San Francisco VCs Looking To Go "Green"
"Clean technology" is not drawing much green -- yet
May 07, 2003
The "Next Big Thing" could be a clean thing.
Clean technology, or science applied to environmental problems to create things like fuel cell vehicles and membrane filtration systems for air and water, scored $1.1 billion in venture capital during 2002, the sixth highest of any sector.
While the amount is hardly huge -- it's about 5 percent of total VC cash invested last year -- the number of VCs interested and deal flow have increased dramatically since industry watchers began keeping track a few years ago. And a handful of firms, like Ballard Power Systems of British Columbia and Delaware-based AstroPower Inc., have turned a profit and gone public, helping to validate a sector that some had written off as rich in ideals but poor in payback.
"Five years ago, there were just a small handful of VC firms focussed on any type of sustainable business. Now there's at least several hundred, and 80 to 90 percent of those are focused on energy," said Rona Fried, editor of Progressive Investor at Sustainablebusiness.com. "For those of us in the field, the level of excitement is about as high as it can get."
Michigan-based Cleantech Venture Network CEO Keith Raab nevertheless hopes to push the excitement higher during a forum this month in San Francisco by matching clean tech companies with VCs.
Although the San Francisco Bay Area is home to some 80 percent of the country's venture capitalists, participation by local VC firms in clean tech has been minimal.
Of the top 10 most active clean tech investors in 2002, only one, Santa Barbara-based NGen Partners, is based in California. The balance are in Canada and the Northeast.
Raab hopes that will soon change. He points to the 200-plus RSVP list for the networking forum -- more than double the number attending his group's first forum in Toronto last year -- as a reason for optimism. Those who have indicated they will attend the shindig include Kleiner Perkins Caufield Byers, Technology Partners, VantagePoint Venture Partners, Battery Ventures, Fremont Ventures, Granite Ventures, and Draper Fisher Jurvetson.
"A lot of mainstream funds are starting to do investments in this space," said Raab, who has been pairing companies with investors since 1997. "And the ones that haven't are starting to do their homework."
So which Sand Hill Road boys have invested so far? Notable investments in the past year include:
* U.S. Venture Partners' $2 million investment in Nanosolar to develop inexpensive flexible solar cells.
* The Mayfield Fund's participation in a $15.6 million round to fund Polyfuel to develop a direct methanol fuel cell for mobile applications.
* Draper Fisher Jurvetson's participation in a $13.5 million round, along with Eastman Chemical Co. and Chevron Technology Ventures, to fund Konarka Technologies to better market its flexible, polymer and nanoparticle-based photovoltaic (PV) technology.
Draper Fisher director Raj Atluru says he is constantly searching for startups with solid technology and will be looking closely at all 23 companies presenting at the forum.
"I'm spending a lot of time on new deals in emerging technology like solar fuel cells, water purification. ... That's where it overlaps a lot with nanotech," said Atluru. "This is an investment thesis that we've been on the past year. This area is important to our firm."
Main driver for high interest?
The area is still immature, unlike the more developed, and some say overfunded, software and communication sectors. Although most of the big plays delivering large returns have already been made in those sectors, clean technologies are still "open pastures for startups," according to Atluru.
Honing the message
That can be a mixed blessing, however. CEO of New Mexico-based MesoFuel Ned Godshall said one of the most challenging aspects of heading a company in the nascent field is tempering enthusiasm with realism.
MesoFuel, which creates the fuel for fuel cells by stripping hydrogen from the environment and packing it into a steel container the size of a baby-sized shoe box, is in the process of closing a Series A round for about $4 million.
Godshall said in "working with the Sand Hill Road kinds," he is quick to point out smaller applications for the technology, like powering wheelchairs, surveillance cameras and switches for pipelines and railroads. More advanced applications, like powering cars, should come later he said, once the technology is perfected.
He also said that he's had to hone the company's message to raise funds.
"So far, for us, the response has been fairly favorable. If you associate yourself too much as a tree hugger then it doesn't sell well to these people," he said. "You've got to remember that fundamentally these people want to make money."