No-one here has had a close look at this particular product, so we can’t add any insight beyond what’s been reported. What we have seen over the past year though, are all kinds of innovations aimed at the portable power market. There’s huge demand, yet with their limited lifespan and toxic ingredients, existing batteries are not the optimum solution. Many innovators are trying to address this issue, in a variety of ways.

Recently, for example, we’ve examined three companies looking to use various solar power solutions to provide more efficient portable power. And, without going into forbidden detail, not all of them involved plain old conversion of solar energy to electricity via a solar panel. Unencumbered by reliance on Silicon, and overcoming the low energy conversion efficiency levels associated with that approach, these firms have a strong proposition.

Portable power is a multibillion-dollar market in the US alone, and growing at over 5% annually driven by proliferation of pocket electronic devices. Lithium-ion batteries dominate the market at present, but their popularity is projected to reduce as new technology presents renewable alternatives.

Perhaps the most promising alternative at present for a portable, efficient power source is the micro fuel cell. Very rapid innovation is occurring in this area and performance equivalence with Lithium batteries is drawing near as many companies compete to develop smaller, longer lasting components. At present, the cutting-edge micro fuel cell systems have dimensions of a few centimetres with power capabilities comparable to traditional batteries. A recent prototype from Sony has dimensions of 5cm x 3cm and can deliver 1.1Wh from 1cc of methanol, compared to a standard lithium-ion AA battery which stores 3.1Wh.

The point is though, that with the emergence of “wireless power transmission technologies” like the Witricity product, all of these competing concepts will suddenly find themselves targeting a smaller (albeit still very large) market: portable power applications where a mains power source does not exist in close proximity. With wireless power transmission over short distances, portable power sources won’t be required for items like television remote controls. The development in Oxford has crucial implications for home-based battery-reliant systems, and therefore for innovative companies developing portable power alternatives.

The article quotes some enticing numbers, with Marc van den Berg of VantagePoint Venture Partners estimating that the LED market will grow from its 2008 size of $5 billion to reach around ten times that by 2020.

LEDs have actually been around for almost a century, and they’ve been mentioned in the same breath as mass market consumer lighting applications for a number of years, but the feeling within the industry is that we’re just now overcoming critical roadblocks that have prevented LEDs from replacing traditional incandescent light bulbs. The greatest opportunity for investors lies in identifying the companies that have innovative, effective and defensible solutions to the spectral issues, efficiency limitations and high costs that have delayed the long-anticipated growth spurt.

From a technical due diligence perspective, there’s lots to consider before investing in this area. Not all LEDs are created equal. In fact, there’s much to differentiate them, largely centred around material considerations. The long lifetimes often boasted about are achieved at the higher end of the market, but lower quality LEDs can fade much earlier and fall a long way short of the expected lifetime standards.

What’s more, it’s not always straight forward to compare propositions. The relatively immature market means that global standards and regulations to govern performance are not yet fully evolved. Nor is the terminology consistent, so it can be misleading for the untrained eye as different manufacturers refer to and quantify different aspects of device performance in different ways.

It’s also important to be aware of the speed with which the field is evolving at the moment. New breakthroughs are bringing better performance to the table all the time, so the LED investor needs to look beyond what the proposition is capable of today to what it will achieve tomorrow. Of course, that’s true for any cutting edge high-tech investment, but it’s particularly pertinent in this sector.  That means the technical due diligence needs to cover engineering personnel, research facilities and product development roadmaps to ensure that the proposition company will remain ahead of the curve lest they be very quickly overtaken.

There’s a big opportunity here for those who choose wisely though. And we haven’t even mentioned organic LEDs. But that’s a whole different blog post…

Picture Credit: Flickr.com user oskay

The part of the announcement that caught our eye related to how they’re planning to do the technical due diligence on the investment opportunities that they identify:

“The company will look to its employees to help evaluate both specific start-ups and investment areas in general”

From the outside, this sounds like a risky strategy; in our experience, using internal expertise for technical due diligence is often a mistake. Pulling an engineer from his or her day job to consult on an investment opportunity has a lot of potential to cause problems.

First of all there’s the issue of politics. No one likes to see their employers investing in an external company that might pose a threat to their own work, or standing in the organisation. Once those thoughts enter the head of the assessor an impartial evaluation is impossible.

Secondly, it’s often difficult to find an exact skill match from within the existing workforce. The business development team, in a rush to get the deal done, ends up approaching engineers with an imperfect suitability for the job. Of course, that engineer, unwilling to look incompetent in front of the boss and enticed by the prospect of involvement in an exciting project, might not make these shortcomings known, and the venture team ends up with an inappropriate technical advisor.

Yet another concern was pointed out to me recently by an entrepreneur who had himself been the subject of technical due diligence performed by his investor’s own in-house technical team.

“They look for the wrong things” was his blunt assessment. He explained that internal assessors, technically skilled but unused to investigative work, tend to become preoccupied with scientific minutiae that are irrelevant to the deal. Rather than protecting their employer’s interests by adopting a broad commercial focus, the “engineers instinct” takes over and they’re distracted by irrelevancies.

I mentioned all of this to a Microsoft employee recently, who responded that they do things very differently in Redmond. They too have a venture group (some 30 people strong) but due diligence is done by dedicated experts or external consultants, not engineers plucked from their “day job”.

On a roll with this topic, I put the same thing to a member of Intel’s venture team. Like Microsoft, he informs me, Intel has a dedicated in-house technical group who’s sole job it is to perform technical due diligence on investment prospects. He too agreed that drawing expertise from elsewhere in the organisation is a recipe for trouble.

These days, you might consider the young and dynamic Google to be more likely than the more mature giants like Microsoft or Intel to identify and invest in the next big thing, but on this evidence it sounds as though the old(er) guard might have the better approach.

Perhaps Cello’s investors had difficulty finding the right experts to assess the company (we’re right here chaps!), but surely that’s not a problem for the EPA?

Jurors in a federal court have ordered Cello Energy, a biofuel startup run by Alabama’s former ethics chairman, Jack Boykin, and backed by both Silicon Valley cleantech investors Khosla Ventures and pulp maker Parsons & Whittemore Enterprises, to pay more than $10.4 million in a fraud case.

Cello agreed to use discounted wood waste from [Parsons & Whittemore] as feedstock, but “a string of witnesses testified that samples of the fuel allegedly produced at Cello’s facility…were derived entirely from fossil and not renewable sources”

Apparently the investors were entirely mislead about Cello’s technology. The point that sticks out is that a “string of witnesses” could be found to verify the fraud. Of course, these experts should have been involved at the due diligence stage, not on the witness stand of a court case that will recover a fraction of the funding that Cello has received.

Not everyone sees the value in technical due diligence, and when we’re proselytising the benefits to clients we tend to emphasise the positive aspects, such as the potential for technology analysis to uncover unforeseen opportunities to profit in other ways from the product. But clearly due diligence is also about reducing risk, and this case brings that point home very powerfully.

If that session implied opportunity in the US water sector, the very next talk by David Henderson, Managing Director of XPV Capital Corporation, went a long way to confirming it. Billed as a discussion of “trends in water investments”, David’s talk was effectively a dissection of the “perfect storm” scenario for investors that he sees occurring in the water industry right now.

Insightfully comparing it to a previous hyper-growth example, the telecoms boom of the 1990s, he opened by explaining that the traditional view of water investments (that the industry is too heavily regulated, suppliers can’t charge enough for water, and long sales cycles strangle growth) are outdated. The telecoms industry, prior to its explosive growth, saw external factors affecting it that many “industry elders” were unaware of at the time, but that led to huge upheaval and a revolution in the sector. David sees a similar trend now in the water industry.

First of all, water consumption as an environmental  issue is entering the public consciousness unlike ever before. The US television show “Oprah” featured a whole segment on water recently, and David light-heartedly cited his own wife’s subsequent conversion into a “water conservation Nazi” as an indication of a “tipping point” in public opinion.

Secondly, the shift from a compliance-driven to an economics-driven model is creating a more viable landscape for profitable investment. David described the evolution from a 1990s landscape full of “mid-market” companies, to today’s environment more dominated by both large players and innovative startups, a structure favourable to venture capital investment, and one that he expects to be maintained and expanded in the coming decade. David says that this evolution is evidenced by his own company’s research: he and his colleagues have scoured the internet to track the career paths of the founders of previous mid-market companies, and found that many are now based in small, dynamic startups aiming to create the next big thing.

That led nicely to his next point – that a new generation of people are about to shape the industry. A generation of tech-savy engineers, ready to embrace technology to solve existing problems. Joined by the “second time innovators” mentioned above, and the entrepreneurs from other industries whom he has started to witness entering the sector, that trend implies big changes to come.

Finally, David highlighted a quiet but compelling phenomenon: the movement of new entrants into the market. IBM is entering the water industry to provide data analytics solutions. GE has a dominant presence. Newer initiatives such as The City of Scottsdale Water Campus and the Imagine H₂O prize indicate an increasing focus on innovation. There’s also a host of VC backed companies with the potential to disrupt. And renowned investors are joining them too. Vinod Khosla has a handful of water investments. Google is taking an interest. David is in little doubt that a quiet revolution is occurring.

I mention this by way of introduction to a couple of posts on the event that I attended this week: the Singapore International Water Week conference and exhibition.

Two of the most fascinating talks at the event were not in the conference itself, but at the North American Business Forum held in parallel with the exhibition, where John Batten, Chair of the American Water Works Association International Council, gave an overview of the industry, and was followed by David Henderson, Managing Partner of XPV Capital Corporation, who gave an excellent talk on trends in water investments.

There was a whole range of useful insight in both talks, so I’ll split the summary across two posts – starting off with John Batten’s fascinating overview of the US water market:

A lot of attention in water investment is being directed at emerging nations, but John Batten made a compelling case for the opportunities that sit in the already mature North American market. He listed the “Top Ten Trends” that are occurring in the sector, many of which proffer great opportunity for technology investors.

First of all, he cited a number of different factors related to population trends: a substantial cold-to-warm-climate migration that is re-distributing the population density, an aging populace consuming more pharmaceuticals that eventually find their way into the water supply, and increasing immigration coupled with healthy birth rates sustaining population growth.

Secondly, political factors: non-governmental organisations in the US exert substantial pressure to ensure that water suppliers meet stringent product quality standards, while strong political will exists to increase the “value of water” up to the cost of delivering it.

All of this presents new and unprecendented challenges for water suppliers that they are turning to technology to address, a point that John covered in detail. He spoke of the evolution from corrective to predictive maintenance that is driving demand for advanced technology – both software and hardware – that can save long term maintenance costs by anticipating failures before they happen. There is substantial opportunity for innovative companies with new technology to present a compelling “cost-efficiency” case to customers.

John covered a number of other factors, including touching relatively briefly on energy evolution and the governmental desire to reduce dependence on offshore energy sources, which he says has increased the linkage between energy generation and water consumption to an “all time high”. This is an interesting trend, and it would have been nice to hear a bit more detail on it, but unfortunately time constraints took us quickly onto another topic: the economic downturn.

John cited some negative effects of the recession (compliance endeavours being inadequately funded, capital projects delayed etc.), but also pointed out some positive trends such as the utility companies with capital reserves taking advantage of low building costs to create new facilities.

He cited the governmental economic stimulus package, and its impact on the industry in the form of US$6billion that has been allocated for water quality, wastewater and infrastructure projects. And that’s the tip of a very large iceberg when it comes to imminent governmental influence. John gave a number of examples of the legislative priorities that will divert money and political attention to the sector: the Water Quality Investment Act that will designate US$18.5billion for wastewater infrastructure, climate change legislation that will impact the renewable energy sector, reauthorisation of the Highway Bill that will impact storm water management, and the Water Infrastructure Financing Act that will allocate $39b for waste and drinking water over 5 years.

A fascinating overview of an opportunity-filled landscape, which the next speaker David Henderson, Managing Director of XVP Capital Corporation, enunciated perfectly. Stay tuned for our next post with more detail on that talk…

UPDATE: The second part of this post is now online.

This includes projects we’ve done for venture capital, private equity, large corporate and governmental investors. Obviously we can’t go into very much detail about the projects for confidentiality reasons but it’s interesting to take a look at the trends.

Perhaps it’s not a very accurate representation of where investment is being directed over all, but it at least gives an idea of where technical due diligence is being performed before investments are made.

First of all, let’s take a broad look at the areas of technology that our recent projects have covered. For our own administration purposes we divide our areas of focus into four (very broad) categories: Technology, Media and Telecommunications, Energy and Resources, Manufacturing, Emerging Technologies. In the last six months we’ve done work in all of those areas, as Graph 1 shows.

Graph 1: Recent Remarkable Innovation projects broken down by sector

The relatively few projects in Energy and Resources, and particularly in Clean Tech, is surprising, and something that we expect to see change as time goes on. We’ve got strong technical capabilities in those areas and have had a number of enquiries particularly about clean tech propositions, so the next bi-annual stats are likely to be more weighted in that direction.

The dominance of emerging technologies is not so surprising: earlier stage technologies obviously carry more uncertainty, so technical due diligence provides greater value in reducing investment risk. In fact, we’re sometimes mistaken for a firm that only deals with emerging technology, but actually technical due diligence is often required even when only established technology is involved. Graph 2 shows how our recent work has been divided between examining “new” technology (original inventions that haven’t been commercialised yet) and  “established” technology (things like IT systems or manufacturing equipment).

Graph 2: Recent Remarkable Innovation projects broken down by new or existing technology

So just under a third of our projects involved examining companies that have “new” technology. Graph 3 is the most interesting. It’s a break down of the types of technology that comprised the “new” products that we’ve looked at recently.

Graph 3: Recent due diligence projects involving new products, broken down by underlying technology. MEMS = Microelectromechanical Systems, Med Dev = Medical Device, Mach Vision = Machine Vision

The domination of MEMS is interesting. It’s a popular field right now, and is attracting a lot of interest from investors with a high risk appetite. It’s not surprising to see Medical Devices featuring strongly too given the impressive growth forecasts in that area, particularly with demand increasing in emerging geographical markets.

There’s lots of potential pitfalls with investing in all of these technologies, and indeed our due diligence projects uncovered many such issues. It’s great to see that investors are exploring these areas though. Good technical due diligence can guide you to the right opportunities.

Here’s another group worth talking to. Harder to access and perhaps not the ‘gold mine’ of information that the customers offer, but competitors often have some interesting insight to share too.

Obviously it’s not a good idea to phone up the target company’s greatest rival and alert them to the fact that you’re performing a due diligence, but a more subtle approach often bares fruit.

A competitor will likely have have a good deal of technical knowledge about your target company’s products, and particularly their shortcomings. Naturally these need to be taken with a large pinch of salt (”You think their products are inferior? Really?”) but sometimes it’s a quicker way to the truth.

The most important point is, just like with customer interviews, it has to be the technical expert on the due dilligence team who has these discussions. Understanding the technology you’re talking about is the only way to get the benefit of a competitor’s insight.

“Lee DeForest has said in many newspapers and over his signature that it would be possible to transmit the human voice across the Atlantic before many years. Based on these absurd and deliberately misleading statements, the misguided public … has been persuaded to purchase stock in his company …”
A U.S. District Attorney, prosecuting American inventor Lee DeForest for selling stock fraudulently through the mail for his Radio Telephone Company in 1913

The quote above is from this list of equally amusing failures to predict the success of new technology.

Aside from the slightly frightening confirmation that simply being too forward-thinking can land you in trouble with the law (Galileo had similar problems), the list also highlights another uncomfortable truth.

Some of the quotes come from leading experts. Thomas Edison, Albert Einstein, two Royal Society presidents…

If these luminaries have so spectacularly demonstrated their inability to accurately predict technological advancement, then what chance have the rest of us got?

And yes, let’s address the elephant in the room, why would you engage a technical due diligence consultant to help you decide whether the technology company you’re about to invest in is going to be a success?

Well, let’s firstly clear up that we’re not purely in the business of future gazing. Technical due diligence mostly consists of expert investigation to test the viability of a technology, and verify performance claims made by its creators.

When it comes to predicting functionality and commercial success, we should only make informed projections, qualified with a known degree of risk.

It might be argued that we’re actually in a stronger position today than many of the quoted experts. We can call on the knowledge of many specialists and access any relevant academic literature in an instant.

But part of technical due diligence is knowing the limitations of what you can be sure of and maintaining an awareness of the element of risk that remains.

No doubt leading experts will continue to make wild predictions that turn out to be false, but as technical due diligence practitioners it’s important to separate technical certainty from conjecture when communicating with clients.

Oh, and don’t be too concerned for before-his-time innovator Lee DeForest; he had a fair few wildly inaccurate predictions of his own:

“To place a man in a multi-stage rocket and project him into the controlling gravitational field of the moon where the passengers can make scientific observations, perhaps land alive, and then return to earth—all that constitutes a wild dream worthy of Jules Verne. I am bold enough to say that such a man-made voyage will never occur regardless of all future advances.” – Lee DeForest, 1926

“While theoretically and technically television may be feasible, commercially and financially it is an impossibility.” – Lee DeForest, 1926

“I do not foresee ’spaceships’ to the moon or Mars. Mortals must live and die on Earth or within its atmosphere!” – Lee DeForest, 1952