Monday, May 7, 2007

EnerTech Capital on CleanTech

To continue to gain some insight into how VCs are thinking about CleanTech, I spoke with Dean Sciorillo at EnerTech.

ExecutiveGreen: How has the investment landscape changed over the last few years?

Dean Sciorillo: While there have been a lot of changes I still find many investors wanting proof that the industry is not in a bubble and money can be made with a CleanTech business model.
EnerTech has been investing in the CleanTech space for over the last 10yrs. In the last 2 or 3 yrs there has been much more capital flowing into the sector. Our deal flow has more then doubled. The valuations have not changed too much, but the underlying value propositions have changed. For example, in the past a company selling a clean technology had to show a significant savings (15%-20%) to get a customer interested in their product. Now we are seeing customers buying products and services that only offer a 5-10% savings, but the product has environmental benefits that the customer can market for PR purposes.

EG: Why?

DC: There are two big market drivers:
The first is global warming. Environmental stewardship is becoming a part of many companies buying decisions. For instance, Wal-Mart has shown it is important to their corporate agenda to consider lowering their carbon footprint.
The second is energy costs. As everyone knows energy prices have increased dramatically over the past few years. Energy budgets are a bigger % of a company’s cost structure and saving a few percentages on an energy budget is more meaningful today than it was a few years ago.

EG: What is your view on the Smart Grid?

DS: The cleanest mega watt is the one never used. An EPRI report indicates the implementation of a smart grid could reduce power consumption by 5% - 10% and reduce CO2 output by up to 25%. This could have the biggest environment impact of any technology on the market.

“EnerTech Capital managing partner Tucker Twitmyer, whose firm invested in Comverge, said he expects other so-called grid management companies in his portfolio to make a run on the public markets. Those companies include Current Communications, Enerwise Global Technologies, and Intellon. (Comverge Shares Energized in IPO )“

EG: Will similar Smart Grid technology be adopted in the water industry?

DS: I am not as close to the water industry as I am to the smart grid area. Though, many water deals focus on the municipality market and those have long market adoption cycles, so we have not made an investment in a deal in that space. The water investment we made is Altela, whose initial market in the O&G (Oil and Gas) sector. The market adoption time frame is much quicker in this sector and more closely matches what we look for.

EG: What advice would you give a job seeker evaluating a company in CleanTech?

DS: The people are always number one. Be sure to join a team that has the expertise to execute its business plan. I have seen a few plans where I believe somebody read a WSJ article and immediately decided he/she was going to start up an ethanol company and really didn’t understand much else about it. I am not sure how many of these plans will be funded, but there could be some.
Market size and growth - how big is the market opportunity and what is the growth rate of the market? Niche markets can present interesting opportunities, but job seekers may find their options limited afterwards.
Look for sustainability. Some projects are only viable due to subsidies and therefore are subject to high variability. (For example most wind projects are developed only when tax credits are available Graph on page 29). Some job seekers may not be comfortable with that amount of uncertainty.

EG: What resources do you find helpful?

DS: Electric Power Research Insitiute (EPRI)

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