Startups Win Praise, Ire from VCs at Future Energy Competition

We attend lots of pitch events and talk to plenty of entrepreneurs, but here’s a sentence we just don’t hear often enough:

“Because it’s an agricultural robot that is self-guided, we didn’t want to let this thing loose in the fields.”

Those sage words were uttered by Jason Force, the entrepreneur behind E-Mow, a drone lawnmower that converts grass into animal feed. And while Force’s business idea didn’t exactly bowl over investors, who found his plan to invent both a robotic piloting system and a rolling pellet plant somewhat over-ambitious, Force’s combination of gusto and prudence was common for most of the presenters at last fall’s Future Energy pitch contest in New York City, organized by Ultra Light Startups. From textiles that generate electrical current to a website billed as “Carfax for home efficiency projects,” the pitch session provided a wide variety of audacious and smart green solutions. This article is part of a regular series on Future Energy pitch contests we will be publishing in the coming weeks (see our article on a prior Future Energy pitch contest.)

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What none of the eight presenters provided, however, was a path to profits. Not one entrepreneur managed to knock the gathered investors back on their heels and make them say, “Wow. I need to own a piece of that.”

Which is not to say they were bad ideas or bad companies. The real problem for most entrepreneurs was simply an inability to understand their own market. Some were too broad. Others too narrow. Others seemed not to understand the competition or their own limitations.

Just in time for the first Future Energy pitch contest at the ARPA-E Innovation Summit this week, then, here’s a look back at the good ideas and missed opportunities from last fall’s gathering. It’s an opportunity for entrepreneurs to hone their pitches and for investors to see how some of the best minds in the industry quickly dissect startups’ strengths and weaknesses.

Partners, Please

We’ll admit, a self-guided lawnmower that automatically converts grass into animal feed is neat-o. And if Jason Force wanted to become a whimsical backyard inventor, neat is great.

But Force wants to start a business, not make stuff cool in a barn. And the investors on the Future Energy panel, including David Kirkpatrick at SJF Ventures and Willem Rensink of Shell, saw nothing but risk in his business plan. What venture capitalist would risk money to invent not just a rolling animal feed plant, but also the robot brain to control it and the biogas engine to power it?

Very few, apparently.

“It does seem like a pretty complex solution that I’m not convinced the market is crying out for,” Kirkpatrick said.

To solve that complex problem, all four panelists agreed: Force needs partners. Maybe integrate the pellet maker into an existing John Deere machine? Maybe hire a human to drive the thing? Making a mobile grass-to-feed machine is hard enough, the panelists agreed, so fix that problem that first.

“I think you should work with a big player,” said William Lese, managing director at Braemar Energy Ventures. “Going out on your own seems a long, difficult row to hoe. I think there’s an easier path.”

Many of the other entrepreneurs at the event seemed to be need bigger friends. Burt Hamner of Offshore Wind Power Systems of Texas hoped investors would help him build wind turbine platforms for the American coast that would sell for $6.5 million apiece. Given that high price tag and widespread opposition to utility-scale offshore wind farms in the U.S., Lese suggested Hamner team up with a certain multinational energy company with its own venture arm (pointing not so subtly in the direction of Shell’s Willem Rensink) to develop projects in Europe.

“I think it’s a tough sell for the VC community right now,” Lese said. “These projects are very difficult, so you need to find the right people.”

Grid Symphony already has a wonderful name and a wonderful early partnership with Consolidated Edison, New York’s electric monopoly. But to make a profit selling software that scans the electrical grid for vulnerabilities, the startup will need more than just one big friend.

“I would advise you to think how does this turn from a New York City product to make it a more general product to deploy across 10 or 20 utilities around the country or the world,” said John Freer, who manages external Technology Initiatives at GE Global Research.

Respect the Competition

Two startups at the event seemed to be walking blindfolded into snake pits. SmartCharge, the audience favorite, makes a light bulb with its own battery for use in emergencies and power outages. Open Energy Group brokers investments in midsize commercial solar installations.

The light bulb industry is awash in cheap global competition, the panelists pointed out. A number of companies have entered and left the commercial solar financing market, but if Open Energy Group figures out a cheap, reliable underwriting platform, plenty of traditional lenders with deeper pockets will happily eat their lunch.

How did these entrepreneurs address such low barriers to entry? In Open Energy Group’s case, not particularly well.

“With all due respect to people who have tried this before, we’re ambitious and we think we have what it takes,” said Graham Smith, the entrepreneur behind the startup.

It was pure braggadocio, and the panelists were only partially impressed. Fast growth would be the only way for either company to survive, the investors agreed.

“You’re very self confident; that’s great,” Kirkpatrick said. “But there are a lot of companies in this space with interesting technology and data. Maybe there are ways to be a bit more collaborative and get scale quickly.” Other companies in this solar financing space that were mentioned include Mosaic and Mercatus.

The issue for a company like SmartCharge, the panelists agreed, is that low barriers to entry together with weak IP protections in a truly international market such as lightbulbs require  a different kind of business model, and a different kind of investment. Rather than a slow trickle of VC capital geared at generating slow, steady growth across the global market, SmartCharge needs a big surge of money upfront to fund big growth, almost instantaeously, in a highly targeted market niche.

Maybe that means targeting shelf space in the disaster preparedness sections of Lowe’s and Home Depot, alongside batteries and flashlights. An even bigger market may be found in developing countries, where electricity blackouts are more common. Picking the latter target may mean the bulbs would be used more often, and by people on tight budgets, which might mean refining the battery to deliver the highest number of charges for the lowest price, according to the panelists.

Pick Your Spot

The best new technology presented at October’s Future Energy conference—by a mile—was PowerFelt, a fabric capable of generating electricity from movement and changes in temperature.

The problem was that Paul Solitario of International ThermoDyne, which owns the technology, pitched his new textile as the Cure for Everything. First used as a mousepad, the felt could extend the battery life of an iPhone 30 percent and revolutionize entire industries, such as pipeline sensors, “mobile electronics, construction, textiles and transportation,” including Tesla’s new sedan.

Whoa there, partner. Just how many VC’s would it take to fund research and development in all those different industries simultaneously? All of them? Solitario will be better off looking for the “low-hanging fruit,” Lese said.

“Your key challenge is how to focus,” Rensink said. “So find an application where there is no existing solution.”

PowerFelt was in the process of closing its Series A venture round and actively in conversations with strategic partners. International ThermoDyne ended up raising $1.4 million of venture capital on January 30.

The problem was that Paul Solitario of International ThermoDyne, which owns the technology, pitched his new textile as the Cure for Everything. First used as a mousepad, the felt could extend the battery life of an iPhone 30 percent and revolutionize entire industries, such as pipeline sensors, “mobile electronics, construction, textiles and transportation,” including Tesla’s new sedan.

Whoa there, partner. Just how many VC’s would it take to fund research and development in all those different industries simultaneously? All of them? Solitario will be better off looking for the “low-hanging fruit,” Lese said.

“Your key challenge is how to focus,” Rensink said. “So find an application where there is no existing solution.”

PowerFelt was in the process of closing its Series A venture round and actively in conversations with strategic partners. International ThermoDyne ended up raising $1.4 million of venture capital on January 30.

John Jabara had the opposite problem. His startup, Savenia Home Ratings, would create a Web-based app that helps homeowners and realtors boost the sale price of homes by tallying and marketing all the energy-efficient products (Nest thermostats, low-flow toilets, etc.) installed over the years. No revolutionary tech there, certainly, although the question of how to verify homeowners’ claimed improvements did vex the panelists.

More important, though, was a big missed opportunity. Why limit yourself to just efficiency upgrades, Rensink asked. Dozens of apps use budgeting tools as lures for people to upload their credit and personal finance data. Why not create an app that uses the carrot of a higher home price to gather all kinds of valuable data on big-ticket consumer spending for the home?

“I think the opportunity is bigger than you see it,” Rensink said. “I think there’s an interesting market here that could be a broader platform than just energy savings.”

Another startup that pitched at Future Energy was Athena Power, which has developed a self-guided underground sensor that monitors the electrical grid for power variations and vulnerabilities. Co-founder Raj Lakhiani appeared to do the top job of all the presenters tying up loose ends to make his good idea ready for investment.

The timing is right, as Hurricane Sandy and other natural disasters have prompted utilities and governments to invest millions in hardening the grid. Athena already has signed on a major customer in Exelon, a Chicago-based utility, which investors saw as an important vouch.

And yet a few niggling problems remained in even Lakhiani’s strong pitch. Panelists encouraged Lakhiani to do a better job identifying potential competitors. They also wondered whether the underground sensor Athena has developed is fully utilized or if it might be capable of adding more value by gathering and transmitting additional types of data.

These issues came up in October, and some of them will probably arise again. Entrepreneurs necessarily get so focused developing their product that sometimes they lose sight of the bigger (or smaller) picture. Let’s see if anyone manages to bring both the right new tool and the right business plan to this week’s Future Energy event taking place at the ARPA-E Energy Innovation Summit

This article is sponsored by The Exergeia Project

The Exergeia Project aims at shaping the future of energy by pushing the boundaries of usable energy solutions. The focus is to back potentially groundbreaking inventions and innovations in all fields of alternative energy, including unconventional approaches.

 

 

 

 

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