December 15, 2009
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)
April 24, 2009
Wilson Sonsini just posted a nice tool on venture term sheets. I don’t know how many people might use it to actually generate a term sheet, but it is not a bad way for entrepreneurs and new investors to learn about term sheets and the associated clauses. i can tell by my own limited experience that typical term sheets are much simpler than the form this tool would generate. That said, investors and entrepreneurs should know what terms could be put on the table, what they mean, and how to negotiate them…
From their website:
WSGR Term Sheet Generator
This tool will generate a venture financing term sheet based on your responses to an online questionnaire. It also has an informational component, with basic tutorials and annotations on financing terms. This term sheet generator is a modified version of a tool that we use internally, which comprises one part of a suite of document automation tools that we use to generate start-up and venture financing-related documents.
Because it has been designed as a generic tool that takes into account a number of options, this version of the term sheet generator is fairly expansive and includes significantly more detail than would likely be found in a customized application.
December 8, 2008
A few articles that focused on some of the sectors that I am looking at these days. Check them out…
Never Mind That Bailout: Venture Funding for Auto Innovation Accelerates As Startups Race to Leave Detroit in its Own Dust by Bruce Bigelow
Plunging Oil Prices Require Alternative Fuel Startups to Take a Long View by Bruce Bigelow
Eyes turn to auto start-ups’ funding, aid requests by Martin LaMonica
with Governor Duval Patrick (MA) at the annual NECEC Gala
And finally, a nod of thanks to the New England Clean Energy Council for inviting me to their first annual Green Tie Gala. It was a great event, a celebration of the ‘energy’ present in the New England area to promote and commercialize clean energy technologies. New England has certainly become the hot bed of cleantech startups, but more importantly, the Massachusetts government has shown its leadeship by staying way ahead of the everyone else in sponsoring, promoting and providing support to clean energyand energy efficency initiatives in the region. Kudos to Nick D’Arbeloff, Trish Fields, and the rest of the NECEC team.
September 11, 2008
Where should entrepreneurs turn to for investors is an important topic. I regularly see entrepreneurs dealing with this question, esp. the first-time entrepreneurs, often because each venue requires significant time and effort.
So if you are putting together a business idea with your best buddy, where should you look for funding?
Bootstrapping: Are you confident enough and have the means to bootstrap for a while? Can you save some equity along the way or are you being penny-wise, pound foolish?
Angels: How do you find the right angels? Is this dumb cash, or smart money? How many angels is too many? What to do if they become damending, like a seat on the Board?
VCs: Is your business idea ready for VC prime-time? Are you still sellable if it is shot down by a few leading VCs? Are they sharks that one must avoid at all costs?
I have these discussions with entrepreneurs all the time. Frankly, while there are general thoughts around this question there is no perfect answer. It all depends, on the idea, on the team, and the people involved – not to mention the investment climate in the space you are working on. But here I want to link to an interesting extract from an article by Ananad Rajaraman on GigaOm. Read on:
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April 16, 2008
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.
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