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.

…

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.

…

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.

A Step Beyond Human – Hugh Herr is building the world’s most advanced prosthetic foot

A fascinating story of courage, dedication, skill, and genius. Hugh Herr is an inspirational guy…and we, at General Catalyst, are so proud to be a part of his journey.

A Step Beyond Human

Andy Greenberg
Forbes Magazine dated December 14, 2009

MIT professor and double amputee Hugh Herr is building the world’s most advanced prosthetic foot.

On his way to a lunch meeting a few years ago Hugh Herr was running late. So he parked his Honda  Accord in a handicapped parking spot, sprang out of the car and jogged down the sidewalk. Within seconds a policeman called out, asking to see his disability permit. When Herr pointed it out on his dashboard, the cop eyed him suspiciously. “What’s your affliction?” he asked dryly. Herr, a slim and unassuming 6-footer with dark, neatly parted hair, took a step toward the officer and responded in an even tone: “I have no [expletive] legs.”

Blurring the boundaries of disability is a trick that Herr, director of the biomechatronics group at MIT’s Media Lab, has spent the last 27 years perfecting. At age 17 both of Herr’s legs were amputated 6 inches below the knee after a rock climbing trip ended in severe frostbite. Today he’s one of the world’s preeminent prosthetics experts. His goal: to build artificial limbs that are superior to natural ones. His favorite test subject: himself. “I like to say that there are no disabled people,” says Herr, 45. “Only disabled technology.”

Read more at the link below.

via A Step Beyond Human – Forbes.com.

Why am I still in Boston?

Recently a friend asked why I was still staying put in Boston? That got me thinking…

I didn’t move after my graduate degree even though I could have moved with the consulting gig to NYC, my startup primarily had markets in Europe, Michigan or California, and even now, when I am a cleantech VC, one would think CA is a bigger playground.

So I tried to list a few reasons below, personal and professional, for why I am still in Boston. Maybe I am missing out on big opportunities elsewhere. But so far I like it here. Having been here for more than a decade, it finally feels like home. If I had to move I can think of a few places that would be high on the list – and two driving factors would be (a) where can I have a bigger impact, and (b) weather.

Professional:

• Networks matter. I went to grad school here (MIT) and I know the local colleges and universities reasonably well. I have friends I can reach out to for help in technical due diligence, and I know entrepreneurs here who have built successful companies. It will take me at least a few years to develop such a network elsewhere. Besides, can any place but SF/Palo Alto provide the kind of dense network opportunity that exists in Boston?
• Intellectual stimulation. I am amazed at the level of intellect I see around myself in the Boston community. Academically, politically, socially, culturally – my friends and acquaintances wow me everyday on the depth with which they have analyzed problems and how engaged they are in big issues/ideas. Where would I get a chance to interact with the kind of IQ I am exposed to by just camping out at Cosi/Au Bon Pain/Starbucks at Kendall Square?
• Collaborative culture. At least during my time spent in the academia, then as an entrepreneur, and now as a VC, I find the community here inviting and collegial. At a recent New England Clean Energy Council dinner, my colleague Hemant addressed the audience as “my brothers and sisters in cleantech”. It really feels that way despite the competitive chases after exciting startups. Maybe it’s just the younger generation – but there is a real desire to be more connected, to be more collaborative, and to be encouraging of people with big ideas, bold ambitions, and audacious goals.
• Closeness. Everything seems so nearby in Boston. I realize this every time I go to CA, or to MI or TX, driving for hours to get to a meeting. I need only drive 20 minutes from center of the city to visit Route 128 companies, and I can walk from my home in Cambridge to Boston Public Gardens in Boston or to the NorthEnd on any decent weather day. I remember my first time in Boston when I got wrong directions at the Central Square T-stop and instead of MIT, ended up walking to Harvard. I realized then how close these places really were to each other. No wonder I still attend lectures fairly often at BU, Harvard, MIT, Tufts etc all the time, and never think twice about the distance to get to them.
• Career. I guess it does matter that I am working for a Boston-based VC firm that I really enjoy being at. I was lucky to have a few choices when I joined General Catalyst and so far I am very happy with my decision. I am told East Coast has a unique VC culture (still some remnants of a frat/boys’ club) and I am still learning to navigate my way. But my colleagues have been super accommodating and helping me learn the ropes. All else being equal, I am fascinated by the entrepreneurs that come out of our ecosystem, and I consider it a privilege to be working with them.

Personal:

• Closeness to the rest of the world. My family still lives in the Middle East and Pakistan. So I travel often and being closer to continental Europe and South Asia is nice. I also like visiting to Europe (and Europeans who usually make Boston a first stop on their travels through the US) for a wider exposure to culture, literature, music, history.
• Family. My wife has built her pediatric medical practice here. She knows each one of her patients by their first name. Leaving them behind would be a huge barrier to a move. That said, I recently tallied the cost of living in Boston for my family and the first reaction was eeks!
• Culture. I can’t say I quite fully know of or understand Boston’s art scene. And it’s certainly no NYC. But there is a vibrant cultural/artistic streak in the city. It appears a bit more conservative, but that probably suits my taste.
• Diversity. Not to be underestimated is the international, ethnic, racial, religious diversity that one finds in Boston. I can’t speak for the broader region but Boston is very much a melting pot – at least as far as the younger generation is concerned. Students arrive for all corners of the earth, some stick around for 4, others for 6 years, and some stay forever. Cambridge is actually the Republic of Cambridge, and Harvard Square is hip-hopping pretty much any time of the day. I have my favorite Thai, Indian, Japanese, Korean, Afghan, and Arabic food spots…but somebody please get me a nice Pakistani restaurant in Boston?
• Political activism. I am not overly political, but perhaps more so than an average American. And I love the civic/political activism that one observes in the Boston/Cambridge area. Consciousness about our role as global citizens and as leaders in our domains of influence is high. People regularly participate in charities, going beyond the act of passive donations – in fact since I have a view of the river Charles from my living room, I admiringly watch the many walks and races that bring millions to the riverbanks for terrific causes. Such community activism is much appreciated and admired by a Pakistani boy.
• Subway. I don’t use the T as much as I used to, but I blame that largely on needing a kid/car seat. Despite all its problems, our subway and extended train system is really not that bad. It is safe (for the most part), inexpensive, and life is golden if you work and live close to the red line. But if you are on the green line, you might be better off biking.

Presentation style matters when pitching to VCs.

My colleague Adam Berrey has a great post on his blog about pitching to VCs. I see hundreds of pitches/year and it still amazes me that so many people don’t pay attention to their presentation skills even when they get the coveted opportunity to present to a VC partnership.

Here are some  general recommendations:
Do some research on your audience before the meeting – Enable yourself to connect at least some names to faces when you walk in the room. Maybe look up what Boards some of the partners sit on? Are any of their portfolio companies  familiar to you. Do you you know any of their CEOs, CTOs? Spend the first 2-3 minutes developing a rapport, breaking ice for communication, and setting the tone for the rest of the hour. It also helps to tell the story of the genesis of the business in the beginning. But keep it short, and tell only if it makes the entrepreneurs stand out as special.

1. Learn to Present – Public speaking is a skill. Apparently more people are more afraid of public speaking than dying. To paraphrase a comic, they’d rather be in the casket than give the eulogy. Public speaking is a skill worth taking the time to learn with a good coach. (VCs like entrepreneurs who are knowledgeable, confident, networked, know their customers, and have a constructive dialogue with their audience during a presentation. Additionally, not a bad idea to run your presentation by someone who has pitched to (ideally these) VCs before).

2. Practice – Any good speech requires practice¬—out loud and for real. There is usually a curve: the first few runs our good, then it sounds canned, then you get great and it becomes natural and fluid. (Best presenters can almost deliver the talk without the slides)

3. Plan for Questions – Most investors ask questions. I’ve seen entrepreneurs who start getting peppered with questions before they even get to their first slide. You have to anticipate that. A few steps make a big difference:

• Create an FAQ – Take the time to brainstorm all the questions you might get, and prepare short, specific answers that don’t ramble. You should never hear a question you’re not ready to answer. Investors rarely ask mystical questions. (If you hit upon a question you do not have answer for, do not stumble into an answer. Let audience know this is an area worth looking into)

• Make Time – Expect that at least half the time you have to pitch will get eaten up with questions. Plan for that accordingly by cutting down the formal stuff and leaving time for the constant questioning. (If you are not getting questions, chances are your audience is not engaged)

• Roll With It – It’s better to just answer questions quickly, clearly and confidently as they come up. Then continue with the presentation as if there was no interruption. Don’t defer questions to a slide you already have, and don’t start going out of order. Stick to your story even if there is a bit of repetition. Half the people probably missed it the first time. (You need to leave the impression that you know this space dead cold. Anything less is unacceptable)

4. You Are More Important than Your Content – Every time someone pitches, the first follow-up topic among the partners is what people thought of the entrepreneur, not the business. If you are clear, confident, relaxed, prepared, smart and articulate, that goes a long way. (Of course, you need a good business too.)

5. Slides are Visuals Not an Outline - PowerPoint has all but destroyed the art of public speaking. Don’t print your speech on your slides and don’t read your slides. You should have a speech memorized, and your slides should be visuals that support your speech. Because slides are what get passed around, I’d suggest interlacing the visual slides you use in your live presentation with the detail slides you expect people to read offline. When you present, just hide those supper detail slides. (If you are new to the art of slide building, do a quick google search with .ppt included with keywords and go through a few examples to get ideas for visual layout/colors/fonts etc).

…..

8. Be Quick – The investors you want to work with are smart, and they get it. Don’t waste their time, stick to the point and move at a good pace through your content. If you capture the imagination of an investor, you will get many more chances to go deeper. Also, pay attention to their mood, and speed up when they are getting bored. Generally you don’t need those context slides about why the Internet is mainstream, etc. The investors you want should already have the fundamentals on your space.

9. Get Advice – If you’re presenting to a partner meeting, get some advice from the partner that is bringing you in. They know the landmines, the people who matter, and questions that will come up, and they can help you prep. (If you are presenting to the partnership, make sure your sponsoring partner looks at your presentation at least a week in advance and get feedback. Ask what would the partnership’s top 3 questions will be).

via 004. Your Pitch Sucks | Startup Blender.

Doing research to make a difference

Professors at top universities doing research to make a difference and for inventing a way out of energy problem is a great thing!

For Sadoway, the project is worth pursuing despite its daunting challenges, because the potential impact is so great. “I’m not doing this because I want another journal publication,” Sadoway says. “It’s about making a difference … It’s an opportunity to invent our way out of the energy problem.”

via Liquid battery big enough for the electric grid?, Energy, Massachusetts Institute of Technology – NanoTechWire.com – The online resource for Nano Technology And Research.

Regarding the topic of grid storage market exploding: I am hearing conflicting views from industry experts. At battery/grid storage conferences, optimism around the idea that this market is ready to explode abounds. Innovation is in top gear and startups are coming up with ways to attack the grid storage problem with low cost solutions.

But then there are industry experts who are eager to deflate this notion as hype – and point to natural gas (existing plants currently running sub-capacity + nat. gas storage) as a solution already available for grid’s needs for at least the next 10 years or so. They suggest stationary markets are limited to UPC/backup power, few mins of storage to bring nat gas plants online, and frequency modulation.

Tough to decipher but I am digging into it. It is clear though that future batteries will likely be designed from grounds up for specific purposes than one-size fits all (from consumer electronics to automotive and grid storage). If you have good references, shoot my way.