Thursday, May 3, 2007

Trinity Ventures on CleanTech

To gain some insight into how VCs are thinking about CleanTech, I spoke with Alex Osadzinski, Venture Partner at Trinity Ventures.

ExecutiveGreen: What notable changes have you seen in CleanTech?

Alex Osadzinski: What changed in CleanTech over the past two-three years is that the deals moved from research projects to challenges around development. We started to look closely at CleanTech a little over four years ago. The deals we looked at back then mostly had too much risk involved because they were predominately scientists and entrepreneurs studying new technologies. Research inherently means that some technology will work and some will not. The VC Model works much better at the development stage, where investing is still challenging, but we can evaluate the risks that go along with production, distribution, and sales/marketing.

EG: Why is now a good time to invest?

AO: We are seeing leading edge technology have success in the market. Entrepreneurs we meet today are looking for capital to take proven research to market. One such company is Practical Instruments a recent investment of ours.

The world energy budget will demand a heterogeneous mix of methods for power production. The likely outcome for renewable energy sources in the global Market is that solar will be important, wind will be important, and harnessing energy from waves may work. Coal, Oil, and Natural Gas will become more efficient and less polluting over time, and it is interesting to speculate what role nuclear will play.

EG: What criteria do you use for investments?

AO: “CleanTech” is a vague term. We focus most on the solar market, next on other energy sources (wind, wave, and nuclear) and some on water deals. Trinity’s lens is on companies that are based in the US. To evaluate a deal, we look at the team, product readiness, and the real economics of the company.

The team must have good technical people with credentials in the space and business people with a track record of success. Without the science, it is a risky business. In addition, the marketplace is so early and dynamic that for a company to be successful, the leaders must be able to adapt.

By nature all entrepreneurs are optimists. Since some of our investments are made before product is shipped, we must evaluate the risks of development. It is always difficult to verify that the product is really ready for mass distribution.

At this point in the evolution of the solar market, ascertaining the real economics of a company is tricky. To simplify, I try to determine the gross cost per watt to the end customer. No two solar companies use the same metrics for costs and pricing. Just to determine installed cost per watt, you must clearly see the cost of manufacturing, installation, inverters, maintenance on the system, etc. In addition, it is important to make sure you are comparing current pricing and future pricing. One should also take into account the effect of volume discounts, net energy costs across the entire value chain, performance degradation over time, etc.

EG: What resources have you found helpful?

AO: NRDC analysis is very thoughtful and is a good free resource. There are a number of newsletters and analyst groups that are building a name for themselves. Eric Wesoff produces a helpful newsletter. In addition, I found good information at

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