In a series of cleantech pitch events this past fall, three startups beat out 21 other companies to prove that investors favor tangible products and solutions over pie-in-the-sky technologies.
From September through November, Ultra Light Startups held three pitch events in U.S. cleantech hubs Silicon Valley, Boston and New York. At each event, eight startups exhibited their business acumen before a panel of VC and strategic investors for three minutes apiece, with the goal of winning audience votes. The founders also walked away with valuable feedback from investors in the space regarding what they are looking to invest in.
The winners of each event were able to clearly identify how their product solved a problem as well as how they planned to scale it; they also identified those customers most in need of their solution. The simple criteria easily revealed the many startups that were seeking to claim too large a segment of the market, as well as others with advanced technology but no specific customer profile.
One investor put it simply, in terms of how he looks at investments – how can you make this product an “absolute no-brainer?”
Investor panels across all events repeatedly warned startups not to make the same mistakes made by previous failed or struggling companies. They advised the startups to read up on these companies, and if possible, discusss what went wrong with as many people associated with such companies as possible.
Panelists, in fact, told presenters repeatedly that they should engage in dialogues with as many people as they can. The list included potential customers regarding their wants and needs; experts out in the field and on the frontlines; and even competitors.
Fuel Agnostic Internal Combustion Engine
At the Silicon Valley event, Simon Saba with Rotary Wing Engine won over investors with his presentation of the company’s rotary internal combustion engine, during which he claimed that the device offers about a 20 percent and 30 percent increase in efficiency compared to diesel and gasoline piston engines, respectively. He also said that the rotary wing engine costs 80 percent less because it immediately creates rotational movement, versus a piston engine, which must move up and down until it generates enough power to produce rotational pull.
The company, which plans to license its technology to OEMs, has solved problems faced by similarly designed engines, such as seals. Ron Hofmann, a venture advisor at Claremont Creek Ventures, elicited this information with a question.
Investors’ main criticism of Rotary Wing was that it should not initially seek to penetrate the entire market for the product. Instead, they said, the company should focus on generators or on motorcycles and scooters, each of which is already a massive market in developing countries. This effort should precede a move into the general automotive market.
Investors also suggested that the company focus on funding only areas with the biggest potential for immediate return, and that it leave investing in passenger cars to the OEMs that would license the technology.
Panelist Debjit Mukerji, director of venture technology at Siemens Technology to Business (TTB) group, reiterated a common piece of advice to Saba.
“There have been some great recent internal combustion startups that have had licensing models; [we’ve] already mentioned Achates Power. There’s also Ecomotors and companies like that,” Mukerji said. “Learn from them—don’t follow in their footsteps necessarily—see what they’ve done wrong because, as [we’ve noted], these are hugely capital intensive and the tier-one OEMs are very savvy and won’t necessarily give you great terms.”
On Demand Access to Grid Energy
In New York, Simply Grid CEO Mike Dubovsky earned the most votes by making the case for his company’s on-demand electric-charging pedestals, which are manufactured by Eaton, and control cloud software. The pedestals connect to the local grid, which the user plugs into, and the software provides both backend support and a payment interface. Investors lauded Dubovsky for focusing on specific markets—namely food trucks, idling emergency vehicles and RV parks, campgrounds and marinas—rather than diving straight into the most obvious market, electric-vehicle charging.
The company has pilot projects in New York City, and in two private food truck lots, in Atlanta and Austin. Panelist Mark Austin, a venture partner at Bright Capital, liked Simply Grid’s market focus but thought it needed to bring more clarity to its payback benefit and effort to establish market dominance.
“You’re going to have competitors soon, so the more quickly you can scale within these niches and go out first with your economic proposition will be fundamental to building quickly,” said Austin.
Overall, the panel’s main concern was with the potential difficulty of securing permits with municipalities. Simply Grid is currently pursuing permits in Manhattan and believes that once it has them, other cities will follow suit. The panel’s recommendation was to pursue private customers first and then focus on public entities.
The Boston crowd chose Cerahelix as the night’s winner. The company has developed a ceramic filter that it says is 10 times more efficient than what is on the market today. CEO Susan MacKay explained that to make the filter, the Helix Nan filtration Membrane, they use DNA to template holes in the ceramic material that are smaller than a nanometer in size.
Initially, Cerahelix sees the biggest potential in the emerging biofuels market because the filter displaces thermal evaporation, a costly step in the production process. The company has raised $255,000 in seed funding. Investors listed on the company’s website include Maine Venture Fund, Maine Technology Institute and Maine Angels. The company also is currently seeking $200,000 in additional seed funding to enable it to bring the filter to market by 2015. The company has also received $1 million in SBIR Funds from the Department of Energy for R&D and prototyping.
Investors were impressed by the potential for applications in multiple markets. As with many other startups, the panel was concerned that Cerahelix’s core team may be missing some needed manufacturing experience. Rob Day, partner at Black Coral Capital, recommended that McKay fill out her team before raising more money, and continue focusing on key customers and markets.
As with most other startups of the night, Day was also most concerned about the go-to-market potential, but also noted that there are already successful go-to-market models for this type of product to mirror.
Big Data for Wind, Algae Biofuels, Microgrids
In addition to choosing a winning startup, the audience and panel also voted two runners-up at each event, and looking at the companies chosen, some regional preferences leap out. In New York, the top startups were pure software plays, or as in Simply Grid’s case, a strong software component was included. The first runner up here was Fluitec Wind, which applies big data to improve functionality of wind turbines and sets up a LinkedIn-type profile for each turbine for tracking and predictive analysis. Fluitec Wind previously raised $3.3 million from the New Jersey Board of Public Utilities Clean Energy Manufacturing Fund and is currently looking to raise an additional $1 million.
Third place went to CoClear, a software company that provides a lifecycle analysis of consumer products and also identifies opportunities for improving efficiencies to save on resources, both environmental and monetary. The company is currently working with Ben & Jerry’s Ice Cream and estimates that the LCA market’s potential will reach $5.7 billion by 2017.
One panelist, Alex Oppenheimer, an investor at New Enterprise Associates, flagged that big data startups need to tap into a budget that companies might not necessarily have set aside already, and that this could limit market growth potential. He also reiterated that investors are attracted to software applied to solving energy problems.
In Boston, Cerahelix definitely reflects the audience’s appetite for product-based solutions. The other winning companies were Raja Systems, a player in the microgrid power space, and Culture Fuels, which has developed a system to grow algae for fuel conversion. West Coast attendees were keen on power- and energy-related startups, choosing Wirz Energy, which makes thermal energy storage technology, and fuel cell company SAF Cell as runners-up to Rotary Wing Engine.
VCs: Take the Path of Least Resistance
Despite the variances of the winners across the regions, the panel’s key suggestion echoed from coast to coast. They urged each company to focus on its “sweet spot” before seeking to tackle applications that are larger and more difficult to value. Companies should be able to specifically identify their customer and target market—as well as find the path of least resistance for market entry. This falls in line with cleantech investors’ overall sentiment that companies should find no-brainer solutions to real problems and remain on the lookout for them.