Early Stage Cleantech VCs Love New York… Know Why?

New York – historic home base to key sectors such as as analytics, finance, real estate, and technology – is the new Mecca for venture capital investors itching to sign cleantech and resource efficiency deals.

New York’s total venture capital investment is mounting, with Q4 2013 marking an eight-quarter high for its venture capital deals, with early stage deals comprising the majority, according to CB Insights.

New York has strong clean energy policy leadership, with progressive renewable portfolio standards and energy efficiency mandates. In addition, New York’s Green Bank opened earlier this year to drive further private sector investments in cleantech and energy efficiency initiatives. The NY-Sun Incentive Program also debuted, which is designed to fuel the installation of solar systems across the state.

New York State now ranks first overall in U.S. wind patents and second place in solar patents, according to data from law firm Heslin Rothenberg Farley.

And, of all major U.S. cities, New York City ranks third overall in energy efficiency, below Boston and Portland, according to the American Council for an Energy Efficiency Economy (ACEEE).

A Haven for Startups

About 270 cleantech startups are based in New York, according to Cleantech Group. That number is projected to rise.

New York’s cleantech startup scene was on full display at the New York Energy Week (NYEW) Cleantech Startups Showcase in late June. Bandwagon’s ride-sharing service won the day, nabbing the Judge’s Prize for its ability to match riders and routes in any city, and provide shared taxi service in New York City – all while working to improve transportation and reduce financial and environmental costs. Available in a mobile app, the service sells “seats versus taxi trips,” making ride sharing more efficient, according to founder Dave Mafuda.

In January, Bandwagon won a $700,000 Verizon Powerful Answers Award, as well as an additional $25,000 in March, when it nabbed Ford Motor Co.’s “Traffic Tamer App Challenge.”

Bandwagon also appeared on this year’s 2014 New York Greentech 40 list, which consists of the top privately held cleantech companies in New York as chosen by a selection committee consisting of New York energy leaders that used data from CB Insights.

Bandwagon gets paid by event producers, airlines, and transportation hubs to facilitate ride sharing that improves their customer’s experience by reducing wait times for taxis. Bandwagon is three times less expensive than rival UBER, as well as three times faster than SuperShuttle, Mafuda says.

And it is developing a partnership with a major airline to deliver its ride-sharing service to eight of its potential partner’s hubs, says its CEO.

Another NYC-based startup Radiator Labs won the Audience Award for its solution to the faulty steam heat systems still used in pre-WWII buildings in cities such as New York and Boston. The Cozy is essentially an iPhone-controlled thermostat for radiators that promises to save energy and also provides tenants with temperature control. Management companies are the Cozy’s key market for now.

Cozy founder Marshall Cox predicts the company would generate $90 million in revenue if adopted by only 5% of New York City’s buildings.

Radiator Labs, which created The Cozy, closed a $500,000 seed funding round in June from a group of investors including the Dorm Room Fund. The startup plans to begin raising another round of funding later this year, Cox says. They currently have pilot projects running in buildings owned by Columbia University, New York University, and the City of New York. Additionally, they won the MIT Clean Energy Prize in 2012.

New York Energy Week attendee John Lee of Bala Cynwyd, Penn.-based venture capital firm Osage Partners, said that Radiator Labs is “interesting,” but still too young for his firm to invest in right now. Osage typically invests $2 million to $3 million per company in Series A rounds. However, the company is “making great progress,” he noted.

Pitch Competitions Ripe with Opportunity

Startup pitch competitions and incubator events are prime places for venture investors to find experts who can supply information on emerging trends and to meet early stage startups, says Julia Paino of Boston-based Vodia Ventures, another attendee of NYEW.

For example, Vodia Ventures invested in Boston-based eCurve’s $2.5 million Series A funding round on June 24, and also provided $800,000 in seed capital for the company last October. The startup, which has developed a patented method for reducing electricity charges for commercial customers, was previously part of the MassChallenge accelerator in Boston. Paino said that she is an active member of the CleanTech Open Northeast’s incubator program, which enables her to meet new startups.

In addition, Paino eyed two other companies that offered pitches during NYEW’s startup competition, Embue and Cleargrid Innovations. Paino said that she likes the “community driven innovation” theme, which involves using apps to crowdsource data in order to understand what is going on in local areas, which was a consistent theme among startups at New York Energy Week.

Embue, based in Boston, develops connected thermostats for small commercial facilities that use sensors to collect data to improve system efficiency and performance.

NYC-based Cleargrid uses real time visual storm damage assessment imaging to decrease electrical outages and increase grid reliability. They have two pilot projects currently running with northeast-based utilities, and are looking to raise seed capital from strategic investors, says CEO Michael Wyman.

In addition to Cleargrid, Paino said Boston-based startup Crowdcomfort, which crowdsources building maintenance and comfort by allowing anyone to report site-specific comfort via a mobile app, is a perfect example of community-driven innovation. The startup recently raised $344,000 out of a $1.4 million funding round, and are presumably still fundraising.

Other startups at New York Energy Week that Paino thought were interesting include NYC-based Sealed, which guarantees savings from home energy efficiency improvements in existing single-family homes.

She also favored Enertiv, a building energy efficiency hardware and software provider, which closed a $750,000 seed round on July 28 led by Vaidya Capital Partners and R/GA Ventures. Enertiv graduated from the RGA Connected Devicesaccelerator program March, and was featured on the 2014 New York Greentech 40 list. And Enertiv’s CEO Connell McGill tells CleanTechIQ that the company plans to raise a Series A venture funding round this fall.

The NYC-based RGA Connected Devices accelerator focuses on Internet of Things (IoT) hardware startups, an area that is attracting a growing amount of venture capital investment in New York City versus the other venture hotbeds of Boston or San Francisco, says Osage Partner’s Lee.

Solve a Problem, Get Praise

The key attributes for startups that won praise from the venture capital investors were capital light, data-driven companies that were quick to generate revenue and also offered a clear and innovative solution to a well-known problem.

For example, BluCarbon Analytics, a water and energy optimization solution that analyzes microbial activity in water and wastewater treatment facilities to detect problems and improve energy efficiency, is “solving big problems for municipalities,” says Lee of Osage Partners. However, the startup is still very early stage and not yet ready for venture capital investment.

Another promising idea that solves a key problem for city apartment dwellers bubbled up during NYEW’s “Energy Data Jam,” where teams came up with ideas for energy efficiency apps using U.S. DOE energy data. The winning idea dubbed “Rentocracy” aggregates city apartments’ historical energy usage data for future renters to eliminate surprises on their future utility bills, and also force landlords to make energy efficient upgrades. The app would be welcomed by NYC renters, according to one member of the winning team, who lived in a “drafty, old apartment” and was caught paying $1,000 per month in utility bills during the winter.

On the other hand, capital-intensive companies that need a lengthy time horizon to commercialize their products are still clearly out of favor with venture capital investors and it showed during the NYEW pitch contest.

For example, Thermolift, which makes thermally-based heating and cooling devices, didn’t receive many votes during the NYEW pitch competition, but it did win the Future Energy Prize at ARPAE’s Innovation Summit in February.

Thermolift, which operates out of New York’s Stony Brook University, is making an efficient heating and cooling and hot water system that can be retrofitted to an existing structure. It won a $750,000 DOE Grant, $500,000 from NYSERDA, and raised $1.6 million in private capital, led by Topspin Partners.

According to founder Paul Schwartz, it expects to launch its first product in two to three years and is developing commercial partnerships with utilities.

Another capital-intensive startup that lost out during New York Energy Week was MicrOrganic Technologies, which is developing an onsite method of wastewater treatment that generates electricity and lowers the cost of waste remediation for food manufacturers through a “microbial fuel cell.”

Yet MicrOrganic Technologies raised $150,000 in seed funding in October from Excell Partners, a venture capital firm based in Rochester, New York. MicrOrganic is currently raising a $200,000 seed round and also made it onto the 2014 NY Greentech 40 list.

Bonus VC Buzz

Other New York cleantech startups that generated buzz among VCs during the NYEW event included Rentricity, which generates hydrokinetic power by harnessing energy from flowing water, such as the water that flows through municipal drinking water pipes.

And Green Sulfcrete, a Long Island-based Brookhaven National Laboratory spinout that is commercializing an environmentally friendly sulfur-based concrete made from recycled material. It won a $150,000 National Science Foundation Grant in January and a $100,000 investment from the Empire State Development Corp. in June.

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