As more startups chase fewer dollars available, a strong collaborative team can make all the difference in a successful product launch in the venture capital cleantech space.
A persistent, creative, and dynamic team can make or break success, said Nancy Pfund, founder and managing partner at DBL Investors, at the C3E Women in Clean Energy Symposium. “You have to be canny and creative and think outside the box. You have to be persistent and find capital wherever you can.”
A team can also be more important than a product. Pfund said she’d rather have a B-rated product with an A-rated team than an A-rated product with a B-rated team. A successful team will also be filled with singled-minded entrepreneurs who get people around them motivated to work.
“I think good entrepreneurs know how to listen,” she said during the panel when discussing strategies that make teams successful. “So many people that pitch an idea just talk, talk, talk and an hour later you haven’t gotten in a word edgewise. That’s not an effective learning skill. While you want to dazzle people with your command and energy the good entrepreneurs are like sponges. They absorb a lot of lessons and wisdom around them.”
Vanessa Green is the chief executive officer of FINsix, a power conversion technology company looking to make the brick on a laptop power chord – currently 30% to 50% of the weight and size of the laptop – 100 to 1000 times faster to make the power supply 10 times smaller. They are applying that same technology to LED lighting.
Green said at FINsix, a startup team is a key ingredient to raising money successfully. “Everyone looks at the caliber of the existing team and how they work together and what gaps there are and how aware you are of the gaps,” Green said at the C3E symposium. “So in building a successful foundation, I’d encourage you to look at your existing team and look at the skills and experiences you want to get around the table that aren’t there.” FINsix has raised over $5 million in series A funding from investors including Venrock, PAETEC Holding Corp. and unnamed angel investors.
The fundraising environment for the cleantech sector has been difficult. In the third quarter, investments in venture capital cleantech totaled just $1.4 billion, down from the average of $1.5 billion in the first two quarters of 2013, according to the Cleantech Group. Investments were down from $1.7 billion invested in the third quarter of 2012.
Startups can target angel investors, grants, or low interest loans from government sources. There are also strategic corporate investors looking to fund investments in addition to traditional venture capital. “But you have to have a compelling business model that addresses a real problem with real product, and not just some whizzy technical accomplishment,” Pfund said. People don’t want to invest in a science project at this point.”
Cleantech Fundraising Grows From Public Market Sources, States
Even with a good team, fundraising has been difficult and many investors are now looking to the public markets. “You have a much easier time raising funds and you don’t have to go through the agony of doing private financings,” Pfund said. “Our capital markets in this country are one of our best resources. There aren’t that many public cleantech companies but there certainly are a lot more than two to three years ago.”
In the last month, SolarCity bought solar panel installer Zep Solar for $158 million using public equity, an example of the growth in the public markets. SolarCity also raised $54 million by issuing S&P rated solar bonds this month, a first of its kind financing for the clean energy sector. And they are looking to issue $200 million of additional notes in the second quarter of 2014, reports Bloomberg.
Raising money has also been challenging with less Federal money available, forcing cleantech startups to look to the state level. “The good news is many states are still actively creating green banks,” Pfund said. For example, the California Energy Commission has a program where it funds new startups. “States have filled in where the Federal level has reduced funds.”
The decline in money available to fund cleantech startups has also led to a shift towards VCs investing in “capital light” software and IT products and away from capital-intensive technologies.
“There has been a flight away from super intensive capital cleantech companies,” said Nancy Pfund, founder and managing partner at DBL Investors.
The more capital-intensive hardware companies have found it hard to compete with other sectors that don’t need as much capital to succeed. Green of FINsix said challenges arise when a specific venture capital technology is part of a larger portfolio that invests in other sectors that require less capital.
“It puts pressure on specific individual VCs in the partnership to continue to make the case for why this sector is going to create value within the portfolio,” Green said. “We are competing in the portfolio business that purely counts eyeballs and we make stuff and then have to sell it and there are costs associated with that and have very different economics. So there is an entrenched challenge there and VCs are thinking that through and how to structure things so they can be a fit for this sector if they are committing to continue to stick with it.”
Cleantech Areas Ripe for Investment
Looking ahead, PFund believes that the energy storage space should look more attractive as renewable energy adoption advances – and needs more storage. “There has been a lot of work over the past four to five years getting technologies ready for prime time and we see implementation for storage in these approaches that will address significant markets – both at a distributive scale and larger utility scale storage opportunities,” Pfund said.
The financing of renewable is also improving with tax benefits, crowd sourcing, and securitization, which will all help drive down the cost of clean energy and increase adoption.
Consumer-facing companies like Tesla – of which Pfund was an early investor – is a good example of consumer interest and sophistication in purchasing dollars helping to drive the clean energy economy forward. Other examples Pfund sees are in packaging. “There are trillions of packages made a year and many end up in landfills,” she said. Other cleantech investment opportunities she points to are in agriculture and water. “There are no shortages of areas. Some are just more conducive at the moment.”