We chose the byline “high growth, positive impact” four years ago and it has served us well especially with the surging interest in impact investing and recognition of SJF Ventures as an early leader in the space.     However, at the next level down, when we describe our sectoral focus areas as “asset recovery including reuse and recycling, renewable energy, efficiency and infrastructure, sustainable agriculture and food safety” we have encompassed those verticals under the word “cleantech”.   (We also focus on “technology-enhanced services” with positive health, wellness, education, and societal benefits.)

‘Cleantech’ as a brand for an investment and entrepreneurial theme was developed more than a decade ago by Nick Parker and Keith Raab with the formation of the Cleantech Group.   SJF Ventures was an early member of the Cleantech Group and the SJF Institute helped popularize the term with our Cleantech CEO Panels, CleanLinks events in NYC and RTP, and Cleantech Mentorship Programs.   In the early 2000s, the term was used to define a new approach distinct from the prior “envirotech, end-of-the-pipe pollution clean-up” investment approach.    Here is how the Cleantech Group defines the theme today:

“Cleantech represents a diverse range of products, services, and processes, all intended to:

• Provide superior performance at lower costs, while
• Greatly reducing or eliminating negative ecological impact, at the same time as
• Improving the productive and responsible use of natural resources”

The new conceptual approach called ‘cleantech’ arrived with great timing in 2000-2002 with the increasing awareness of climate change, volatile and rising energy prices, accelerating global population and resource constraints.    CalPERS and other large limited partners began allocating for a cleantech strategy and many large technology venture capital funds adopted ‘cleantech’ or ‘greentech’ as an additional investment vertical.    While there have been up and down cycles over the last decade, the theme has proven enduring, with the Cleantech Group reporting $1.61 billion in cleantech investments in 155 transactions in the second quarter of 2012, with solar, transportation, efficiency, biofuels and water companies receiving the most investment respectively.

When we started our first fund thirteen years ago we called our investment verticals ‘sustainability’ and ‘business services’ but with our support of the cleantech brand starting about a decade ago we have used ‘cleantech and sustainability’ and ‘technology-enhanced services.’    However, now in mid-2012, as we are raising the remainder of our third fund, we are encountering widely held skepticism or negative views of ‘cleantech’ by U.S. institutional investors.  (Interestingly with LPs in Europe and other countries, ‘cleantech’ seems continue to be a more accepted and positive term.)

What is the source of the negative view of cleantech that has arisen in the U.S. in the last year?  Certainly the controversy over the Solyndra bankruptcy in September 2011 was the biggest headline news that triggered attacks on ‘clean energy’ and ‘cleantech’ as we lead into an election year.    Prior to the news storm surrounding Solyndra we wrote a piece in March 2010 “Two Cleantech VC Strategies: ‘Today Markets’ and ‘Tomorrow Markets” in which we distinguished SJF’s approach from the capital and technology intensive strategies of much larger funds.  Following the Solyndra bankruptcy announcement, we wrote ‘After Solyndra: Cleantech Investing Still Makes Sense’ to articulate the ‘capital efficient expansion’ strategy of SJF Ventures in multiple sectors of the economy in need of efficiency innovation.

We certainly think the deep technology innovations financed in part by large funds is also needed for the global economy’s rapid transition to more efficiency and sustainability.   For example, funds like Khosla Ventures has made more than 40 portfolio investments in twelve industry verticals in need of new technological solutions, such as batteries, cellulosic alcohol, and efficiency.

Unfortunately, however, thoughtful cleantech investment strategies have become conflated in the public’s mind (and with some limited partners) with ‘regulatory dependent, subsidized clean energy and green jobs government programs.’   This sentiment has coincided with the reduction in natural gas prices due to new fracking methods to cause many to assert that renewables and efficiency initiatives are not needed.

At SJF Ventures we find this disenchantment cycle with ‘cleantech’ quite familiar, having been active in the field through our funds, previous venture capital funds and entrepreneurial firms in the field since the 1970’s.   We have been through at least three waves of ‘green’ venture investing as summarized below:

Some of the disenchantment of limited partners with cleantech as an investment theme may be warranted for funds that have focused on capital intensive strategies which require multiple rounds of capital and valuations in the hundreds of millions.    These strategies are often reliant on robust IPO market for exits, but the IPO market has been notoriously fickle and cleantech companies have not escaped.   Indeed, recently Brightsource, Enerkem, and Luca IPOs all withdrew their offerings recently and Enphase Power proceeded but raised only one-half of their target.   (See The Cleantech IPO Window – Closed for business?  on AltEnergyStocks.com)

Another challenge with some of the ‘energy supply’ cleantech investments in new solar or biofuels technologies have been the lack of finance for emerging companies and thus the use of private equity instead of project equity for lower return pilot plant investments.   Finally, selling toconservative and slow-moving utilities has been a big challenge for many cleantech companies funded in the last several years.

These factors may play into why some analyses, such as the recent article by Adam Medoff of Clean Pacific Ventures on   ‘Greentech Venture Capital’s Dismal Performance’ in Greentech Media, have stated that cleantech/greentech funds are not performing well.   This study cites data from CalPERS cleantech private equity fund portfolio with an average net IRR of 18 funds at about zero percent for funds of 2005 to 2010 vintage.   Fortunately, SJF Ventures’ current fund is performing much more strongly than the fund returns cited, perhaps in part due to our capital-efficient approach and focus on a broader array of sectors.   We will describe our strategy further in an upcoming article as well as what we will call it going forward.

(For further insights on the history and prospects of ‘cleantech venture capital’, see the thoughtful series by Matthew Nordan of Venrock in GigaOm as well as Rob Day of Black Coral Capital’s ongoing insights at his Cleantech Investing blog on Greentech Media.)

Opportunities in Clean Web and Green IT

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Hear the journey of three North Carolina cleantech start-ups and learn about their experiences in building credibility with customers, managing periods of high growth and raising venture capital.

Featured Speakers

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Interested in learning more about one of the top global CleanTech investment firms?  Attend this upcoming presentation and networking reception to connect with ABB Technology Ventures, the corporate venture capital arm of the ABB Group, one of the world’s largest engineering companies.

Speakers:

• Grant Allen, Vice President, ABB Technology Ventures
• Gary Rackliffe, VP and Head of Smart Grid, the ABB Group
• Allen Burchett, Region Function Manager, Strategic Initiatives, North America, the ABB Group

Big recent developments are covered – the opening of Canadian tar sands, fracking and horizontal drilling rapidly increasing US natural gas supplies, the Fukushima nuclear disaster, the break-up of the Soviet Union and resulting oil and gas fracas, hybrid and electric cars, and China’s rapid acceleration into clean energy manufacturing while rapidly building coal plants.  Yergin also shares fascinating stories of the early innovators of energy – Edison, Westinghouse, Tesla, Mitchell, Insull, Einstein, Ford – and how shifts of supply and demand for energy changed their fortunes.  For example, Ford winning with gas-fueled internal combustion engines for the Model T (instead of electric vehicles with batteries designed by Edison) resulting in rapid demand growth for Rockefeller’s oil just as lighting transitioned from oil to electricity.

Yergin provides the definitive science of climate change and carbon and efforts from Rio to Kyoto to Durban to address these challenges.   However, especially in this odd age of climate science denial, he does not highlight sufficiently the risks of continuing on a mostly fossil fuel energy path.    Given how comprehensive the book is, I did find some other omissions notable – such as the potential for LED lighting, for solar thermal, for efficiency innovation and finance, for reducing energy intensity of manufactured products via reuse, recycling and collaborative consumption.   Perhaps most disappointing was the lack of a ‘moral’ to the multiple energy ‘fables’ Yergin tells.   That is, how will we transition more rapidly to a sustainable energy future — putting a price on carbon and pollution, accelerating cleantech innovation, fostering a more efficient consumption model for the emerging middle class in China, India and the developing world?

Perhaps I will have to move on the Amory Lovins’ latest book, Reinventing Fire, for more of the solutions I am looking for… and models for the types of companies SJF Ventures can invest in and the SJF Institute and Investors’ Circle can help accelerate in 2012 and beyond. — David Kirkpatrick

On November 1, SJF Ventures’ portfolio company CleanScapes, a Seattle-based recycling and waste collection firm, closed a merger transaction with another leading West Coast firm, Recology, the largest U.S. employee-owned company in the waste and recycling industry. The deal was a strong win-win-win for customers, employees, shareholders and the environment.  The two companies share a similar employee engagement culture and a pursuit of ‘waste zero’ communities.   The merger further proves that strong performing companies that do well by doing good, as CleanScapes demonstrated, can attract aligned acquirers that share a vision of building companies that create impacts beyond the bottom line.

SJF first read about the company in an article in Sustainable Industries about three years ago and was struck by the young company’s accomplishment of winning a $35 million annual contract with the City of Seattle.    Shortly thereafter, SJF’s Cody Nystrom and Dave Kirkpatrick met with the company and discovered a mutual alignment with management given SJF’s deep recycling and waste expertise and  positive impact mission.   SJF was the only venture capital fund invited to participate in an $11.8MM equity round and invested $1.92 million.

CleanScapes performed exceptionally well on the City of Seattle and Shoreline contract, which contributed to their success in winning two additional municipal contracts in the greater Seattle region.  The recent win with the City of Issaquah proves that a company offering strong customer service, a great place to work and a sustainability focus does not have to mean higher costs.  In fact, a recent article in the Issaquah Press indicates “Consumers could experience a rate decrease as the city transitions from the current hauler, Waste Management, to CleanScapes in early summer.”

Chris Martin started CleanScapes in 1997 in Seattle’s Pioneer Square neighborhood.  At that time the Company offered exterior cleaning services to businesses and properties seeking to present a cleaner, more orderly appearance to prospective customers, employees, and other stakeholders.  In 2002, frustrated by the messes, odors, and collection noise created by the dumpsters clogging Pioneer Square’s alleys, the CleanScapes team introduced an innovative pay-as-you-throw model for commercial garbage and recycling collection.   Called “Dumpster Free Alley Service”, this model replaced dumpsters with color coded bags which economically incentivized customers to reduce waste or divert trash to lower cost recycling streams.   Building on this initial model, the company has continued to implement new forms of environmental, social  and workforce innovation in waste management including: neighborhood waste reduction competitions, waste audits, CNG fleets, two-man driver crews and  sharing of key performance metrics  with employees and communities .  In short, CleanScapes has certainly created a unique platform in a space that has historically lacked innovation.

When SJF first approached CleanScapes in late 2008, they were doing around $12 million in revenue and about to embark on a significant growth plan.   The company only raised one round of capital and grew to over $47 million in sales by 2010 demonstrating a clear fit with SJF’s capital efficient, growth stage investment theme.   Another theme that aligned well with SJF’s expertise and interest was business model innovation in recycling and waste verticals.   SJF Ventures has developed a niche vertical within cleantech in recycling, asset recovery and reuse companies.    The SJF portfolio includes several successful companies in the segment outside of CleanScapes, including Salvage Direct (auto recovery), eRecyclingCorps (cell phone recovery and reuse), Optoro (returned retail goods recovery), and Living Earth (organics composting).    These firms, and many others like them, are using business model innovations to capture significant value from used goods that would otherwise be sent to landfills, generating incremental additional jobs, wealth, resource conservation and carbon reduction for the U.S. economy.

SJF Ventures is very pleased that Recology recognized CleanScapes’ unique value offering a strong return for investors and company shareholders.   CleanScapes employees will now have the opportunity to participate in the value of this new partnership through the Recology ESOP model, which we believe will motivate employees to help make the next chapter of CleanScapes as successful as the last.

Likely we will see more failures in upstream U.S. solar technology companies in the coming year, given the relentless price declines being driven by the scale up of Chinese PV module manufacturers, fueled by national and regional government subsidies.  In 2006, SJF conducted a webinar on the merits of investing in downstream solar in the U.S. (installation, development, finance) in comparison to upstream manufacturing which must compete globally.  We reprised this analysis in March 2010 with a discussion of the two models of cleantech VC investing, the ‘today markets’ approach of SJF Ventures as compared to the ‘tomorrow markets’ approach of much larger cleantech funds working on breakthrough technologies.  Later in 2010, SJF Ventures led a Series A financing in Community Energy to carry forward that theme in the solar markets with a company that innovatively combined a downstream utility scale solar project developer with a proven wind developer and REC marketing firm scaling up its solar development business.

The global trends for companies with cleantech innovations are very strong – resource scarcity; climate change; energy volatility; population growth; aging infrastructure; and popular, corporate and governmental support.   There will certainly be cleantech technology winners for US investors.   Witness, for example, the recent spate of IPOs in early 2011 of U.S. biofuel technology companies: KiOR, Codexis, Solazyme, and Gevo.  Just as in the early days of internet investing there were some spectacular failures, so too will we see such failures in cleantech investing, particularly in segments which are competing against Asian industrial policy mandates like solar panel manufacturing.  That said, the opportunities to apply U.S. wireless, internet, biotech, and other innovations to the energy and materials intensive sectors is huge.

One segment where SJF is finding multiple cleantech innovation opportunities is in recycling, asset recovery and reuse.  SJF has several successful companies in the segment, including Salvage Direct (auto recovery), eRecyclingCorps (cell phone recovery and reuse), CleanScapes (municipal recycling, organics and waste collections), Optoro (returned retail goods recovery), and Living Earth (organics composting).  These firms and many others like them are using business model innovations to capture significant value from used goods that previous were wasted in landfills, generating incremental additional jobs, wealth, resource conservation and carbon reduction for the U.S. economy.

These companies are good examples of SJF’s ‘capital efficient expansion’ strategy of cleantech investing, characterized by:

• Significant commercial revenues
• Business model innovation that are execution plays
• Selling to existing markets
• Incremental change
• Capital efficient with raises <$15MM
• Venture returns through strategic sales
• Includes broader definition of sustainability beyond energy generation

This capital efficient, business model innovation approach to building high quality companies across the U.S. is sometimes lost in the media focus on the big technology bets by large cleantech funds typical in Silicon Valley, including:

• Frequently pre-revenue
• Big technology AND execution plays
• Assume new or emerging markets
• Transformative change
• Capital intensive with raises >$50MM
• Require exits via IPOs
• Energy focused

We will need both approaches for the cleantech transformation needed in large segments of our economy – energy, infrastructure, food, transportation, buildings, and materials.  However, the latter investing approach will sometimes result in spectacular failures such as Solyndra as well as some spectacular successes, such as First Solar.  It is important that the success of capital efficient cleantech investing across a broad array of industry verticals is not lost in the conversation.  – David Kirkpatrick

If your company serves the fields of energy & efficiency, recycling & waste, sustainable agriculture, water management, green building, or environmental services and other related cleantech fields and you are based in Appalachia or serving Appalachian markets, we encourage you to apply. Entrepreneurs selected to participate will have the chance to work with a select network of cleantech leaders and accelerate the growth of their companies by utilizing new approaches and applying best practices.

Participating mentors can be found at www.sjfinstitute.org/node/422. Join the SJF Cleantech Mentorship program network’s nineteen accomplished mentors by submitting your application now.

Apply now and accelerate you company’s success!

Thank you to our 2011 Sponsors of the SJF Cleantech Mentorship Program NYC Metro Region!

Gold Sponsors

Silver Sponsor

Bronze Sponsors

Entrepreneurs will join a select network of cleantech leaders and accelerate the growth of their company by learning from experienced mentors and subject matter experts.  Accepted 2011 Mentors are comprised of cleantech corporate leaders, venture capitalists, business development consultants and seasoned CEO’s which include: Manoj Bhatia, Director of Smart Grid Partner Alliances for GE;  Matthew Nordan,  VP of Venrock;  Govi Rao, CEO of Noveda Technologies and Dan Hoversten, Managing Partner of Hoversten Capital Partners.  Also see the complete list of mentors from the 2010 NYC Cleantech Mentorship program.

The program is designed to engage entrepreneurs and mentors in an online community that provides resources and support through virtual interactions, conferences calls and webinars.  Entrepreneurs will receive specific business feedback, learn about capital raising and build connections from a community of mentors located throughout the East Coast.   The deadline for application to the 2011 Cleantech Mentorship Program – Appalachia is September 12^th.

For more information about the Cleantech Mentorship Program and the SJF Institute, please visit www.sjfinstitue.org or email mentorship@sjfinstitute.org.  

Feedback from 2010 Entrepreneur Fellows:

“The program was very valuable. The opportunity to share experiences and solutions with other early stage CEOs and to learn from the mentors was incredibly valuable to our company as we started to grow.” Benjamin S. Parvey II, Blue Sky Power

 ”The network the program offered, both with the mentors and the other entrepreneurs was the most helpful aspect of the program. I believe that now that relationships have been established, there are opportunities to work together and stay in touch to share advice.” Kelly Sickles, Noveda Technologies

Progress of 2010 Cleantech Mentorship Program Entrepreneur Fellows:

• Noveda won a PSE&G award for solar monitoring and was recognized as New Jersey’s enviro-energy company of the year
• BlackGold Biofuels began producing biodiesel at its San Francisco waste water treatment plant, and was named a finalist in ImagineH2O’s Water Energy Competition, and won second place in Global Water Intelligence’s investment competition
• Pace Controls announced a large scale rollout for a major retail chain serving over 3.5 mm square feet of store space
• ThinkEco announced an agreement with Con Edison to develop and deploy energy-management technology for window air conditioners
• Ener-G-Rotors won 1st place at New Energy Technologies’ Clean Tech Business Plan Competition during the TechConnectWorld’s 2010 Conference

RALEIGH – What is North Carolina’s clean energy economy – and what does it encompass?  What are our state’s clean energy resources, installed projects, business and job creation opportunities, and what regions of our state are leading the way?  The NC Sustainable Energy Association (NCSEA), a membership organization representing individuals, businesses, government and non-profits that promote renewable energy and energy efficiency, has compiled all of this valuable information and much more into the “first-ever” 2011 NC Clean Energy Data Book.  Previously, the information found in this new publication was scattered across numerous state agencies, found in over a thousand regulatory filings at the NC Utilities Commission, on various websites, or not catalogued online at all.

Click here to download the 2011 NC Clean Energy Data Book, access hi-res maps found in the publication, view a sampling of photos of renewable energy and energy efficiency projects from across our state, listen to an archived webinar with the publication’s authors and media, and learn more about upcoming events across the state when NCSEA will discuss the regional findings.  NCSEA’s staff can also connect reporters with local companies in their media market for interviews or provide more local (county) information  included in the regional analysis. Email your questions to Julie Robinson, NCSEA’s Director of Communications & Government Affairs, at julie@energync.org.