Greentech Media: Cleantech Investing

Exciting news

2009-11-13T02:58:18+00:00

Long-time readers will know that in my spare time (ha) I've been serving as President of the Renewable Energy Business Network, a non-profit I and Andrew Friendly of ATV officially co-founded last year (although read below for more backstory)...

Yesterday we were extremely pleased to announce that REBN and the Clean Economy Network have joined forces, with the REBN network of chapters and leaders being integrated into the Clean Economy Network Foundation.

It's an exciting move that will mean bringing a lot more professional leadership to the combined effort, with the existing REBN leadership team (both organizational and chapter-level) joining forces with the very strong CENF team. REBN had, over the course of the last couple of years, grown by leaps and bounds, from an initial handful of chapters to now 17 chapters across the US and Canada, strong support from sponsors like Rosenzweig & Company, Mintz Levin, Holland + Knight, Silicon Valley Bank, and Hattaway Communications, more than 10,000 chapter-level members and a pretty darn big online group at LinkedIn as well. REBN became big enough, at least, that the pursuit of our educational and community-building mission needed some additional support. And meanwhile, we had gotten to know the great team at CEN and found them to be completely on top of everything going on in the clean economy world, especially in regards to policy, which as we talk about on this site is so increasingly important for cleantech entrepreneurs and investors to know about. So when we started talking with each other about making a move like this, it seemed like a good match then and feels like a great match today.

It's been a wild, fun ride with REBN to date. REBN was actually the brainchild of a small group of smart young clean energy businesspeople, including the likes of Dan Kalafatas and Josie Gaillard and others, all of whom early in this decade came up with the idea of a low-key networking group in the San Francisco area to help renewable energy business types meet with each other, learn about the industry, find new business and startup opportunities, etc. That initial chapter did well, and at some point I got roped into taking on the role of chapter lead (I believe I grumbled about it to Dan and Josie at the time, but owe them a debt of gratitude now), and we held get-togethers, organized panel discussions, etc. It was a great, easy resource, so when I moved out to Boston in 2007, I left the group in Nick Allen's very capable hands, and Andrew Friendly and I talked about finding a similar organization in Boston to join and enjoy. But we discovered that there really wasn't one, at least not with the same feel as REBN. So we launched "REBN-East", and what we thought would be a very small thing ended up getting a pretty big crowd. Apparently San Francisco wasn't the only place where there was a big unmet need for low-key, come-as-you-are, open-to-all education and networking for cleantech professionals.

Then we were contacted by Cheng Chang in Houston, who let us know that he'd heard about REBN and liked the idea and was going to launch a chapter there. At that point, REBN was still unincorporated but had three chapters going across the country, and thriving. Suddenly, Andrew and I had one of those moments where we just looked at each other and realized, "wow, there's really something here." And so we decided to officially launch REBN as an incorporated non-profit organization, and put some effort behind it. We press-ganged recruited Laura Bartsch and Helen Fairman to serve as part-time co-executive directors, and then held an official launch event and started spreading the word. Before you knew it, we had nearly ten chapters, and then things just started snowballing from there.

As far as I can tell, the success of REBN has been due to its open-access and low-key educational/sharing format, and in huge part to the way that our volunteer chapter leads have stepped up to help organize chapters in their regions, in a really decentralized format where we in the tiny REBN national leadership team were constantly being amazed by the huge successes of chapter leads in places like Philadelphia, Minneapolis - St. Paul, Denver, New York, and elsewhere, without a lot of guidance, just smart entrepreneurial businesspeople working to build a regional clean economy. An amazing effort by amazing businesspeople, far too many for me to list here, but when you go attend a REBN/CEN event in your region now, make sure and tell them "thanks" for all their volunteer efforts, will you please? And there should be an upcoming event over the next couple of months in every one of our chapters, to celebrate this news.

The Clean Economy Network team now brings a level of policy knowledge to this effort this is exciting to be a part of. We've got some fun things in store that will start with the traditional REBN-type activities that existing members are used to, and will build from there, bringing in even more educational content and business-building opportunities. And we're certainly not going to lose the familiar REBN style -- doing what we can to contribute to regional clean economy efforts in whatever way makes most sense for each community, with dull elbows and small egos. Take a look, and think about signing up at http://www.cleaneconomynetwork.org if you're interested in getting involved. Of course, CEN's c4 sister organization is also doing a lot of community-building in another venue: In the policy realm. Lots to do there as well, lots of opportunities to get involved.

Big thanks to the many people involved in getting REBN launched and growing it to this point, from the early days in SF to the nationwide effort it's become. And big thanks to our new colleagues at CEN! Their vision and execution has been what has really inspired us to take this next step with them.

Of course, now I need to come up with another personal new next big thing. Suggestions are welcomed!!!

Friday follies

2009-11-06T15:00:15+00:00

Some random links and observations on a Friday:

Apparently not every reader picked up on the fact that my last post was tongue-in-cheek. Guess you had to be there. Fortunately, Scott was in fact there...

David Gold wrote recently on some of the same issues, wondering why solar and the like have gotten so much attention from VCs while technologies like geothermal have gotten much less attention. His answer is that in large part "much of the bias has to do with the fact that not many VCs have strong networks of geologists, drilling technologists, heat pump engineers and steam turbine power generation experts to build great geothermal companies". I'm directionally in alignment with David's take -- obviously I agree that VCs need to broaden their horizons into other sectors of cleantech, and acknowledge it's easier said than done when it requires learning new markets, new technologies, etc. However, I'm not sure geothermal is the best example for this. VCs going into solar and biofuels are following the few available examples of good exits in the sector, geothermal plays are often challenged in VC eyes in terms of their capital intensity and lack of opportunities for new intellectual property, and it's not yet a fast-adopting market. Same challenges for VCs looking into other sectors like ocean power, grid-scale storage, etc. Like it or not, not all attractive market opportunities are a good fit for the venture capital model.

Not a lot of optimism out there right now about either the passage of a cap-and-trade bill, or that it would have much of a positive impact on individual companies.

On the other hand, Deutsche Bank Asset Management is advising their clients to put their money into investments outside the U.S. in part because all the on-again, off-again support for green technologies is creating a lot of uncertainty.

Conventional wisdom and cleantech venture capital

2009-11-04T22:02:30+00:00

I had the pleasure of speaking as part of a panel this morning at the Mid-Atlantic Capital Alliance's conference in Philadelphia. Here's a taste of what I told them:

1. Cleantech only happens in Silicon Valley and MIT. If you look at the dollars flowing into cleantech from venture capitalists, and read the sunday NYT, that's the natural conclusion you would draw. So my apologies to everyone in Philly (or the rest of the country outside of northern California and Boston), there's clearly very little good entrepreneurial activity in cleantech in your region.

2. Cleantech is really only solar, "smart grid", biofuels and electric vehicles.

3. Cleantech is really only about capital intensive business models.

4. Cleantech startups are only for whiz-bang PhD researchers who have earth-shattering innovations. Business models like energy efficiency services, and other implementation efforts, need not apply.

5. The only good cleantech startups are those backed by VCs. The fact that only 1% of startups get their initial capital from VCs simply means that 99% of new businesses are bad ideas.

I was supposed to describe what I like about being an investor in this market right now. And I told them that what I like about this market is that many people actually do believe the above points.

Friday folderol

2009-10-30T19:37:47+00:00

Some random items, including some administrative housekeeping:

1. If you haven't seen it, it's worth reading DOE Secretary Chu's op-ed on weatherization and all of the governmental support being thrown toward that part of energy efficiency. Heady times for residential and commercial energy efficiency efforts. Side note: The Secretary of Energy is publishing his op-eds in the Huffington Post now? Wow, this Internet thingy might actually be catching on.

2. How the government "picks winners and losers" is a topic of much conversation these days, re: cleantech and otherwise. It's especially a topic given the structure of some of the programs being used to accelerate commercialization and adoption of clean technologies -- such as the DOE loan guarantee program, etc. See, for example, this interesting editorial in the Washington Post that a colleague pointed out to me today, and the very good discussion we had on the PE Hub panel on the topic here in Boston this week (note: link may disappear behind subscriber wall soon). It's tough, though, to come up with strong alternative solutions to what's being done. There are gaps that need to be specifically addressed, especially at the seed / very early stage (where ARPA-E is intended to aim) and at the "first of a kind" project finance stage (which is where the loan guarantee is intended to aim). There isn't enough funding to support every deserving effort, nor would we necessarily want that (define "deserving"?). I've seen proposals to do it more hands-off, by having the money go in some form to private sector investors who would make the decisions, perhaps as matching funds to provide leveraged returns for private LPs in the fund, to fix the risk v. reward imbalance that created the capital gap. Some of these ideas have merit, but even then some government body needs to be determining which funds would receive the leveraging support and which wouldn't. Broader market-based systems (including cap and trade, carbon taxes, ITCs, PTCs, etc.) are more diffuse in impact and harder to target at specific capital gaps. And doing nothing is not an option. So I'll let the debate go on, but my feeling is that you simply have to design the best policy you can, hope the DOE can attract the best decision-makers that they can (and I've seen some really smart people go into the DOE over the past year or so), and accept a necessarily imperfect process. Easy to say, hard to stomach.

3. Speaking of policy issues, a few days back I wrote about a study which examined coal-fired generators in the U.S. and concluded that there could be a relatively low natural limit on carbon prices under a cap and trade scheme. I mentioned a few gaps I saw in the analysis, and for you wonks out there like me, a reader wrote in and pointed out another important one: Elasticity of demand means that some of the costs on the generators will be passed downstream, so that they would require higher carbon prices than indicated in the study before making the decision that shutting down is worth it. Of course, generators would also be able to pass some of the costs upstream as well, in all likelihood. It's still a very intriguing study conceptually, but between failure to address elasticities of demand in the electricity value chain, and the other factors I mentioned in the post, I'm not sure I would want to do any significant investment planning around the specific price limits they indicate.

4. An administrative note: Over the 4+ years of writing this column, I've attempted (not always successfully) to hew to the most rigorous of blogosphere rules regarding notification of self-interest, in that I've tried to note whenever I've mentioned a company in which I have some stake in their success. But in my current position that's becoming impossible, due to the breadth of indirect investment activities involved. I can't reveal self-interest in many cases without possibly revealing some fund's confidential information, and I can't mention some companies and not others because then the occasional obvious failure to mention a deal becomes an indicator by itself. So my choices are either to never mention any companies at all ever again, or simply to ask you all to trust me that I won't too horribly pump up a company or fund where I have a significant self-interest, without noting that. I may still mention self-interest sometimes if I can, but not always. Is that okay? Tough call, and I've wrestled with it for a while. Flames, suggestions, etc. are all welcomed in the comments or via email.

5. Another administrative note: Yes, I know I'm horribly behind on listing deals that get announced in the sector. Apologies, but still, no one seems to have complained yet. Maybe I can stop that practice? Or maybe a smart Sloan student reader wants to help me with it?

Great returns from cleantech

2009-10-28T19:11:36+00:00

Did you see the Q2 venture returns report from Cambridge Associates and the NVCA (note: pdf)? If so, you were probably as intrigued by the chart on page 7 as I was.

On that page is a chart of "US Venture Capital Dollar-Weighted Internal Rate of Return on Vintage Year Companies" broken out by sector. They don't break out cleantech as a category, but they do break out Energy. And the numbers are pretty noteworthy.

Energy category IRRs vs. All Companies IRRs

2002 Energy = 43.0%, All = 8.75%

2003 Energy = 46.0%, All = 12.3%

2004 Energy = 10.4%, All = 12.8%

2005 Energy = 33.5%, All = 9.66%

2006 Energy = 23.7%, All = 4.46%

2007 Energy = 20.1%, All = 0.65%

2008 Energy = 9.10%, All = (0.04)%

So what is this really saying?

On the surface, it looks like there have been great IRRs in Energy as compared to other sectors like IT, Software, Health Care / Biotech, etc. In almost every year post-Internet Bubble, VC investments are producing pretty healthy returns in the Energy category, in all but one year beating the performance of the overall VC pool. If energytech VCs are getting these kinds of IRRs, that looks good compared with current criticism of venture capital that it's been producing sub-par returns versus the risk level inherent to the category.

But wait a minute, there's a big catch.

If you read the fine print in the methodology, some (and most likely, the predominant portion) of these IRRs have been calculated based upon NAVs (net asset value), not actual cash returns. So, for example, if a company took in a Series A in 2002, and since then they've had significant up-rounds but no exit, the value of the company is pretty much* set at whatever was the valuation of the last round. In the aggregate, 2002 vintage companies who took in money that year and later are looking at pretty significant up valuations versus where they were when the money went in. At least in the numbers CA is tracking.

What this really reflects, therefore, is just what we've talked about here many times over.

1. The aggregate dollar totals in cleantech venture capital have been dominated by a relatively small number of really huge late-stage deals.

2. While overall economic conditions are definitely having an impact, many of those well-capitalized companies hadn't had to take in lower-valuation follow on capital through Q2 2008. So on paper, they're still being carried at those previous high valuations.

In fact, in another part of the report they show that the actual cash distributions across all VC categories are just about nil from 2004 vintage funds onward, probably moreso in cleantech (I'm guessing).

So don't read this chart and get all excited. These numbers will likely be revised downward in future such reports (but we can hope!).

The most important takeaway is probably that cleantech valuations have held up better than others, at least through Q2.

...Note I'm not at all criticizing the methodology used in this report. It's great data and hard to do anything more than what CA's done with it. Just pointing out what we can conclude from it.

+++++++++++++++++

(*it's really not nearly so simple, but let's not get too wrapped around the specifics here)

“ARPA-E! ARPA-E!”

2009-10-26T13:44:24+00:00

Okay, so maybe I jokingly tried to start an "ARPA-E" chant at Obama's MIT speech on Friday, simply because I thought it might be the only crowd ever wonky enough to get it.

But acronymical joking aside, it's a potentially valuable DOE program that could end up helping one of the major capital gaps that's emerging in cleantech venture capital: Seed stage and early stage development of ideas that are promising but will take too long to commercialize than most VCs can handle.

So it's great to see the news release today with $151M of grants to 37 efforts. Including:

Sadoway's liquid-metal batteries
Low-cost LED crystals
1366's "mono-equivalent silicon" wafers
FloDesign's smaller-format wind turbines
Foro Energy's drilling technology
And several direct sunlight-to-fuels efforts

On a completely different note, I recently re-read an old 2000 article (I can't find a direct link, but you can access it through this site) from Environmental Finance back in April 2000, where the authors (Byron Swift and Aldyen Donnelly) argued that there's enough inefficient coal-fired generation out there in the U.S. that under a cap-and-trade system there will be a natural limit on CO2 credit prices at around $5-7/ton. I'm interested in reader reactions, critiques, corrections, etc., please email or use the comments to share with alll...

Swift and Donnelly simply look at the implied financial worth of the generating assets of companies like AEP, Southern Company, and Cinergy (remember, this was from 2000), and then divide that by their CO2 emissions in terms of earnings per ton of CO2. And therefore, they argue, if you're AEP and you can make more money by shutting down an inefficient plant and selling the avoided emissions, you would do so, and that would be triggered at around the $5-7/ton level. They also looked at it from another perspective -- market capitalization for each of the companies, estimating how much of that was attributable to the fossil fuel generation fleet, and then dividing by emissions to get a value for perpetual stream of carbon allowances (discounted). Both methods came out with about the same value.

Now, what they don't account for, as far as I can tell, are three crucial additional factors: 1) the shut-down costs associated with mothballing a generation facility to sell off the avoided emissions; b) the incremental cost of replacing that generation capacity with something else with much lower carbon impact, such as gas-fired generation (although they acknowledge this as an open question); and c) short-term volatility as separate from long-term average prices -- it's tougher to shutter a generation plant because of temporarily-high carbon prices, so there could certainly be significant price spikes above the limits Swift and Donnelly indicate.

But I find it a fascinating analysis, given the policy discussions going on right now (which include possible hard caps on carbon credit prices under a cap-and-trade plan), in that it suggests there may be a lower natural price limit than many expect. There's definitely precedent from elsewhere in the electricity business for electricity customers to curtail their demand and sell the capacity back to the utility -- see EnerNOC, or in an early example, Kaiser Aluminum (note: pdf). Why couldn't some power plants shut down and re-sell their credits for greater profit? Whether you love or hate the idea as an electricity consumer, it does open up a new business dimension for anyone in the powergen industry to consider...

Curious to get readers' thoughts.

Thank you, Eric!

2009-10-25T02:58:45+00:00

...for my nomination for Funniest Post and Link of the Year.

"When Thanksgiving day arrives, and I fill my plate... I want to be able to thank the Lord for his gift of barium titanate..."

Enjoy, all!

Obama at MIT

2009-10-24T03:14:08+00:00

Had the honor of being invited to Obama's speech at MIT today. Thanks to the Clean Economy Network and the Renewable Energy Business Network, we were able to bring 50 local green businesspeople to the event (thanks, CEN!). You can read the transcript here and some coverage here.

The President got a few demonstrations of technology MIT researchers are working on, before giving the speech, and then he spoke for 15 minutes or so to an auditorium full of 750 students, green entrepreneurs, researchers, cleantech investors, politicians, and other key stakeholders.

A few points from his speech that particularly stuck out for me (paraphrasing):

Energy tech innovators and entrepreneurs are this generation's pioneers. Pioneers made this country great -- they expanded our boundaries, took us to the skies and to the moon. Now energy tech pioneers are expanding our horizons in a new direction.

There is a global race going on among countries vying to be the hubs of the next great energy technologies, and the country that wins this race will be the global economic giant of the 21st century.

Energy is a security issue as much as it's an environmental issue. The Department of Defense has said that reliance upon foreign oil endangers American security.

We're going to need to use all domestic sources of energy we can find. So we also need to find efficient ways of using our coal, oil and natural gas resources, not just solar and wind et al.

I put up some pics on Flickr, for those interested. It was great to see so many strong cleantech entrepreneurs and innovators in one place (fantastic networking, I might add).

Whether you're "fer" or "ag'in" the individual in your political persuasions, it was great to see someone in that high office have such a strong commitment to seeing cleantech continue to grow and thrive, and with a broad perspective on what cleantech means.

Why the story matters

2009-10-24T02:16:31+00:00

Just stumbled upon this article in Wired with the blaring headline that EEStor is worth $1.5B!

The writer starts with Zenn Motor's market cap of $169M today, points out they own 10.7% of EEStor, and that Zenn isn't going to be selling their own vehicles anymore, and VOILA! If you give zero value to the rest of Zenn Motors, divide $169M by 10.7%, thus EEStor is worth an implied $1.5B! Amazing!

Or, you know, the market could be valuing Zenn at $169M, and that stake in EEStor at $0. Because Zenn is still going to be selling things, just not fully manufactured cars, and it's unclear when or if EEStor is going to be producing profits.

Or anything in between. So what we can tell by the math in the article is that the buyers of ZNN.V are valuing EEStor somewhere between zero and $1.5B.

Okaaaayyyy...

Even if retail investors are truly valuing Zenn based solely upon their minority stake in a "secretive" (as in "telling everyone they can that they're secretive, while releasing a steady drumbeat of news about supposed milestones being achieved") startup, what does the vaguaries of pricing of a thinly-traded stock on the Canadian Venture Exchange really tell us? Even proponents of efficient market theory have to admit that such prices might easily get a tad skewed by a few over-exuberant day traders... Which I think is the point of the author, to give him his due, calling it a "questionable milestone". Still, the headline loses that nuance.

This is after I just saw another article on EEStor (on the site Tonic, which for some reason seems to be infatuated with this one company) where the writer states "Many electrical engineers say it's not possible to make an ultracapacitor." Uh... no. Many electrical engineers say it's not possible to build a cost-effective ultracapacitor along the lines of what EEStor is trying to do. But ultracapacitors are already a fairly big industry. They're already in many products in your home. They already exist, Tonic.

The writer of the Wired article is an EV vet who appears to be trying to poke some holes in the EEStor story. The writer of the Tonic article is clearly infatuated with the possibilities if the EEStor story is true. All of which is totally fair, albeit questionably edited.

But the problem is that when the headlines blare like they do, and the story about the story becomes so dominating, it really hinders the efforts of other entrepreneurs in that space. There are numerous other ultracapacitor startup efforts out there. Many of which hold great promise for improving the cost and performance of ultracaps so they can start to play a significant role in energy storage -- not necessarily obviating batteries, much less gasoline altogether, but in important roles nonetheless. But many of you, gentle readers, won't have heard about those efforts. Because of one company getting all the attention, positive and negative. And that's not helpful. Over-hype and controversy drives away investment, it doesn't bring it in. It makes it more difficult for anyone in the sector, not just EEStor, to get government support or venture investment or corporate partnerships. So we all miss out on innovations that should be commercialized, as the baby is thrown out with the bathwater.

EEStor is working hard to get their story out there, that's their right. But I often wish reporters and editors would spend a bit more time rounding out their knowledge by talking with industry insiders before publishing breathless copy.

Okay, so it’s broken. Now what?

2009-10-22T13:16:32+00:00

I've been having a lot of conversations with cleantech investors lately, and it's clear there's an emerging "consensus" (as much as you can ever get true alignment in such an industry) that the traditional venture capital model applied to cleantech isn't working -- at least in how it's been applied to date.

To recap, we have seen billions of dollars this decade put into venture capital and "venture capital" deals in energy tech in particular, but not only have there been relatively few exits, many VC-backed cleantech companies have been way behind in their promises regarding commercialization and adoption. Cleantech VCs have been more effective at making headlines than at making returns. And there continue to be clear capital gaps at crucial development stages, including seed stage and "first commercial-scale project" financings.

In talking with a wide range of investors over the past few months, it's clear that there is still lots of optimism that there will be strong returns from venture-type investments in this sector. After all, these are phenomenally huge markets, and they have phenomenally huge unmet needs. Significant change is expected, and VCs are supposed to profit from significant change. Exits have clearly been held back at least in part by the overall macroeconomic situation, which nipped several IPOs in the bud through no fault of the companies or their investors. And there's clear long-term govermental support putting wind into the sails of the industry.

All of which is great, but in talking with these investors they also acknowledge that no one's yet proven out a successful investment model for the sector. And so, in true hive fashion (everyone thinks they've arrived at the thought independently, but we all are influenced by each other's thinking), I keep hearing that the model is "broken" and solutions need to be found.

Okay. But what solutions?

Some say that the problem isn't with either cleantech or with the traditional venture capital model, but instead that they don't overlap as often as VCs would like to think. So, they say, applying IT investment models to IT approaches in cleantech (automated building energy management, carbon accounting SaaS offerings, etc.) is the way to go, not putting hundreds of millions of dollars into capital-intensive renewable energy generation. Limiting the scope of cleantech venture investing, in other words, to just a subset of the overall energy, water and materials market. I've argued for this approach at times myself. However, it does beg the question: Then how DO we expect to see these renewable energy technologies get to market? Are the investors putting money into those sectors wrong? Perhaps VCs are unintentionally, as some have said, simply taking pension fund money and investing in these capital-intensive technologies for society's benefit, but without good overall likelihood of venture-type returns? Or perhaps not, the exits just haven't happened yet but they will? But that's not an answer to the question, that's just a diagnosis and another set of questions.

Some say that the key is, given long gestation periods, being late-stage investors and coming in after significant technology and commercialization risk is taken out of the company. Which is a very smart approach except: a) Everyone else is having the same idea, driving up prices for late-stage investments; b) Being only late-stage in capital-intensive development efforts starts to look more and more like some kind of project finance, not venture capital; c) We're seeing ample evidence that there's still plenty of execution, scale-up, and market risk even at these later stages; and d) If everyone's investing late-stage, who provides the funding to bring the companies to that stage of development?

Some, albeit fewer, argue that the way to play cleantech is instead to go quite early and really swing for the fences. Acknowleding the long gestation period of truly breakthrough ideas in the sector, the idea is to adopt a longer investment horizon, but to raise the bar in terms of the returns potential an investment might have: So to paraphrase, don't go for the traditional 10x in 5 years, go for 20x in 10 years. But it's unclear how LPs will react to such an approach, and if you think accountability is low on investments done with 5 year horizons... Furthermore, what about the other 99% of good cleantech innovations that don't qualify as having such dramatic potential? Not everything can be "the next Google", after all.

Some investors are implicitly pursuing a momentum approach -- backing high-profile startups in high-profile sectors, putting a lot of effort into P.R. activities to further raise the profile of the startup, using that to bring in corporate partnerships and government support, and thus creating seemingly unstoppable momentum toward an exit. It's almost (note: I'm clearly using hyperbole here) as if the underlying startup's technology and economics don't really matter. One big challenge for this approach is the ephemeral nature of P.R. and momentum-building, it's easy for journalists, pundits, etc. to get very skeptical very quickly and turn against a company that has been over-hyped. And more damaging, in the pursuit of visible evidence of rapid progress, these investors often encourage the companies to take on a high cash-burn model. Which, when (not if) things go a bit sideways at some point, can be deadly.

I'm also seeing some efforts to create more overt "hybrid" approaches, combining (or at least setting up in parallel) VC, project finance, and middle-market buyout strategies. But these are as yet mostly ill-defined, and it's unclear at the end of the day what's different from what's already de facto being done today by big VC funds, aside from the additional clarity of returns and risk expectation.

And of course a lot of other intriguing new ideas as well, there is some innovative thinking being developed out there, sometimes in places you wouldn't expect.

But despite all the ideas, so far, few proven answers.

Stay tuned...

The view from the trenches

2009-10-13T23:36:21+00:00

I've talked a bit on this site about the ways the traditional venture capital model does and doesn't fit with cleantech.

It's been said that 93 percent of startup financing comes from individuals and not venture capitalists. Does that mean that 93% of startups are bad ideas? No, it just points out venture capital is only a very narrow approach to successful entrepreneurial investing.

Many strong businesses are being formed right now that traditional venture capital won't go after, because it's not a proprietary technology play or otherwise a fit for the type of profile VCs look for. In the teeth of these economic times, these entrepreneurs are forging ahead and getting things off the ground. And from the perspective of jobs growth and building a robust "clean economy", these businesses will make even more of an aggregate impact than the solar, et al, startups talked about by big-name investors or profiled in the New York Times.

I thought it might be good to give a voice to the experiences some of these entrepreneurs are having out there, on the ground. So, as a start, I've invited Steve Sherman, COO at GreenChoice Bank, to share a bit about what he's seeing out there:

We’re opening a brand new bank (within the banking world, it’s called a “de novo” bank) that we believe will finally give people a reason to feel good about their financial institution. Based in Chicago, GreenChoice Bank will be one of the first “green” community banks in the whole country. At our core, we’ll be a traditional community bank, with all of the products and services, and high level of customer service, that one would expect from a local bank. But we also have a mission of sustainability that informs every aspect of the bank’s organization—from our initial location in the LEED-Platinum Green Exchange in Chicago (http://www.greenexchange.com), to a back office that is as sustainably built and as paperless as possible, to a set of advantaged loan and deposit products that reward our customers for their green choices (i.e., lending to green technology and green businesses).

As you would expect, starting a bank is not an easy process. About 2 years ago, we recognized there was an opportunity to create a “back to basics” kind of community bank with a unique point of differentiation through our green mission. Last spring, we assembled an exceptional management team and Board of Directors, raised our seed capital, and put in an application for a federal bank charter. The approval process is excruciating – the whole team underwent full background checks by the government, our business plan got pressure tested and challenged, and we generally had to jump through a lot of hoops to show them we’re serious and we’re the right people for the job. After almost a full year of scrutiny, we received our approvals from the federal regulators. Most bank groups don’t make it through this process, particularly in this environment, so this is a huge vote of confidence for the quality of the team and our plan.

We are working hard to get our doors open in the first quarter of 2010. To be able to do so, we had to meet the regulators’ minimum equity capital requirements, as well as hire our staff, set up the operations, and get our location ready for business. The operational piece is particularly challenging, though we have a great partner in Fiserv, one of the largest providers of bank core processing systems in the country. Over the next few months, we will be setting up all the software, designing all of the bank products, and training our staff to use the system so we can open accounts, take deposits, set up loans, etc. The great thing about outsourcing our systems, though, is that as a brand new bank, we’ll still be able to offer best-of-breed “green” technology to our customers including all the online banking and billpay (Fiserv owns Checkfree), image-based check processing, and remote deposit capture so you can deposit checks from your desk.

We think that the economy is starting to level off but it will be a long and slow recovery. The downturn is having two impacts on our business. It is actually great for the opportunity we are targeting—the credit crunch has caused most banks to stop lending, so to come to market with a clean balance sheet and a willingness to lend is huge for us. However, the flipside is that it is also a much tougher environment for capital raising so our sales cycle has been a little longer than it would have been a few years ago.

This isn’t necessarily a typical venture capital technology play but it's an example of a business that is going to be creating jobs and providing support (in the form of capital) to sustainably minded businesses in our economy. The economy desperately needs community banks who are willing to take care of the smaller businesses and entrepreneurs who fall through the cracks of the big guys. The big banks and big businesses are the ones who often drag the economy into a recession, but it’s the smaller guys who can help create the jobs and bring us out. You can read more about us at http://www.greenchoicebank.com.

Thanks, Steve!

Depends on how you look at it, I guess

2009-10-06T01:35:23+00:00

The initial takes on Q3 cleantech venture funding have come out over the past few days, and really, you can interpret them however you want.

The tallies are so far pretty consistent (haven't gotten most of the tallies, or even most of the details quite yet). They show that Q3 saw more dollars going into the sector than Q2, but that Q3 2009 was way down in comparison to Q3 2008. Not really surprising, actually. Things have been picking up a bit, and 3Q08 was a pretty high quarter.

Eric Wesoff's always useful tallies for GreenTech Media totaled up $1.9B in 112 deals globally. Of that, solar, biofuels and other fuels made up nearly $1.1B and 46 deals, once again dominating the scene. Big deals Eric tracked included Solyndra ($198M), Synthetic Genomic's funding commitment from Exxon ($300M over multiple years), Tesla ($82.5M), and Serious Materials ($60M). As always, Eric and I have very different interpretations of the stage data. He points to his tally of 35 Series A and seed deals and proclaims "a marked trend of a return to early stage deals". I look at it as 77 late stage versus 35 early stage deals and still wonder how the top of the funnel is going to continue to be filled for late-stage investors. But on the other hand, we both wonder if the VC model still works in solar...

Over at the Cleantech Group, they tracked $1.59B in 134 companies worldwide, also with solar and fuels dominating the tallies. While they celebrate the A123 and other IPOs, they also note that cleantech M&A was down a bit from the previous quarter.

New Energy Finance (note: link downloads pdf) pointed to a bit of a decline from Q2 to Q3 in terms of overall global investments in renewables. But within that, they show that venture capital activity in the sector did increase.

So what have we learned? Don't believe the overly pessimistic ("things are way down versus a year ago!") and optimistic ("things are up on Q2!") headlines. Instead, it's pretty much just a confirmation of what we have already been feeling and talking about here -- things look to be getting slightly better, but still far from the high-flying days of early 2008. That's probably a good thing...

In a completely different note, fellow Bostonian cleantech investor Jon Karlen of Flybridge has launched a new blog, check it out!

A123: A deeper look

2009-09-28T01:38:22+00:00

Many cleantech investors were cheered by the successful IPO of A123 this past week.

I noted a very interesting column on PE Hub (sub req'd), by Lawrence Aragon, one of the finer private equity journalists out there.

(We need to caveat all this by acknowledging that it's unlikely much of the VCs' returns have been realized yet, there's typically a lock-up period. So here's hoping the market valuation holds up. Still, Lawrence's approach of using current valuations is still quite useful for our illustrative purposes...)

Lawrence takes a look at estimated investment totals and returns for major VCs in the company, and concludes that these investors didn't produce "a huge return", because the major holders only got like 4x or 5x. But let's look at that a little deeper. One thing that really struck me about Lawrence's column is that his assumption seems to be that these were all venture investments, and that therefore if you don't get a 10x you didn't get a "high voltage charge" for "venture investors".

I would argue that much of the pre-IPO capital that was put into A123 wasn't "venture capital", at least in the sense Lawrence seems to mean it. Let me illustrate what I mean: If you have the chance to make 2x on an investment over 1 year, would you do it? Sure, 100% IRRs are pretty sweet. 2x over 2 years, 3x over 3 years are all pretty attractive returns as well, on an IRR basis. So when Lawrence points to 4x type returns to "venture investors", he seems to be assuming that these were long-term holders, but many weren't. The Series D was in 2007, for example, and was at an approximate pre-money of $300M. Right now, that return looks pretty good on an IRR basis, even after an extra year's delay past the originally intended IPO date. North Bridge, for example, was looking at a much higher multiple on their investment before they had to pump in an extra $10M as part of a May 2009 Series F, and while that very late round yielded a much smaller multiple, it was over just a few months, and probably looks great right now on an IRR basis.

So I don't think Lawrence crystalized the point he was trying to make. However, I think the A123 experience illustrates a couple of important principles at work in cleantech investing today:

1. I continue to have a hard time thinking about pre-IPO equity investments at pre-money valuations in the hundreds of millions as being "venture capital". At very least, we need a new sub-category to describe this type of investing. We have early stage investing, the Series As and Series Bs that are what most outsiders think of when they think of "venture capital" (if at all), typically aiming (read: "hoping") for a 10x return over 5-7 years. Then you have "growth stage" venture capital, which is later-stage VC investing, aiming for a 5x in 3-5 years. But as I noted back in that August 2008 post, much of the Series E (June '08, ~$100M raise, approx. $1B pre-money) appears to have been provided by first-time investors. These investors weren't brought into the raise as "venture capitalists," I guarantee you. Instead, it's probably best to think about that type of investment as a "mezz equity round". In other words, the expectations were probably for a 2x in 1-2 years. That's not necessarily better or worse investing than "venture capital" as Lawrence is referring to. But it's certainly different. It means a simple analysis of returns based on multiples is useless if all these types of investors are bundled together.

2. Growth and even "equity mezz" financing isn't as low-risk as it's made out to be. It's worth noting that those Series E investors are the ones who didn't make out so well. Right now it's looking good as A123 trades almost 50% above its IPO price, so if that holds up through their holding periods they may still make out with a 1.5x return. But the initial offering price appears to have been at just about the same post-money (around $1.1B) valuation of the Series E. So a zero return at that price. And since my write-up last August after the Series E, apparently investors needed to pony up an additional $99M Series F round according to the updated S-1... and that was at a significant down round valuation (something like $9.20/sh vs. the Series E's $16/sh).

A lot of non-VC investors such as family offices and hedge funds have been brought into these kinds of mezz equity rounds in the past. The pitch to those investors is, "hey, this company is going to IPO, and you're going to double your money over a year or so -- you can't lose!" What we've learned about these kinds of rounds in thin-film solar, and now with A123, is that even at that late stage there's still plenty of risk of an exit not happening in the timeframe anticipated, or at a lower than hoped for valuation, or perhaps not at all.

There's this theory out there that being a very late investor into cleantech is the way to go because the risk has been taken out of the equation. Do the later investors into thin-film solar companies still feel that the risk of a timely and high-valuation exit was low? Do the Series E investors in A123 feel like the risk was low in retrospect, after a year of holding their breath amid high cash burn and a down round and no exit window in sight? It worked out for A123. But so far, for most of the large late-round investors in cleantech, the exits still haven't appeared. We all know early stage cleantech venture capital is risky. But when I see it said/written/implied that we somehow can conclude with confidence that early stage cleantech VC doesn't make sense because it's "too risky, too long" whereas growth stage is the "smart way to do cleantech", I just shake my head. And when anyone tells me I "can't lose" on a later-stage investment, I run away as fast as I can, because there's no such thing.

So basically, I look at the A123 IPO and am cheered. I see it as being a sign of more good exits to come, in a sector that really needs them. And I believe it shows us something about the shape of cleantech venture investing right now.

A grab bag of news-ish stuff

2009-09-23T20:15:37+00:00

Been remiss in updating this column recently, it's been a busy time on the investment front. But I also took time to have a residential home energy audit and "Step 1" retrofit done by Next Step Living, a local Boston-based firm. If you're in the New England region, I definitely recommend it, especially if you're a gas heat customer. They sent two smart guys out for 3 hours, brought their air blower door and infrared camera to identify the problem areas, showed me a bunch of things I could do with good economic paybacks, did a fair amount of air-sealing while they were there, and took care of all the rebates, etc., so it really didn't end up costing me that much, more than worthwhile versus the savings. A good example of how smart approaches to service plays in cleantech might be one of the missing links in growing energy tech markets and jobs -- all the technological innovations are great and all, but someone's got to actually install and implement these solutions in a customer-friendly way.

Anyways, on with the deals and news grab bag:

Serious Materials has raised a $60M Series C. Mesirow Financial led the round, which included new investors Enertech Capital, Cheyenne, and Saints Capital. Previous investors including New Enterprise Associates (NEA), Foundation Capital, Rustic Canyon Partners, Navitas Capital, and Staenberg also participated.

Naturally Advanced Technologies raised a C$1M PIPE.

Environmental Technologies Fund led a new $10M financing round into Nujira (efficiently-powered cell tower tech), with existing investors also participating.

Sungevity raised a $6M Series B led by Greener Capital.

Solar Power Inc. raised a $12M PIPE.

Swedish LED startup GLO AB raised a SEK82M Series B, including new investors Hafslund Venture AS and Agder Energi Venture AS, as well as existing investors Provider Venture Partners, Teknoinvest, Nano Future Invest, LU Innovation, and LUAB, along with the founders and employees of GLO.

Liquidia Technologies raised a $7M round of financing led by Canaan Partners and including Pappas Ventures, NEA, Wakefield Group and Firelake Capital.

Glacier Bay has taken in an additional $10M in funding led by the Westly Group, and including NEA and Quercus Trust.

Speaking of the Westly Group, they closed their second fund at $120M.

Energy and environmental software vendor Hara has raised a $14M Series B led by JAFCO Ventures alongside Nth Power and existing investor Kleiner Perkins.

Barclays and NGP Energy Technology Partners have made a "significant" investment into American Wind Capital Company.

Other randomness:

Will 2010 finally be the year we see production from the big-named CIGS players? Looks like both Nanosolar and Miasole have finally got manufacturing facilities up and ready to go...

Is Silicon Valley finally figuring out how much cleantech innovation is happening outside of Silicon Valley? Note the subsequently panicky tone of the headline of this article...

Congrats to Whitney Rockley on joining Emerald -- and congrats to Emerald on snagging her!

Some thoughts on cleantech from Foundation Capital.

Okay, VCs, step aside -- Google's gonna figure out that whole heliostat problem for you.

On the subject of general VC stuff, here's a cogent argument against overly elevating the role of VCs in economic value creation... Some investors ask: "Should LPs keep chasing after the big brand GPs?"... And here's some good advice from a VC for entrepreneurs, on how and when to pitch.

Definition of a crowded market: Here's a list (a "sampling", actually) of 11 algal biofuel efforts located in Southern California alone.

Hmmm... strikes me there must be some sampling bias in these results: The "Global Cleantech 100" list that came out included 55 US-based companies, and not a single Chinese company.

Haven't read it yet, but this new GTM report on grid-scale storage looks potentially interesting (hint, hint, my friends).

Renaissance Man: I've been enjoying Excessive Entanglement, a novel by author Nick D'Arbeloff. Those readers in the Boston area may also recognize Nick as the Executive Director of the New England Clean Energy Council.

Finally, it has basically nothing to do with cleantech, but this press release has to be the clear front-runner for most incomprehensible headline of 2009. Enjoy!

Fingers crossed for A123

2009-09-11T18:21:59+00:00

Cleantech could really use some venture-backed exits to help both further validate the sector as an investment area, and generally boost investor spirits in this tough time. Plus, it would be great to see some big IPOs out of subsectors other than solar. Thus, here's hoping A123's IPO happens smoothly and successfully.

Of course, it's not their first attempt, as their timing back in 2008 was bad once the economy started crushing everyone. For a blast from the past (and additional proof that yours truly can be pretty wrong at times), see this post I wrote back then about the company and their investors. Also, here's Kanellos' take and Wesoff's take on the data from the S-1.

Fingers crossed!

A different take

2009-09-09T21:14:16+00:00

In my last post, I said some pretty pessimistic things about the next 12 months.

I do want to note that alternative viewpoints are also out there, as well. Check out Eric Wesoff's take, for example...

It’s going to get worse before it gets better

2009-09-09T20:50:16+00:00

I'm at the Cleantech Forum in Boston this week. As always, a great networking event, they've really honed the model here at the 23rd edition of the series. For those of you into such things, you can follow various tweets on the conference, including far too many from yours truly, with the #cleantechforum hashtag...

It's notable, however, how few west coast investors are attending this event. Now, bay area VCs are always pretty loathe to travel outside of the 650 area code, but still, it's clear that even fewer made this trip than would have this time last year. Why? Perhaps some travel budgets are smaller, especially for the smaller shops, but really this is instead an indicator that most VCs are just really inactive on new deals and fundraising right now. If an investor is actively seeking deals and/or LPs, they'll use a conference as an excuse to travel somewhere for networking purposes. Which means that conference attendance by VCs is a bit of a leading indicator.

It's an important indicator, because cleantech venture capital doesn't seem to have been too badly hit yet. Not to say things are easy for cleantech entrepreneurs right now, by any stretch. But still, according to the Cleantech Group's numbers described at the conference today, in Q3 cleantech became the #1 venture capital category, above IT and biotech, etc. (details to follow on that once I get them). And while there have been some companies that have gone under over the past 12 months or so, most continue to chug along one way or another.

But for the most part, most VC-backed cleantech startups remain net negative on cashflow. Which means they're going to need either a rapid market pick-up translating into very near-term revenues, or else they're going to need to raise more capital.

My strong sense, watching the reported deals from the past few months, is that a significant portion of those deals that are taking place (and thus are captured in those Cleantech Group numbers) are insider-only rounds. I wouldn't at all be surprised to see about half of the deals being such. This means that most of the rounds taking place are not being priced by the market, it's instead just existing investors putting more money into their portfolio investments, likely at flat valuations or unpriced bridge financings. Anecdotally, I can tell you that most investors are still refusing to take down valuations on their own portfolios, and yet only looking at follow-on deals that are at down valuations.

These insider rounds, including many more that probably haven't been announced, are what have been allowing cash-burning cleantech startups to survive, in other words.

And they can't continue indefinitely. VCs don't have unlimited funds, and many at this point are starting to feel out of dry powder. They'll only have so much patience and so much capital they can devote to any one portfolio company. And with VC fundraising on hold, we shouldn't expect to see VCs be refreshed with capital anytime soon.

I'm not trying to sound too doom-and-gloom, we're not talking about some kind of mass extinction event. Certainly, government support is going to help some companies survive. And for those companies and investors willing to take a down valuation, there are still some investors out there willing to step in and carry the torch. Even a slight recovery of the credit markets could also help some startups raise non-dilutive growth financing.

But my point is that, while we haven't seen a massive wave of cleantech startups crashing yet, the factors underlying that are drying up. And so I expect to see many more unfortunate stories over the next 12 months, even if the economy appears to be slowing getting better. And if the economy twitches back downward... batten down the hatches.

Proving clean technology works

2009-09-02T14:43:43+00:00

The headline-grabbing news this week is Khosla Venture's recent fund closings, of their $275M seed fund and $800M "main fund". It's good to see more seed capital available in the sector -- as we've talked about here before, things have probably shifted too heavily toward late stage deals over the past few quarters, leaving a critical funding gap at the seed stage for cleantech startups. And it's also good, I think, to see such seed efforts split out into a separate fund from later-stage efforts. In many of the larger recent cleantech funds, seed and growth stage have been conflated within the same fund, which sets up some internal management challenges and also from an LP's perspective makes it tough to find specialized early stage focus.

In the NYT article about the closings, however, I was a bit surprised to see the suggestion that a few million dollars' worth of investment is all it takes for a cleantech startup to prove their technology to the point of being able to secure project financing. Now note, I'm not going to pick on Vinod for that quote, because I would bet there were nuances to it that didn't pass through the journalist-editor translation. But it brings up an important point to discuss, nonetheless.

There is in fact a huge capital gap for cleantech startups around early project finance. In most cleantech startups that will actually be producing anything (as opposed to software-based cleantech startups), building out production or manufacturing capacity is capital-intensive by definition. To build out a commercial-scale solar fab could require tens or even hundreds of millions of dollars. Ditto for biofuel plants, for utility-scale solar generation facilities, and for battery manufacturing lines.

The problem is, project finance is traditionally very risk-averse, and very intolerant of any new technology. Project finance firms are very good at structuring deals to enable the build-out of large generation or manufacturing projects, as long as they're not taking any technology risk and as long as the construction timeframe and future revenues and costs are very well understood. That's why project finance will take a much lower expected rate of return than venture capital, because it's correspondingly lower risk.

So what we've seen this decade in cleantech has been the inability of cleantech startups to raise project finance or high levels of leverage for their first or even second commercial-scale facilities. Even after having "proven" the technology at a pilot plant scale, it's still too early for project financiers to feel they have a good understanding of the construction timeframes and costs for a first of a kind ("FOAK") commercial scale plant. Also, in many cases the market acceptance is still not locked in, and furthermore the technology will likely not be proven out to nearly the level of confidence that the project financiers would want to see. So they just don't touch such things.

Thus, for the past few years we've seen venture capitalists stepping in to fund the FOAKs out of necessity. When you see a $100M+ solar round, for example, there's some working capital and growth equity in there, but the majority of it is going to fill the gap that project finance is unwilling to fund. It's not really venture capital. It's quasi- project finance.

I'm not against this type of activity per se, it can still provide some attractive risk-adjusted returns when it's done creatively. But it's tough to see how that type of activity can be expected to generate the kinds of absolute returns that VCs are telling their LPs they're targeting, unless there's an opportunity to push a very, very attractive near-term exit afterwords (and there are few such exits right now). And so when it gets done out of the same venture fund, it's just important to note that it's a bit of a stretch on the definition of "venture capital" as traditionally used. So be it, rules are made to be broken.

However, what we've seen very clearly over the past 12 months is that such financing will greatly dry up at times. And a number of high-flying startups have been left high and dry by the pull-back of VCs from FOAK funding. So it's strange to get the impression from the NYT article that it's fine for VCs to invest in early stage capital-intensive opportunities, because it won't take much capital for the henceforth "proven" technology to bring in project finance to support full-scale commercialization. FOAKs remain a big gap, one that has already killed a number of promising cleantech startups that had taken in tens of millions of dollars just to get to that point. What I'm guessing the quote was really intended to say was that non-traditional players like corporate partners, large family offices and government financing can help solve the FOAK challenge, and to an extent that's true. But it's far from the slam-dunk prospect that comes across in the article.

With $275M to put to work, at around $2M per first-time check, that "seed" Khosla fund must be planning on doing some significant follow-ons (tough to see how they would be able to manage upwards of 100 investments). And then with the additional $800M in the "main" fund, it's probably a safe bet that KV will have to put some money into FOAKs just like many other VCs have. Investors may have been advocating for smaller funds focused on capital efficient opportunities. But there's little evidence such advocacy has really taken hold in Silicon Valley.

Deals from the past week or so:

WoodPellets.com has raised an $11M Series B, led by Monitor Clipper Partners, and including previous investor .406 Ventures.

Think Global AS has emerged from bankruptcy and has taken in a capital infusion of around $47M, from investors including several strategics. Ener1 has put in $18M as part of the financing, in exchange for getting exclusive rights to supply Think with lithium ion batteries, and along with converting $3M in debt is now the biggest shareholder in the company at 31%.

Utility-scale solar startup Tuusso Energy has raised $2M led by Pivotal Investments, and including Akula Energy Ventures.

Solar converter startup eIQ has unstealthed and announced $10M in financing from NGEN and Robert Bosch Venture Capital.

CFX Battery Inc. has closed on $5M of a planned $26.9M round.

PE Hub reported that li-ion battery startup Seeo has raised $8.6M of new financing, including return backer Khosla Ventures.

Membrane-based separation startup BPT has taken in a $12M Series B, co-led by US Venture Partners and Pitango Venture Capital, and including existing investors Aurum Ventures and Elron Electric Industries.

ClearEdge Power, which is developing fuel cell systems for residential applications, has raised a $15M round of financing.

Other news and notes: Another nobel laureate has come out as a pessimist on fuel cells -- at least "present" ones... Here's a good list of the recipients of the recently-announced ARRA battery and EV awards... Finally, if you're going to be in Boston on October 27th, check out the cleantech networking session being organized by PE Hub, featuring five insightful panelists (oh, and yours truly as well).

Two upcoming conferences for entrepreneurs seeking funding

2009-08-31T13:13:41+00:00

I always hesitate to highlight conferences on this site, since there are far too many interesting ones than I could ever mention, and I hate to highlight some and not others. However, for entrepreneurs seeking funding, there are two upcoming conferences that haven't gotten a huge amount of attention yet, but could be valuable showcase opportunities for the right startups.

Cleantech startups with at least one woman in a leadership role (at the "C" level) or in a significant position of equity and influence may want to reach out to Astia about their upcoming Silicon Valley conference, which will have a dedicated cleantech track. The application deadline is Sept. 10th.

Also, here in New England the Fifth Conference on Clean Energy will be taking place on November 12 & 13, at the end of Clean Energy Week. Selected entrepreneurs will be giving 10 minute investor pitches, and previous participants have raised $80M.

It's still tough out there to raise funds, so I thought I would pass these two lesser-known opportunities along to those interested.

Befuddling patent numbers

2009-08-26T02:42:33+00:00

I was having a conversation with a European investor today, and the subject of patents came up. Specifically, the question of which global region is the source of the most clean energy innovation, as measured by patents.

Simple question to answer, right? Except that my quick googling for the answer has left me completely befuddled.

In the OECD report linked to here (note: opens pdf), specifically on pg. 21, it indicates that in 2005 the EU accounted for 37% of renewable energy patents, with the U.S. and Japan lagging at around 20% each.

In the Lux Research report linked to here, they suggest that the U.S. leads in cleantech patents issued, with 46% of the total for 2006.

And for good measure, in this additional quarterly clean energy patent survey, while they don't track overall regional totals it would appear that Germany regularly falls behind even Michigan when it comes to clean energy patents!

What's going on here?? Is Europe way ahead in clean energy patents, as the investor I was speaking to claimed today, or does the EU's powerhouse Germany fall behind even Michigan when it comes to clean energy innovation?

Color me confused.

In other news and notes: Here's a great blog on cleantech IP issues... Here's Kanellos on some other weirdness in the cleantech patent tallies... Here are some good thoughts from Dan Goldman on the Clean Energy Accelerator Corp... And finally, congrats to Peter Rothstein on his new gig with the NECEC, where he'll be working on (among other things) a pretty interesting challenge with the Clean Energy Innovation Consortia Project (first task: come up with a catchier acronym).