Let's talk peak oil and politics...

We're going to break an unwritten rule around here and mention a couple of highly contentious topics, "peak oil" and politics. Why are these topics generally off-limits on this site? Because while these are important topics for cleantech investors to keep in mind, they're covered very well by a lot of more knowledgeable authors elsewhere, and this site has always sought a "big tent" approach to the topic of cleantech investing -- it's a compelling investment area regardless of your political persuasions.

That having been said, this week saw these issues thrust front and center for cleantech investors, thanks to the State of the Union address ("America is addicted to oil"), the Cleantech Investors Summit (a broader post on the event is coming soon) where "peak oil" was a highlighted topic, and other media coverage that came out this week involving prominent investors. So let's take a look at a few such stories of note this week:

• The President's now-famous line that America is addicted to oil, and his pledge to "replace 75% of our oil imports from the Middle East by 2025," certainly seems to have gotten a lot of attention (thanks in part to that line having been purposefully leaked earlier in the day, priming the media to grab onto it). At the event this week in Palm Springs, a common refrain was investors joking (?) about making big bets on ethanol now. But let's keep everything in perspective. A 22% increase in Federal spending on energy technologies is helpful, but is not going to make a huge near-term difference for many cleantech markets. And goals to be achieved in 20 years don't often lead to 3-7 year investment window impacts, such as many VCs care about. But on the other hand, it's a very important statement to hear the President make publicly, it is a strong signal of government policy direction going forward. And it will encourage the trend of large companies starting to act, regardless of current government policy, to get ahead of climate change issues. All of the above is why cleantech investor and entrepreneur reaction seems to have been pretty mixed. Readers of this site are invited to provide their own thoughts and comments...
  

• Elsewhere, it was interesting to note this article (as well as this good column in Silicon Beat) talking about Vinod Khosla's energy policy and alternative fuels efforts in California.

• The "peak oil" hypothesis has also gotten a lot of attention lately in the cleantech investor community and elsewhere. For those not familiar with the idea, "peak oil" is the theory that global oil production has, or soon will, reach its maximum levels, due to its finite supply (note: this doesn't say oil won't be available, just that it will be higher cost due to limited availability). As the CTO of Chevron, Don Paul, puts it: "Our economy is based around the idea that capital is expensive and energy is cheap. What happens when that gets switched?" The important thing for cleantech investors to take away is that, with some continued pushback, the concept appears to have been broadly accepted now, and the key question is no longer "if" but "when". Are we at peak oil now? Or will it be 20 or 30 years from now? And is it right to focus on peak oil, or should we also be thinking about "peak natural gas" and "peak coal", and what timings should we be considering for those? Even though venture investors tend to think about things in 3-7 year time windows, these are important questions to think about. Those looking for more information should check out the Energy Blog and Peak Oil News, as well as a number of books on the topic, such as Matt Simmons' "Twilight in the Desert". Readers of this site are also invited to discuss this topic, leave your comments below...
  

Okay, enough on those topics.

Getting back to topics more central to this site, it was interesting to note this Q&A with SunPower's Tom Werner (note the mention that he expects SunPower's silicon-based technology to achieve price parity with fossil fuels within 5-10 years), and given all the attention being paid to energy topics these days, it was also great to see this discussion of clean water technology -- its sometimes easy to forget, given all the hullabaloo, that cleantech investors care about clean water, clean manufacturing, advanced materials, and other investment areas that will be advantaged by emerging natural resource trends, not just energy generation technology.

[2/4 update: Big news, re: Tom Werner's Q&A from above, about Shell Solar selling off its silicon-based solar PV business this week. Note that they're holding onto their thin-film business...]

Brief sector updates on solar and nanotech; Poseidon raises $610k

• In case you missed it, here was a recent good overview of the current state of the solar market.

• Nanotech investments doubled over the last year, according to Small Times, with a major portion of investments going to later-stage companies (does this mean that exits are being delayed?).

• Noticed that Poseidon Resources, a water tech project developer, recently raised $610k, according to a brief mention in this article. For more information on Poseidon, check out this article, or their website.
  

Cleantech investor news

• Investors continue to move into cleantech private equity, with the news today that Paladin Private Equity Partners is going to be launching a new cleantech-focused private equity firm, targeting $200M in total commitments, with Calpers providing a $40M lead. The company will target California-based small- and mid-cap investments.
  

• On the other side of the lake, UK-based VC Sigma Technologies announced the creation of a new Sustainable Energies Fund, targeting companies in the east of Scotland. The fund has completed a first close of 6 million pounds.

• The good folks at Cleantech Venture Network are bringing us a new useful tool, as they announced that the Cleantech Capital Group LLC will begin publishing a Cleantech Index on the Amex. The index will include 75 companies that derive 50% or more of their revenues from cleantech businesses.
  

Cleantech investing -- a view from Israel

This site tends to focus on North American cleantech investing, since that's where yours truly resides, but there is also a lot of rapidly-growing cleantech VC interest in other areas such as Europe, Asia, Israel, and elsewhere.

Today, Jack Levy of Israel Cleantech Ventures was kind enough to add his thoughts and perspective on the current state of cleantech investing in his neck of the woods:

With a remarkable track record in innovative technologies, Israel is widely regarded as one of the leading markets for venture capital investing, but the growing cleantech market is only now attracting attention. As U.S. venture funds raise more capital to deploy in cleantech companies, we expect that more and more will begin to look to deep but uncharted Israeli cleantech innovation for additional deal flow. Most of the Israeli cleantech companies are early stage and not versed in dealing with venture investors. This creates the opportunity, and need, for sector-focused, early stage investors with a strong local presence to develop the Israeli cleantech venture market.

Israel already has its share of cleantech successes along with some promising companies. The successes include industry leaders in geothermal power (Ormat), solar thermal (Solel) and desalination (IDE Technologies). As previously reported in the Red Herring and more recently in Business Week (and this blog), Israel has big plans to leverage its leadership in water technology. Recent reports (Hebrew only) have mentioned a proposal before the government for a five-year NIS 750 million ($162 million) incentive program for the water industry being championed in part by Mekorot (Israel National Water Company) Chairman Booky Oren. If adopted, these initiatives will supplement a robust governmental incubator network designed to support early stage ventures, many of which have already graduated cleantech companies. Israel's leading academic institutions such as the Technion, Ben Gurion University, and the Weizmann Institute of Science, among others, have significant activity in water technology, alternative energy and new materials technologies.

Even with the significant pace of company formation, many established Israeli venture capital firms have remained on the fence regarding the Israeli cleantech opportunity. Some are concerned about the challenges facing cleantech investing in general -- particularly the capital intensivity and longer sale cycles (hence longer time to exits) of many business models. Others are focused on the lack of venture funded Israeli cleantech exits, fewer opportunities for cleantech companies to pilot their technologies locally and the absence of the military as the clear driver of innovation and source of management talent.

Any prospective investment must be closely examined in light of these very real risks. Nevertheless, many early-stage companies that we have met with have scalable business models that are no more capital intensive than many “traditional” IT or communications plays. Israeli companies have historically excelled at rapid fielding of solutions and at taking existing products or processes and improving upon them – an approach which can help mitigate many risks and costs associated with new technology adoption. With this strategy, some companies, such as AqWise, whose AGAR® technology improves the capacity and performance of wastewater treatment facilities, have succeeded even in sectors with notoriously long sales cycles. However, other such product or process improvement approaches may limit the size of the opportunity and need to be diligenced carefully to ensure that any advantages developed are significant enough to build a sustainable business platform. On the plus side, given the global nature of the cleantech markets, and the leadership of the EU and Japan in certain segments, the geographical location and immediate global focus of Israeli startups may prove to be an even stronger asset than in other areas such as software or medical technology.

Perhaps most encouraging to the Israeli cleantech investor, are the managers who have academic or early career backgrounds in relevant areas (i.e. water engineering, electrical engineering), but who as a result of the job opportunities of the past 10-15 years acquired significant management skills and experience in high growth and successful IT, software or telecom companies. Like a returning diaspora, many of these individuals who take leading positions in Israeli cleantech companies are coming back to their true passions with strong conviction and a sense of mission. If they remain mindful of the differences in their new markets, we believe these entrepreneurs will be able to leverage their years of personal experience in high growth companies and help build an Israeli franchise in cleantech as strong as that which exists in more traditional VC sectors. And we look forward to doing it with them.

Israel Cleantech Ventures was founded in November 2005 to establish the leading sector-focused venture capital fund dedicated to investing in Israeli clean technology companies. We welcome any feedback or interest in Israeli cleantech companies; the author, Jack Levy, can be reached at jack@israelcleantech.com.

Thanks, Jack! ~rd

Two big cleantech fund closing announcements

• RockPort Capital announced that they've closed their second fund at $261M. This builds off of their first fund of $125M, which was invested in 18 different companies, including many that have been mentioned on this site over the past year. A few weeks ago, PE Week Wire reported that the target for this new fund had been $250M.

• PE Week Wire also reported on Friday (will provide link when available) that DFJ Element has made an interim close of $114M of a targeted $225M fund.
  

Congrats to both funds! It's very encouraging for the industry to see such LP interest in dedicated cleantech funds.

In one recent presentation I had the pleasure of attending, the speakers identified that there are about 60 VC funds now actively investing in cleantech.

NanoGram, Franklin Fuel Cells, and Intelliburn announce raises

• Speaking of nanotechnology, nanotech process innovator NanoGram announced an $18.7M round of financing, led by Technology Partners, and including existing investors ATA Ventures, Nth Power Technologies, Bay Partners, Harris & Harris Group, Rockport Capital Partners, Institutional Venture Partners and SBV Venture Partners. Harris & Harris also put out a separate PR describing their portion of the raise. NanoGram's technologies have applications in optical, electronic and energy applications -- the latter highlighted by the participation of several dedicated clean energy and cleantech investors.

• PE Week Wire revealed a couple of unannounced cleantech fundings today. The first is that Franklin Fuel Cells, a developer of solid-oxide fuel cells, has secured $2.32M of an anticipated $10M Series AA round. The second is a $1M Series A funding for Intelliburn Energy Systems, financed by TTI Technologies; Intelliburn appears to be a developer of advanced controls for industrial boilers (e.g., for wood mass, steam-driven power generation).

Seattle BioFuels raises $7.5M Series A

Fellow VC and blogger Martin Tobias' Seattle BioFuels announced that they have raised a $7.5M Series A from Nth Power, Technology Partners and Vulcan Capital. The capital is going to be used to take their biodiesel production model nationwide, and to accelerate deployment of new technology.