Water: the next frontier in energy innovation….

Finally Bill Aulet takes the leap and writes about Water. He is both knowledgeable and spends a lot of time thinking about these issues…so when he writes, I pay attention. Click here for what I wrote on water a few months ago.

My comment to Bill:

I was hoping somebody would write on water. Thanks. While the average were running after nanotech/biotech deals 5-8 years ago, the cunning were starting to see environmental tech on the horizon. Now that the average are running after energy deals, the smart should be thinking about water.

I don’t mean any offense to those in the industry, but you are dead-on that the decision makers in the water business are slow, relatively non-techie, and risk-averse. Having worked in the next slowest industry, i.e. automotive, I can imagine how hard it is to sell into it. But is there a way to approach the customers directly who would be more willing to pay than the middle-man thinks? I can tell you my family in urban Pakistan would pay a lot more for clean water (and are more used to it) than an average American.

It is interesting that some of the issues faced by water innovators parallel those in energy: (a) geographical distribution of markets, (b) centralized vs distributed systems, (c) scalability issues, (d) mismatch between rhetoric and action at governmental level, and (e) lack of entrepreneurs/investors who are willing to stick with long-term endeavors.

I agree with your comment above that the water-energy nexus could be great for both. Energy companies could end up investing in water innovations while water companies would look for cheaper energy sources. I think we need to take energy and water technologies to regions where they are needed most to develop them fast and cost effectively, i.e. developing countries in Asia, Africa etc. And lets find long term investors (maybe the Middle East investors fit the bill) who are less scared of playing with commodities in such markets.

The Next Big Thing in Energy Innovation and Investing? Let’s Talk Water

Bill Aulet 5/20/08

Energy innovation and investing are exploding right now. Technological breakthroughs are seen as perhaps the greatest hope to solving our dire energy challenge. However, what is often overlooked is the link between finding or creating new sources of energy and the effects on food and water.

Indeed, if you think of energy as a coin, the flip side is water and food. The scary thing is that food and water are both lower on Maslow’s hierarchy of human needs—i.e., they are more fundamental to human survival. Yet, the current rush to create new sources of energy—including “clean” energy—may have potentially disastrous tradeoffs on our food and water supplies. Going forward, trading off energy creation for water—meaning creating new sources of energy that depend on heavy use of water, as many do—will be less and less acceptable. That’s why the most exciting opportunities in energy entrepreneurship and investment lie in strategies that create more water or energy without adversely affecting the other. Xconomy for more…

Early stage VCs raising later stage funds, including private equity/hedge fund

Cleantech companies typically require a lot of capital before they become profitable and bring success to their investors. Investing in them can be rather strange business for all the IT/media/tech investors (which is a majority of the the VCs out there) who are used to deploying smaller capital amounts to reach commercial success. John Doer told us (again) just last week that Google required a total investment of merely $25million!

So what are early stage cleantech venture investors to do when their portfolio companies require >$100 million before scalability of technology is proven and reached? To prevent dilution VCs have to keep on investing in subsequent rounds. But doing so might require slightly difference investment vehicles, and probably a different set of professionals.

So that is exactly what they are doing! Many major VC firms are raising large funds solely focused on later stage financing of energy/cleantech companies. Private equity investors and investment banking professionals are in demand and they are joining leading firms in large numbers. Kleiner Perkins, Sequoia, etc…‘they are all doing it’, as a VC remarked to me. Interesting!

Here’s the news on Seqouia Capital from the PE Week Wire.

Asset diversification has become business as usual in private equity, as many top-tier firms have launched distressed funds, real estate funds, hedge funds, sub-debt funds and other things that don’t involve privacy or equity (let alone both). Venture capital firms, on the other hand, have mostly stuck to their knitting. Sure, you can argue the demerits of certain firms moving toward later-stage deals or raising country-specific funds, it most of it still falls within the conventional rubric of venture capital.

Complexities of Automotive Supply Chain. Ikea distributing cars!

There have been some rather bold and interesting investments made by leading VCs in automotive technology companies…but not many can be bolder than entering the business of designing, manufacturing and assembling entire vehicles from scratch. Yes, some companies like the Tesla (here, and here) are basically outsourcing the vehicle completely to the likes of Lotus, it remains to be seen what Fisker will do.

But can a startup put together an automotive assembly line and do a good job at it? I am told Lotus Elise was developed with merely a budget of approx. $7 million, and the Think car is assembled using 700 components (instead of the typical 20,000+) by a staff of 35 people. This remains a question in my mind. How many new car companies have been successful and profitable in the past 40 years?

Anyways - I got this image from a friend that humorously illustrates the core of the issue. Can there be space for an incompatible disruptive forceto shake up the automotive supply chain in a dramatic fashion?

IKEA DISTRIBUTING CARS - DISRUPTIVE INNOVATION

Disruptive Technologies: Compatible or Incompatible?

Technology startups are all about disruption. If your technology is not disruptive, then it is hard to get funded, and even harder to succeed. Why would someone buy your stuff when someone else has something rather similar, and with lots of experience (and scale) behind it?

But then…the clean-tech startup movement has provided a reason to more critically analyze this disruptive nature of innovation. While disruptive technologies typically arrive with a different S-curve which eventually aspires to surpass the S-curves of incumbent technologies, how should they enter the marketplace, especially in entrenched industries where change is hard to come by? i.e. Do you blow up value chains and do everything completely different (as was described in Blown to Bits by some BCG alums), or is there a way to introduce disruption while working with existing value chains so the adoption is easier and less risky? The former could be Incompatible Disruption, while the latter could be called Compatible Disruption.

There are examples of both right before us in the clean-tech sector. For example, electric cars are disruptive (needing all kinds of infrastructure changes to improve fuel economy), but diesels and hybrids are not (minor change from a user point of view). GEO2 itself is a probably going to be an interesting case study on this issue at some point - but I am not allowed to speak freely about it as yet. So I won’t. But some decisions we will make will tell our thoughts on this problem in our industry.

But I want to point to two very interesting articles on this topic. I am linking them here so read them on… Exciting stuff.

The two kinds of disruptive clean technologies

GreenTech Media
by Rob Day

Almost all VCs will say that they look to invest in “disruptive” technologies — new products or systems where the value proposition is so markedly better in comparison to the incumbent choices that the market will have little choice but to go with the new option. Venture capital, needing to see rapid growth potential, naturally needs to see such opportunities, so it’s easy for VCs to say that they’re looking for Disruptive Technologies.

But VCs mean different things when they say this. And in cleantech, the differences between what I’ll call Compatible Disruptive Technologies and Incompatible Disruptive Technologies are, perhaps, even more stark than in other sectors.

Built to Last, or Built to Flip…

I am attending a class at Sloan next week - discussing how we built the GEO2’s entrepreneurial organization, developed our business plan, and worked towards execution on our strategy for entering a staid automotive component market place. The class, I am told, read this following article by Jim Collins which may be on their mind as they speak with us….I am sharing it here. Interesting ideas. I particularly agree with the last para.

March 2000

Built to Flip
Fast Company
by Jim Collins

“I developed our business model on the idea of creating an enduring, great company—just as you taught us to do at Stanford—and the VCs looked at me as if I were crazy. Then one of them pointed his finger at me and said, ‘We’re not interested in enduring, great companies. Come back with an idea that you can do quickly and that you can take public or get acquired within 12 to 18 months.’ ”

A former student was reporting to me on her recent experiences with the Silicon Valley investment community. As an MBA student at Stanford, she had taken my course on building enduring, great companies. She had come up with a superb concept that involved doing just that. But when she took the idea to Silicon Valley, she quickly got the message: Built to Last is out. Built to Flip is in.

Built to Flip. An intriguing idea: No need to build a company, much less one with enduring value. Today, it’s enough to pull together a good story, to implement the rough draft of an idea, and—presto!—instant wealth. No need to bother with the time-honored method of most self-made millionaires: to create substantial value by working diligently over an extended period. In the built-to-flip world, the notion of investing persistent effort in order to build a great company seems, well, quaint, unnecessary—even stupid.

The built-to-flip mind-set views entrepreneurs like Bill Hewlett and Dave Packard, cofounders of Hewlett-Packard, and Sam Walton, founder of Wal-Mart, as if they were ancient history, artifacts of a bygone era: They were well-meaning and right for their times, but today they look like total anachronisms. Imagine Hewlett and Packard sitting in their garage, sipping lattes, and saying to each other, “If we do this right, we can sell this thing off and cash out in 12 months.” Now that’s an altogether different version of the HP Way! Or picture Walton collecting a wheelbarrow full of cash from flipping his first store after 18 months, rather than building a company whose annual revenues now exceed $130 billion. These entrepreneurs and others like them—Walt Disney, Henry Ford, George Merck, William Boeing, Paul Galvin of Motorola, Gordon Moore of Intel—were pedestrian plodders by today’s built-to-flip standards. They worked hard to create a superb management team, to develop a sustainable economic engine, to cultivate a culture that could withstand adversity and change, and to be the best in the world at what they did. But not to worry! In the built-to-flip economy, you can get rich without any of those mundane fundamentals.

Venture Capitalists (VCs) investing in India

Xconomy.com just reported on the leading New England VCs investing in India. Matrix Partners and Canaan Partners led the way, even if they are a bit behind VC firms that have set up significant India-funds and teams. As they report

A report from Dow Jones VentureSource shows that venture capital investment collected by entrepreneurs in India nearly tripled in 2007, totaling $928 million across 80 separate deals, as compared to just $349 million for 36 deals in 2006. It was “easily the highest total on record for the region,” according to the Dow Jones report, which was released today. Some 48 percent of the funding went to information technology companies…

Within India’s IT sector, Web-based information services companies captured the biggest chunk of venture cash, accounting for 22 deals worth almost $141 million.

Here’s the list of the top 20 investors placing equity-based venture investments in Indian companies in 2007. (All data courtesy of Dow Jones Venture Source.)

Name	Type of Fund	Number of Deals
Draper Fisher Jurvetson	Venture Capital	7
IDG Ventures India	Venture Capital	6
Intel Capital	Corporate VC	5
Sequoia Capital	Venture Capital	4
Erasmic Venture Fund	Venture Capital	3
Matrix Partners	Venture Capital	3
Velocity Interactive Group	Venture Capital	2
Canaan Partners	Venture Capital	2
Carlyle Group	Private Equity	2
SVB Financial Group	Investment Bank	2
Clearstone Venture Partners	Venture Capital	2
UTI Venture Funds	Venture Capital	2
GVFL	Venture Capital	2
Temasek Holdings	Other	2
ICICI Venture Funds Management	Venture Capital	2
Silicon Valley Bank	Other	2
SIDBI Venture Capital	Venture Capital	2
Individual Investors	Angel Investor	2
New Enterprise Associates	Venture Capital	2
Kleiner Perkins Caufield & Byers	Venture Capital	2

Press Clipping(s): Innovation and the University-Industry Interface

A very interesting discussion on University and Industry collaboration on Innovation was initiated by Kenan Sahin, the president and CEO of TIAX (former A.D. Little Consulting’s technology practice). Check it out on Xconomy.com.

Innovation and the University-Industry Interface

from Xconomy by Kenan Sahin

Universities, Business, innovation

Kenan Sahin wrote:

Editor’s note: This article was published last July 2, during our first week in existence. Given the attention to last week’s post by Chris Gabrieli questioning Harvard’s legacy of tech transfer, we wanted to share Sahin’s thoughtful observations with a wider audience.

The buzzword of the 1980s and ’90s was “entrepreneurship.” This decade, the obsession is with “innovation” as the presumed path to riches for people and nations. Since the key generators of innovation are research universities and the key implementers of innovation are companies, there is an ever-increasing focus on making the university and industry interface more effective. But will the twain meet? It could be very difficult.

The question is critical, and there is no better place to ask than here in Kendall Square, at the confluence of great universities, multinational companies in both the life sciences and information technology, and scores of start-ups.

Though hugely complementary, academic and industrial entities hold different values and are motivated by different incentives. One key to surmounting the many obstacles to successful collaboration is to better understand the two worlds, identifying those differences that are truly reconcilable, temporarily reconcilable, and totally irreconcilable. There’s no point in dealing with irreconcilable areas.

Tesla’s turn to electric-hybrid for next gen cars

I have argued before that plug-in electric cars that also have a small diesel or gasoline fueled engine, for operation when batteries have already spent their charge, will fare much better than the electric cars that some companies have proposed. I, for one, would feel much better investing in a high end car that I knew would not leave me stranded on the side of a road if I get stuck in traffic, or if I decide to make a few wrong turns and get lost in the middle of this country. I am all for a car that gives 100mpg+ (e.g. Tesla gives 135mpg in all-electric mode) but it should not be a toy that may not work at times.

That is why the news that Tesla’s second generation car platform, called WhiteStar, will include a small gasoline engine is great news. This would make their $80-100K luxury/sports car much more usable for a wider audience. I believe they still need to prove they can make money as a sub-scale manufacturer and not remain a tiny niche play in toys, but certainly White Star’s concept is, in my humble opinion, headed the right direction.

Tesla to make gas-electric car

Tesla Motors, the people who put the all-electric car on the map, are going to work with gas too.

The San Carlos, Calif.-based company will produce two basic types of its Whitestar sedan, due toward the end of 2009. One will run completely on batteries. The other will be a range-extended vehicle, or REV, CEO Ze’ev Drori said in an interview. In an REV, a small gas motor recharges the battery pack while the car is being driven. The battery pack on these types of cars only goes about 40 to 50 miles on a charge, but because it gets recharged while driving, the range of these cars will be longer

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Training young investors: What are junior partners at Kleiner Perkins and Khosla doing?

A nice article from Forbes’ Midas List. There is certainly a need for top quality management teams that have experience in clean-tech. But it is not just the management talent that is desperately needed to keep the clean-tech engine running strong, what about investors? The investment choices they make certainly have a big impact on which technology sectors receive attention, but then the real hard work is in supporting their portfolio companies to grow them into successful ventures.  VCs are fairly new to clean-tech, and they have been very busy. So the experienced hands need leverage from junior partners - but how are the new-comers getting trained? How can today’s junior partners become the next Doerr and Khosla to create the Googles, Amazons and Suns of clean-tech? Here’s a glimpse….

Growing Up Green
Erika Brown 02.11.08, 12:00 AM ET

The young stars of venture capital aim to do in alternative energy what their bosses once did in computing.

This trio could get hired anywhere. Aileen Lee was president of her class at Harvard Business School. Trae Vassallo learned to program when she was 7 and at 28 cofounded a wireless e-mail company that Motorola (nyse: MOT - news - people ) bought for $550 million. Samir Kaul led the effort to sequence the genome of the arabidopsis plant and then built three life sciences companies from scratch. He’s only 33.

These three are among venture capital’s new guard. Like their predecessors, they’re smart, driven to win and inclined to gravitate to the biggest opportunity they can find. Ten years ago it was software and telecom. Two years ago it was the Web. Now the fad is all things green: renewable fuels, electric cars, smart power grids, clean coal. In 2007 venture investors plowed $2.2 billion into green tech in the U.S., six times the amount they invested in it in 2002.

Lee, 38, and Vassallo, 35, are partners at Kleiner Perkins Caufield & Byers, which has earmarked a third of its $1 billion under management for green technology. A dozen young Kleiner partners revolve around their mentor, L. John Doerr, who this year tops our Midas List of tech’s top 100 dealmakers. Stopping global warming, says Doerr, “is the largest economic opportunity of the 21st century, and a moral imperative.”

Samir Kaul is the right-hand man of Vinod Khosla, a former number one Midas lister (now number 70) who left Kleiner four years ago to set up his own shop, in large part to invest in things that environmentalists love. Khosla has so far invested an estimated $300 million of his $1.5 billion wealth in 35 green companies. Also big in green tech are Draper Fisher Jurvetson, Nth Power, Technology Partners and Mohr Davidow Ventures. Draper has put $143 million into 24 deals in three countries. Credit Suisse banker Bryce Lee broke onto the Midas List for the first time this year at number 19 with big returns on Suntech Power and First Solar. Lee and another first-time Midas Lister, Adam Grosser (number 91), also scored with EnerNoc, a company that remotely controls power consumption at factories and retail stores.

Some of the eco-money is chasing science fiction. “One company planned to convert the ocean into a carbon-eating soup,” says Michael Goguen of Sequoia Capital. Some of it is late to the party and being deployed at insane valuations. First Solar, a huge success for the VCs who got in early, now trades at 40 times sales. David Dreessen of Battery Ventures won’t even invest in a second or third equity round of green-tech deals because the valuations have gotten so stretched. His firm has even gone contrarian by helping launch a $415 million “dirty” fund called SB Energy that will invest in businesses that suck oil out of rock or sand.

Kleiner Perkins investing in alternative powertrains - Fisker Automotive

Last week was the Detroit International Auto-show. This is the largest gathering of its type in the United States where largely the large automakers around the world, especially the US big 3, show off their latest car models etc. Traditionally this event has attracted automotive engineers and salesmen of all sorts, and media that was more nostalgic about the automotive past than the real future. This year, at least to me, seemed very different. For one, this year’s show coincided with the primaries in Michigan and hence all the major presidential candidates showed up to demonstrate their unity with the auto-workers etc.

…but that was hardly the big news for me. The big news this year has been the focus on green technologies in the automotive sector and the focus on alternative drive-trains. And the big news has been the inclusion of a new type of investor in the automotive world - top notch venture capital firms. I had just finished writing about Vinod Khosla’s investments in alternate powertrains that I read about Fisker Automotive, a plug-in electric hybrid car-developer/manufacturer that just got over $10million of investment from Kleiner Perkins Caufield and Byers.

I have written before about Tesla Motors, probably the most prominent among this new generation of car developers that promise excitement in our mobility solutions while simultaneously providing solutions to the automotive industry’s carbon foot print. The technologies deployed by such car makers are typically very impressive: light weight fiber composite structural materials, electric or hybrid drive-trains, next generation battery systems, etc. And the performance is equally impressive as well: sports-car accelerations, long mileage on single electric charges, impressive fuel economy and cabin comfort.

But the question that they must face, in addition to those around the CO2 and other emissions of the coal power plants that feed electricity into the plug-ins’ batteries, is around the supply chains that they must establish to consistently produce high quality cars in a timely fashion. Can these upstarts get dependable supply chains established (that took traditional auto-makers decades to establish?), and will they be able to reduce costs at a pace that will be necessary for mass-production? VCs will probably look for VC returns in some reasonably short period of time, and more importantly, to maximize the societal/environmental impact one would want many such vehicle son the road as quickly as possible. Hence the scalability of the solution matters tremendously. I continue to look for optimistic signs for them…

Here’s a nice article from Wall Street Journal on these new car-investments from key VC firms: