need to appear (and hopefully be) accessible to entrepreneurs. Blogs allow VCs to be visible, appear human & approachable. Hey, I have never met Fred Wilson or Brad Feld but via their tweets I even know what Fred’s wife writes about or how much Brad weighs . Makes me feel somehow connected to them. If I had a consumer internet idea, they might even be on my short list of people to talk to just for that reason. Unfortunately for me, not as many energy techies/founders are web/blog/tweet savvy, and hence it is harder for me to reach them via social media. No wonder few cleantech VCs blog/tweet.
• I like to think smart VCs are hypothesis driven, but they often don’t get enough time to vet their ideas out as deeply as they would like. So blogging, tweeting etc provides a way for VCs to get feedback on their thoughts and ideas. I, for one, also like to be connected to the community around me and by putting my opinions out there I feel better even though I stand the risk of being misunderstood, misquoted, disagreed with and/or even publicly embarrassed.
• At least the entrepreneur community tends to pay attention when a VC speaks. VCs can utilize that podium to promote their portfolio companies. Nothing wrong with that – in fact I love it. I noticed that a few VCs even have links to news articles about their portfolio co’s as a part of their signature profile. (Now that I think about it, about 10-15 years ago having famous people’s sayings at the bottom of your signature file was the ‘in- thing’. That was kind of a tweet, no?)
• By all measures, most VCs get less printed press/PR time than they may have had as an entrepreneur or an executive. Even young startups often hire PR firms who try to get interviews/profiles etc into trade rags and big journals. Could it be that all the entrepreneur-turned-VCs miss that exposure to media and utilize the blogs/tweets just to be famous for the heck of it?

So why do VCs blog and tweet with such frequency? I can’t speak for all 129, but here’s why I do it:

1 I love to write. Simply put, I enjoy words, language and the challenge of expression and composition.

2 Creative expression. As a VC, I can’t exert my creativity in the same way that I did when I was an entrepreneur. My blog is one productive yet harmless outlet to express my creativity.

3 Educational. There’s an old adage that if you truly want to learn something, teach it to someone else. Forcing myself to explain the VC business to entrepreneurs through my blog has pushed my own thinking and required me to study issues more deeply than I might otherwise have done.

4 Transparency. The VC business can be an intimidating business to many. I am an iconoclast at heart. As a former entrepreneur, I particularly enjoy breaking down barriers and making the VC business more accessible and transparent for others.

via peHUB » Why Do VCs Blog and Tweet?.

Happy Holidays and Happy New Year!

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* Happy Holidays and Happy New Year *

Image: A. John Hart, University of Michigan
Carbon NanoEden | Garden of Carbon NanoEden (M. de Volder, S. Tawfick, A.J. Hart)

Wishing you the best in 2010!

Bilal Zuberi | General Catalyst Partners

Cleantech sector – Predictions for VC investments in 2010

Predicting trends for the next year is a silly exercise. But oh well. We all play silly games some times. I will check back at the end of 2010 to see how wrong I may have been.

Hot in 2010:

- Water: This is a darling of VCs despite the fact that very few people have actually invested in the space. But I think people will start to get their act together here finally. Invested technologies may not necessarily be in drinking water per se, which is the holy grail, but in industrial/municipal/commercial cleanup applications.

- Biochemicals: Now that VCs have gone soft on biofuels, there will be more interest in the biomass to biochemicals space. DOE has 12 platform chemicals that would be high value add to make, and then there are a number of companies pursuing diff polymer chemistries. VCs like the fact that you can potentially build smaller plants that are still profitable.

- Motors/generators: Old school and probably not so sexy…but markets are large, innovations have been few in the past decades, and applications in electrified vehicles to industrial robotics to high efficiency HVAC are making this an interesting segment again.

- Next gen energy storage: A123 euphoria is eroding a bit (or so I hope), and people will start to look beyond Li-ion for both automotive and grid storage applications. There are some who will wait for cheap Chinese Li-ion to arrive in the US (esp for grid storage applications), but the technophiles are already looking at all solid state, metal-air and other battery chemistries.

- Waste heat: We have seen a few companies invested in this space, but this will be a growing trend. Not just thermoelectrics, but also heat-engines and other mechanical technologies for utilizing low-grade and medium-grade waste heat. People will find applications in developing countries as well, e.g. India.

- Small wind: Is this going to be the year that small wind technologies will finally demonstrate the performance they promise? I think we might see some interesting fundamental innovations to make it more real.

- Balance of System: VCs learnt a few new words in 2009, and ‘Balance of System’ costs were among them. With pressure on solar/LEDs etc for rapid cost cutting, there will be more investments in equipment and other businesses that bring these costs down.

Not-so-hot in 2010:

- Biofuels: Despite some investments in the algae fuel space in 2009, it will take some time for investor confidence to return to the biofuels space. At least a few of the companies that have now raised hundreds of million of dollars would probably need to find an exit for their investors first.

- Solar PV: Another casualty of the financial downturn and the China factor in 2009. Investors remain unclear how big the technical/cost disruption needs to be for a new player to emerge successful. Investments will be slow until market conditions improve and inventory declines.

- Smart grid: This must have been the hottest sector in 2009. But now there are credible worries of a hype in the sector. So I think VCs will go into a watch and track mode.

- Electric cars: The year started off with new electric auto OEMs trying to raise capital as future tech platform suppliers to the big OEMs. And then the gov’t came and infused billions into them directly as well as into their suppliers. Now the same companies are gearing for an IPO, riding high on gov’t dollars.

- Algae fuels: I just don’t see how the current technologies scale and become cost-effective. Is there a venture play here at all?

- Concentrating PV: 2009 was a difficult year for CPV players. It was hard to raise money and they all needed to get to large scale for costs to come down. 2010 might also be a difficult year for many of them. The upfront capex is still too high compared to CSP and rapidly declining non-concentrating PV costs.

- Project development: Lack of project finance scared VCs  from companies developing infrastructure projects. While project finance may start to flow (or so I hope), it will still take a while for VCs to get comfortable with such capital intensive projects. Eventually this space should see lots of action.

How does General Catalyst think about its cleantech portfolio?

I am often asked what are the areas within cleantech that General Catalyst focuses on. Well, that’s kind of a hard question to answer. Despite what other VCs may try to tell you, VCs are opportunistic and would jump onto any great opportunity regardless of space. A better question might be around areas where the VCs may not invest. It is possible for VCs to write certain spaces off for good reasons: LP concerns, capital intensity, IP quagmires, regulatory risk etc…

When asked about GC cleantech investments, I like to talk about how we view our portfolio. Our investments tend to categorize in three broad buckets:

(a) Deep science projects: These are deep technology startups that often emerge out of academic labs. Many materials science based companies tend to fall into this category. Innovations tend to be in labs of faculty that have spent a long period of time investigating the space, and eventually broke ground on something that is totally disruptive and game changing. In addition to the innovation itself, our observation is that faculty that has spent a lot of time in the space (not just the past few years), tend to have a large body of knowledge/work that supports the innovation to get commercialized. These investments typically have a long gestation period before exits (tending to 6-10 yrs), and technical risk is usually high. However, the bet is on something that would truly disrupt the industry and create large value along the way. (Examples of GC investments: Mascoma, Lumenz etc)

(b) Engineering innovations: These investments tend to involve entrepreneurs who have solved one or more hard engineering problems in already well established industries. Investment revolves around commer cializing innovative solutions that would transform the industry and create long lasting disruptive change. Technology leadership in such companies could emerge out of academia as well, but often the innovators have significant practical experience in the space and leverage their intimate knowledge of the pain felt by the industry to find the ‘painkillers’. The solution could be at component or system level. Market risk is often less of a problem since industry dynamics are either well established or well understood, but in addition to technical risks around scale up etc, there is often risk around finding the right channel partners to commercialize the innovation. (Examples of GC investments: Modular Wind, Advanced Electron Beams etc)

(c) Infrastructure/projects: This is an area that VCs have typically shied away from. Project based capped returns of 15-25% IRR are not sexy for VCs. But we think there are some rather interesting opportunities here for investment. That does not mean we do typical renewable energy project development investments. We think a project development company could be a strong investment if they are working in an environment where they have some level of ability, access or control over a scarce resource – and having that creates a competitive advantage for companies that also execute well and prove they can deliver on time, budget and plan. Strong execution, plus control over a scarce resource, allows a developer to not just create value from projects on the ground but also from future pipeline of projects. (Examples of GC investments: SunBorne, C12 etc)

How to get started as a Venture Capital (VC) analyst?

I get asked this question often: How does one become a VC? Well, if you are an analyst/associate candidate, this should really help you. Click on link below for the rest of a very useful article…Great pointers on how to be a strong network node!

As an analyst, you can be useful at pretty much only three things: communication, sourcing, and analysis. The great thing for VC wannabes is that these are all things that you can do now, before a job even comes up. There's nothing stopping you from putting forth your analysis of a new startup, or tipping VCs off to potential deals today, even when you're not at a firm.

Many students have the misconception that, as an analyst, you're going to be put in front of a big stack of business plans and your filtering skill is what's going to make you the next Mike Moritz. Guess again. VCs hustle hard to track down deals and they expect everyone in the shop to be bringing deals to the table, because you should be in the flow of interesting things going on.

via How to get started as a Venture Capital (VC) analyst | from This is going to be BIG! – Comments on New York Tech Community, Startups, Venture Capital and Career Education.

How to know if the VC is ‘not that into you’?

Vinit Nijhawan (from BU) is a friend and a respected colleague. He had the following to say on an article about the arrogance of venture capitalists that appeared in Xconomy. He might be spot on, and hence sharing here….click on link below for original article.

I have been both an entrepreneur and a VC and now I am teaching entrepreneurs how to deal with VCs at Boston University. In the end raising money from VC is a sales process not unlike selling a product/service to a customer. You first have to establish the need: 1 is the VC partner interested in making an investment in the space you are in and 2 how many boards are they on, the fewer, the more likely they need to make another investment. Next you have to identify the targets: this is much harder since VCs needs are dynamic, sometimes as dynamic as what they read in WSJ that morning about a space. Then you have to make the sale: my experience is that VC partners make their mind up to promote your investment within 15 minutes of seeing your pitch–move on if the body language is not totally supportive of you. Lastly and the most difficult is the close: without real or perceived competition it is not in the VC’s interest to close quickly–their risk goes down over time as your company/idea matures. Net net it is a difficult sales process for most entrepreneurs, especially first time entrepreneurs and it is time consuming. Finally it is crucial to manage the post-sales process effectively: my recommendation to VC-backed CEOs is that they have to allocate 15% of their time to “investor relations”. It feels like overhead, but it is crucial to manage your VC investors in good times so that they are supportive in bad times.

via The Arrogant Venture Capitalist: A View from the Trenches | Xconomy.

We need to keep our entrepreneurs here: Startup visas can jump-start the economy

US visas for founders of start-ups is an  important topic that I feel rather strongly about. There are no ifs or buts about it. It is a crime that we do not have a mechanism to retain the brightest minds from other countries in our own who would create exciting & dynamic new ventures, create jobs for educated Americans, lead the way in global innovation, and open new frontiers for our economy. We need to  immediately figure out a way to enable anybody who wants to start a legit business in the US to stay here.

Brad Feld and Paul Kedrosky have done an excellent job describing why we need to have:

(a) a special class of visa called ‘Startup visa’ for founders of startups. Founders that are able to raise a nominal amount of capital as validation of their company creation idea should be given a visa so they stay here and pursue their venture.

(b) a visa stapled to every graduate degree awarded in the US to retain the brightest minds here instead of sending them away after training them at our top universities. These young, highly educated, motivated and creative individuals are precisely what this country needs – for innovation, job creation, global leadership.

I have been an entrepreneur who created at least a couple dozen jobs in the US, and am now an investor in startups that create even more jobs….but I almost never became an entrepreneur due to visa issues.

Even with a highly technical Ph.D from MIT, I had no legal way of staying in this country after graduation to  start a company. I had a couple of business ideas in mind but no way of pursuing them formally.  My entrepreneurship passion was almost destined to die in entrepreneurship classes at MIT.

The only way for me to stay in the country post-graduation was to get a job in a large corporation that would sponsor an H1-B work visa. So I did that and joined a large management consulting firm. I liked my work, but lets be clear: I did not create any new jobs for Americans, or create much economic value/contribution to US economy in any meaningful manner (besides paying taxes) until I was able to join the entrepreneurship ranks mostly due to a lucky option available to me to retain my visa status in the US. For a few reasons, we created our new company initially as a subsidiary of our angel investor’s company, and fortunately for me I was able to transfer my H1-B visa to that parent company while I applied for a permanent residency as a person of interest to the US. Had that visa transfer not been possible (and most non-US citizen/resident startup founders don’t have such corporate structures available to them), I would have had to stay in my corporate job for additional 6-7 years (possibly my most productive years). I think 7 years later, with a bigger salary+bonus package in a comfy corporate job, leaving to do a startup would have been infinitely harder. I was able to take a big risk when I did partly because I had less to lose at a young age, and partly because passions ran strong. Now I wish for more people to have the kind of opportunity I had in this country.

I am posting some sections of Brad and Paul’s article in Wall Street Journal below:

While fast-growing companies have long been the main source of new jobs and innovation, this country makes it outrageously difficult for immigrants to launch new companies here. This doesn’t make any sense. After all, Google, Pfizer, Intel, Yahoo, DuPont, eBay and Procter & Gamble are all former start-ups founded by immigrants. Where would this country be today without their world-changing innovations?

Immigrants have not only founded big, well-known companies. Foreign-born residents made up just 12.5% of the U.S. population in 2008. But nearly 40% of technology company founders and 52% of founders of companies in Silicon Valley.

Yet we don’t seem to care. We send recent, foreign-born university science and engineering graduates back to their own countries after their student visas expire—unless these creative sorts are willing to spend some of the most entrepreneurial years of their lives working in a big company under an H-1B visa after they finish their studies.

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In the 21st century [...] opportunities don’t wait for our interminable, employment-based visa programs. As a result rather than saying “Come and create jobs here” we, in effect, tell them to shove off. Come back when you have a few million in sales— at which point they will be rooted elsewhere and creating jobs somewhere else.

That needs to end now. Immigrants who come here to create companies create jobs. We need the jobs.

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The U.S. remains one of the most attractive countries for entrepreneurs. It has a culture of risk taking, capital formation, and an economic dynamism that is the envy of the world. This gives us a competitive edge that we should not let slip through our fingers.

via Paul Kedrosky and Brad Feld: Start-up Visas Can Jump-Start the Economy – WSJ.com.