Friday, May 18, 2007

Conversation with Vincenzo La Ruffa at Susquehanna Growth Equity

To continue to gain insight into how VCs are thinking about CleanTech, I spoke with Vincenzo La Ruffa at Susquehanna Growth Equity (SGE)

Executive Green: What are your thoughts on CleanTech as an investment category?

Vincenzo La Ruffa: CleanTech as an investment category needs to mature further before we see a full ecosystem of successful companies with diverse business models. The capital flowing into companies is still greater than the number of liquidity events. Companies that have gone public now need to perform and continue to grow.

One change that is beginning to occur is the rate of corporate implementations of energy technology solutions (ETS).
In the traditional corporate model, the employee responsible for power management owns the buying decision for ETS. This person would face consequences if the power were to go off, but has no incentive to find incremental ways to save resources. Therefore they are focused on making sure the power stays on, rather than on looking for solutions like demand/response and real-time energy monitoring.

Companies like Wal-Mart and GE began using resources more efficiently and have measured success in both cost savings and positive PR. Subsequently, leading companies in other business sectors (e.g. IBM, Google, Yahoo!) are adopting similar initiatives and further developing the market for new solutions to measure, manage, and conserve resources.

EG: How do you analyze the role that policies (not subsidies) can play in your investment?

VL: If the root of the business is air quality standards, then it is probably safe to predict that emissions standards on cars may fluctuate, but will not go away. Business models that address broader air quality initiatives around power plants and industrial sources are more volatile if legislation has been approved but not yet implemented. Policy has the most radical effect on a business built on legislation that has not yet passed, such as a trading company for CO2 cap regulation

EG: What advice would you give someone looking into the CleanTech space?

VL: The team is always first. Look for serial winners more than just experts in the sector.

When you look at a company, determine that they can sell to customers across different industries, have a reasonable sales channel, and sell a solution that does not require a massive capital spend. Companies that sell exclusively to utilities often are challenged with an industry that does not embrace change and must endure long sales cycles and test cycles. Businesses that figure out how to package their solution and can sell them to consumers and/or a variety of other company sectors have a better chance of success.

EG: What are some of your current interests in CleanTech?

VL: Emissions credits and financing solutions for distributed generation or renewable projects are interesting.

Financial Services firms use large amounts of computing power to process, store, and transmit a rapidly increasing amount of data. Solutions to lower energy consumption of these systems
much more on people’s minds then they were 3 years ago.

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