This year’s Global Cleantech 100 list highlights key cleantech and resource efficient sectors and companies that are gaining market traction and receiving investment capital. The judges, themselves investors, focused on on companies with revenue and staying power, not unproven “hopefuls.”
The 84-member judging panel included 43 financial VCs and 41 global corporate investors; tasked with finding companies that will have the biggest commercial impact over the next 5 to10 years. The annual list, now in its 6th year, typically reflects the interests of venture capital investors, which some of the judges have described as “herd” behavior (see last year’s analysis.)
17 total countries were represented in the 2014 list, with North America representing 67% of the total, followed by Europe & Israel (28%), Asia (4%), and Africa, which was represented for the first time with “pay as you go” solar finance startup M-KOPA.
Of the 100 companies, only 37 were new to the Global Cleantech 100, a marked drop off from the 51 new entrants in 2013. Many of the honored companies on the list this year have appeared for three or more years; investors are rewarding companies for gaining market traction and generating revenue.
According to Stefan Dolezalek, Managing Director at VantagePoint Capital and one of this year’s judges, the higher number of new entrants in the past reflected how difficult it was to get the “old” companies to succeed. As a result, there was interest in finding a new crop. That changed this year, as the more established cleantech “survivors” are growing into important players that could dominate their spaces. Companies that have made it to the list for the past 5 years include: Avantium, Digital Lumens, Harvest Power, LanzaTech, and Novomer.
In addition, the past year’s difficult fundraising environment for cleantech may have limited the amount of new, early stage entrants, according to judges we spoke to. Investors with mature funds have less cash to invest in new startups.
Dolezalek added that the bar was higher for new entrants this year as judges hoped to identify companies that are succeeding in the form of revenue traction and “reality sunk in.” Newer companies that are now in pre-revenue stages probably won’t perform any better than companies they found 5 years ago, he added.
Even so, he’s not sure if investors have yet recognized the few survivors’ ability to capitalize, as their sector grows. He mentioned one of his portfolio companies, Ostara Nutrient Recovery (wastewater treatment), which has made the list for 5-years in a row, as one of the survivors that he feels is undervalued by investors. Another undervalued portfolio company that he pointed out is Genomatica, another long-term list winner, which has built large scale factories to develop green chemicals from renewable feedstocks, such as sugar and garbage.
Generally, there’s not a lot of venture capital deal competition right now in cleantech, which is creating some “great opportunities” and “interesting valuation metrics” for investors, says Wolly Hunter, Managing Director of EnerTech Capital and another judge on this year’s panel.
As with 2013, the energy efficiency sector comprised the largest segment of this year’s list with 24 companies. Judges liked the sector for being “capital light” and having strong market penetration.
Top ranked energy efficiency companies on this year’s list include Digital Lumens, Enlighted, Alphabet Energy, Next Step Living, Anesco, OSI Soft, AutoGrid Systems, BuildingIQ, FirstFuel Software, Lucid and LuxeXcel. New energy efficiency entrants to the list include: Eniram, KiWi Power, Lucid, LuxeXcel, MTPV Power, Noesis Energy, Renewable Funding and View.
Autogrid Systems, a provider of software and cloud-based services for utilities, grid operators, and end users was awarded the Industrial Innovation Company of the Year award.
The 2nd biggest sector represented on this year’s list, with 12 companies, was water & wastewater. It’s no surprise that interest in this space has grown, says VantagePoint’s Dolezalek, as severe droughts in California and elsewhere has “opened people’s eyes that there must be ways to make money in water.” Investors are now searching for “up and comers” that can solve these water-related issues, he said. Top ranked companies in this sector include Filterboxx, Global Water Fathom, Ostara Nutrient Recovery, Organica, Axine and i2O Water.
Increased attention in the water space is driving more competition in water technology venture deals now compared to other areas of cleantech, according to EnerTech’s Hunter.
The third most prevalent sector, with 10 companies, was biofuels & biochemicals, with favored companies including LanzaTech (North American company of the year), Avantium (Europe & Israel company of the year), Verdezyne and Genomatica. Then, the smart grid, energy storage, and transportation sectors, each with 7 companies making it to the list.
The companies that earned the strongest praise from this year’s judging panel, receiving no negative votes, and dubbed the “Lust List”, were Avantium, Clean Power Finance and FRX Polymers.
The solar sector had the biggest jump in terms of the number of companies selected to this year’s list, with 9, compared to 6 last year. This increase reflects the continued proliferation of downstream solar business models and new rooftop solar financing options that are driving an increase in solar adoption around the globe. These new solar companies stand in stark contrast to the capital-intensive solar hardware manufacturers that were prevalent on Cleantech Group’s list just a few years ago.
The solar companies on this year’s list also had the highest annual revenue range ($25M – $50M avg.) of the listed sectors. This year’s solar companies include: Clean Power Finance, Mosaic, M-KOPA Solar, Sungevity, QBotix, SolarEdge, Applied Solar Technologies India, Sugevity, and SunRun.
The early stage company of the year award went to Aquion Energy, the rising star award went to Liquid Light, and Genomatica won the continued excellence award. And Chargepoint, a provider of electric vehicle (EV) charging solutions, won the future mobility company of the year.
Despite the emphasis on companies with revenue traction, 30% of the votes went to companies with little or no revenue, according to the Global Cleantech 100 report. The sectors represented on the list with the lowest revenue were advanced materials and energy storage. Each had 7 companies selected with an average annual revenue range of $2-$5 million.
New Entrants to the List – Quick to Market
Of the 37 companies making their first appearance on the list, 8 were in the energy efficiency sector, followed by the smart grid and energy storage sectors, at 4 companies apiece. Water & wastewater and advanced materials each had three new entrants. It’s also notable that the list featured a wind sector company, Principle Power, for the first time in 3 years. Seattle-based Principle Power develops disruptive floating offshore wind technology, with a demonstration project in progress off the coast of Oregon.
Many of this year’s newcomers were less capital intensive, more customer- focused, quicker to market and leveraged data and analytics to create efficiencies. Two were in robotics, QBotix and Zen Robotics, and one was a 3D printing startup, LuxeXcel. Robotics and 3D printing were cleantech “trends to watch out for” the report noted.
Financial VC vs. Corporate Investor Preferences
The report highlighted differences between the financial VC and corporate investor judges. The financial investors on the selection committee were more interested in the management team’s ability to execute and take the company to the next stage. An unsustainable cost structure and lack of market traction generated the most negative votes from the financial VC investors.
The corporate investor judges focused more on the company’s long-term potential, demonstrated by having a large potential customer base and a unique, proprietary technology that could be acquired and bolted onto an existing corporate group. They weren’t as concerned about the company’s cost structure.
Startups should be cognizant of the differences between these two investor groups in terms of the value they add and their expectations, VantagePoint’s Dolezalek said.
E.ON – the “Corporate Investor of the Year”
E.ON, one of the world’s largest investor owned utilities, is a prime example of a large corporate strategic investor focused on cleantech. Based in Duesseldorf, Germany, it has major operations in Europe and the U.S.
Although E.ON’s U.S. Strategic Co-Investment team has only been in existence for two years, it has been very busy, growing from 4 to 11 total investments in the past 18 months. The company was selected as Cleantech Group’s “Corporate Investor of the Year” this year.
Konrad Augustin, head of E.ON Strategic Co-Investment in the U.S., based in San Francisco, said that his team looks at both the commercial and operational metrics when selecting investments, and seeks out strong management teams that can tackle unforeseen issues. Once a strategic investment has been made, its priority is setting up commercial agreements between the startup and E.ON’s operating groups to provide innovative products and services to their customers or reduce costs. This also serves to provide additional business opportunities for their portfolio startups.
E.ON is searching for technologies that focus on “downstream” customers, Augustin said. He explains that they are seeking to invest in companies that have an existing product or service that is ready for a trial or product roll out. They will also look at earlier stage software companies that can be quick to market.
Augustin, also a judge this year, told us that the four sectors that E.ON is spending the most time on are energy efficiency, energy storage, solar, and smart grid. These were also prominent on the Global Cleantech 100 list. E.ON portfolio companies that are also on the list include Qbotix, (robotics for dual-axis PV tracking), Sungevity (rooftop solar PV), FirstFuel (efficiency analytics in buildings) and Autogrid (big data for utilities and end-users.)
The smart home and Internet of things (IoT) technology is also a focus area for E.ON, exemplified by its recent investment in startup Leeo, which raised $37 million in Series A funding in September from five investors. Palo Alto-based Leeo, founded in 2013, is an early stage connected device startup that will provide smart-home tech hardware. E.ON also lists another smart home/IoT strategic investment on its website, although it doesn’t reveal the investment’s name.
And, according to its website, E.ON is testing a variety of new smart home technologies with industry partners in a variety of projects, including connected lighting, intelligent boiler controls, and room-by-room heating control.
Key 2014 Investment Themes:
Consumer Centric Business Models
The consumer-driven product set around home energy management, efficiency and cost savings is a theme that “came through clearly” during this year’s selection process, according to EnerTech’s Wally Hunter.
Companies in the smart home category selected to this year’s list include: Alertme (home energy monitoring systems), Anesco (home efficiency audits), and Next Step Living (home energy assessments.)
Phononic Devices, a developer of home heating and cooling pumps that makes household appliances more efficient, also made the list.
“The consumer is increasingly controlling their energy usage themselves, and they don’t need to rely on utilities to do it,” says Hunter.
Other companies on the list that focus on the consumer side include Sonnenbatterie, German battery storage for residential solar PV systems (Germany now offers subsidies for residential storage), and Hyla Mobile, a recycler of consumer mobile devices.
Growing investor interest in the “sharing economy” was also evident on this year’s list, particularly in car sharing, with BlaBlaCar (car pooling in Europe), RelayRides (car sharing), and Uber (taxi hailing) making the list. Additionally, AirBnB was selected to the list, for the 2nd year, and was included in a new “Resource Sharing” list category.
According to Dolezalek, there’s “something different” about the notion of car and home ownership and the more efficient use of resources that can be shared in the “under 25 crowd” which is driving this trend. And it will likely attract more “sharing economy” startups to the list in the coming years, he said.
The Rise of Big Data for Utilities
Many new entrants on this year’s list fall under the “Big Data” theme; there is a proliferation of energy data available which can help utilities and customers become more energy efficient, optimize decision making, and forecast and control generation. Most cleantech companies in this theme fall into the smart grid and energy efficiency sectors.
Dolezalek said startups that leverage data analytics are attracting venture capital because they tend to be more customer-focused and can generate revenue sooner with less funding.
EnerTech invested in Space-Time Insight, a developer of geospatial and visual analytics software for the energy sector, which raised $20 million in a September 2013 Series B funding.
E.ON’s “Big Data” themed investments include Autogrid, a provider of software to track customer energy data for utilities, and FirstFuel Software, a provider of commercial and industrial energy analytics.
The report puts the list’s “Big Data” cleantech companies into 2 main categories:
– Management Tools Distributed Generation: Autogrid, C3Energy, Gridco Systems, and Space-Time Insight.
– Building Analytics: FirstFuel Softward, Kiwi Power, OSIsoft, and Stem.
Waste-to-Value (i.e. Waste-to-Wealth)
The “waste-to-value” segment was another top theme in this year’s list, comprising 19% of honorees. Companies that fall under this broad theme enable the re-use of industrial waste to create value-added products and cost savings. This umbrella category includes waste-to-energy, biofuels, recycling of products and wastewater treatment. (The “circular economy” could generate $1 trillion/year, according to a report by the Ellen MacArthur Foundation and World Economic Forum.)
This theme resonated with EnerTech’s Hunter whose fund’s limited partners include large corporations like Waste Management, which is looking for strategic growth opportunities, and Newalta, which is focused on the re-use of wastewater in oil and gas operations.
EnterTech raised a new $120 million venture fund, EnerTech Capital Partners IV LP, last September and has already made 8 investments through the fund, and expects to close 2-3 more deals soon, said Hunter.
He added that other strategic investors he works with are increasingly excited about new technology for waste-to-value conversion, such as using wastewater for enhanced oil recovery and harnessing the waste streams that come off power plants. CalStar, one of Enertech’s portfolio companies, turns them into green building materials.
Waste-to-value represents a big growth opportunity for investors, as “society can’t keep using virgin materials and throwing them out” Hunter said. He points out that there’s “pretty good economics” in the recovery and reuse of waste and it doesn’t rely on government subsidies.
In fact, this year’s Rising Star of the Year award, the highest-ranked new entrant on the list, went to New Jersey-based Liquid Light, which develops technologies to convert carbon dioxide waste into high-value chemicals and fuels. The startup raised $15 million Series B funding in early September and has raised $23.5 million in total funding to date (see our profile.)
Other top “Waste-to-Wealth” themed companies on this year’s list include: Alphabet Energy, Harvest, LanzaTech, Ostara and Zen Robotics.
Sustainable Innovation in Oil & Gas
Oil & gas companies are increasingly investing in and forming strategic partnerships with cleantech startups to help them address environmental challenges and bring new technologies to their upstream and downstream operations. For example, EnerTech Capital recently formed a strategic partnership with major oil company Devon Energy in May of this year to help it find new technologies for heavy oil extraction.
The cleantech companies on the list targeting the oil & gas industry are broken into various sub-themes:
– Converting oil & gas waste into valuable resources: Alphabet Energy, MTPV, and Skyonic
– The treatment of oil & gas processing wastewater: Axine, Filterboxx, Memsys, and Oasys
– Advanced materials in drilling: Nanosteel
– Data and software analytics: OSIsoft and Space-Time Insight
– Downstream segment: Electrochaea, OsComp and Siluria
Both Filterboxx and Global Water Fathom are in EnerTech’s portfolio. Hunter also made a recent investment in Markwater Handling Systems, which recycles oil drilling fluids, resulting in cost savings for oil companies; it raised $23 million in May. Although the company was nominated to this year’s list, Hunter said he was disappointed that it didn’t make the final cut.
Emerging Markets Demand
The report points out that 73% of corporate judges and 56% of investor judges commented on companies’ ability to take advantage of growth opportunities in emerging markets. Companies on the list with a focus on emerging markets are in the following subsectors: agriculture (Arcadia Biosciences and Kaiima), wastewater treatment (I20 and Organica Water), sustainable fuels (Beta Renewables and Lanzatech) and energy cost reduction (Innovari and Utilidata.)
Sectors Poised for a Rebound?
As the Global Cleantech 100 report points out, there continues to be selections to the list each year in struggling sectors that have not seen many successful exits. These include advanced materials, biofuels & biochemicals, energy storage, smart grid and water and wastewater. This could reflect that the market still feels that winners will eventually emerge in these sectors and that their importance will only strengthen over time, they assert in the report.
VantagePoint’s Dolezalek is not quite as optimistic, saying he is “troubled that we continue to nominate companies in sectors where we don’t yet have a model for how one actually makes money.” He points specifically to the biofuels & biochemical sector, a sector well represented on this year’s list. Companies that have floundered in this sector include Kior, Amyris and Solazyme. In reference to the large number of water & wastewater companies selected to this year’s list, he says, “show me a successful venture backed water or wastewater company that has gone public.” There is none.
There were notable drops in specific sectors this year. Recycling only had 2 companies on the list, HYLA Mobile and Zen Robotics. Four recycling companies made it last year: Recycle Bank, ECO Plastics, FriedolaTECH, and Attero Recycling. This drop off reflects a greater focus on companies that are tackling the “hard nosed realities of where the business problems are” rather than on the “environmental” or “green” elements of cleantech, says Dolezalek.
The food & agriculture sector had the biggest percentage drop this year, to only 2 companies: Arcadia Biosciences and Kaiima. Last year’s total was 5 companies, including Beyond Meat, Kaiima, Marrone Bio, Tianren, and Vestaron. This drop in food & agriculture selections is surprising given the increasing attention this sector has received from venture capital investors, family offices, and institutional investors over the past year. And sustainable agriculture innovation is an area that CleanTechIQ is covering with increasing focus in upcoming articles and reports.