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Mapping the Cleantech Opportunity: TLH notes from the Nantucket conference

Panelists:
Nick d’Arbeloff, moderator (Pres of NE Clean Energy Council)
Bill Davis, Ze-gen
Mike Clary, CEO GMZ energy
Jim Matheson, Flagship
David Prend, Rockport
Hemant Taneja, Catalyst  – 3 teams at GC:  clean energy, IT, and consumer/media

Prend:

• 5 sectors of clean tech:  generation, resource efficiency, green buildings, advanced materials, transportation (admittedly, this covers a lot of ground including things that have no direct link to energy)
  

ND:  clean tech is anything that lessens the human footprint on the environment

JM:  Flagship deals are very IP intensive; cleantech really is advanced technology

• we don’t bet on people paying more to be green
  

HT:  cleantech is all cost driven; energy is a commodity

MC:  there is real hard science here, not just engineering or building a product

• have to stop the science every day and get to product
  

How did GC decide to plunge into clean tech?

• decided early 2006
• “nothing else is really exciting — CT is where the returns are, where the entrepreneurs and students are going”
• began creating eco-system:  sponsored NE CE counsel, hired 4 PhDs in correct disciplines
• huge bets:  big investments, long time frames, small shares of huge markets
  

Prend:

• We don’t like commodities; don’t invest if cost is only driver
  
  • Wind and solar have value beyond cost:  you never need fuel again
  • Want multiple drivers beyond cost
    
• Not worried about capital intensity:  if you have a real product with a real value prop, don’t have trouble raising money.  One co has raised $700m in PE, a $550m DOE loan guarantee, could be 1-2x fund return for us
  

JM:  project finance is a problem, even with DOE loan guarantees

• depressing valuations
• cleantech valuations got ahead of themselves and are stepping back now; we had a mini-bubble in CT
• versus life sciences:  LS is a value added product, and there is a natural market among the pharma co.s; this is lacking in cleantech
• public comps for cleantech companies are thin
  

Prend:  very optimistic right now because business plans and entrepreneurs are getting much better, much more business driven with seasoned entrepreneurs

• Doing a lot of A round deals, not bottom-fishing
• Helps that the government is supportive, but we really need great businessmen here
  

HT:  a lot of the money was coming from Hedge Funds and strategics; that has pulled back, and pending energy bill is creating FUD until it passes

• Trend among the entrepreneurs is still strong, however
• Have to see this as a 10-15 year program; the problem only gets bigger
  

BD:  there is a capital gap to finance the first of a kind facility (credibility gap)

• so raise extra equity
• and make first facility smaller:  proof of technology, even if not economical
  

MC:  investment interest is strongest from strategics, but of course that comes with baggage

Policy/Politics aspect:

• Can’t ignore it, as we are used to doing
• But the stimulus dollars are hard to find (not impossible)
  

BD:  

• Partnering with big co.s is important
• Looking for DOE loan guarantees (but requires a $80k application fee – many small co.s can’t afford this!!)
• But can die waiting for the government to move
• But don’t plan on gov’t $ to succeed
• Lobbying to get the bills written in a way that recognizes our value
  

MC:  agree, you can’t depend on it, takes for … ever.

Prend:  DC is now the financial capital of the world.

• Only real impact has been the 30% refundable inv tax credit from TARP for green investments — big benefit for our markets
• But, can be millions of $ of work up front before that DOE loan is for sure
• We argue:  do things to stimulate the market, don’t try to pick winners (because the incumbents will capture this process and rig it to favor them and bar new things)
  

N d’A:  what is the right price signal for the fed gov to inject into the market

• Prend:  cap and trade will be manipulated, carbon or gas tax make much more sense, or subsidy (“feed-in tariff”) for green electricity generators
• Getting carbon to $20-$25/ton would stimulate huge innovation, make big co.s adopt new technologies
  

At the end, Russ Wilcox (CEO of e-Ink) said he thinks that few founders of clean tech firms will ever make any money:  the road it too long, the capital requirement is too high, and hence a recap along the way is very likely.  He is the only one of (7?) e-Ink founders to stay until the company became successful, 12 years later.  No great answers here:  Prend said some clean tech companies exit sooner; others argued these entrepreneurs tend to be visionaries who care less about the financial win.  To be continued …