technology entrepreneur Martin
Roscheisen was looking for the next big thing in 2001, the Internet
of his plans. Instead, he looked to the field of solar photovoltaics
specifically at work being done by a small, government-funded research
named Unisun Corp. Roscheisen recruited one of Unisun's main
researchers, and in
2002, he and his newly incorporated five-person company, Nanosolar,
funding in California's Silicon Valley. The pitch: thin-film solar cells
could be produced for less, more efficiently, and on a significantly
scale than standard solar paneling.
After receiving seed funding from
Brin and Larry Page, Roscheisen shopped the idea around to the
community, but was met with skepticism. "They told us that no venture
capitalists had ever invested in this—that this is something GE (GE) should be doing and
should speak with them," says Roscheisen.
Four years later, with
than $50 million in funding from a variety of VCs, and a fast-growing
50, Roscheisen believes Nanosolar is onto the next big thing. His
ambitious slogan is "A Solar Panel on Every Building," is currently
largest thin-film solar-panel factory in the world in California's Bay
MORE THAN SOLAR.
Roscheisen is not
alone in his belief in solar. Last year, three of the five biggest IPOs
solar photovoltaics. The industry is projected to grow from an $11.2
business in 2005 to a $51.1 billion business by 2015, according to the
Clean Energy Trends Report by Clean Edge, a clean tech-focused research
consulting group. VCs put more than $150 million into U.S.-based
Nanosolar in 2005—double the amount of investment from 2004, according
The mood among investors, particularly within the venture
community, has undergone a sea change in the past couple of years.
media attention surrounding global warming and hybrid vehicles has
and green front and center because of its prodigious growth potential
BusinessWeek.com, 5/8/06, "Ethanol
Cars You Can Buy Now").
Clean Edge co-founder and principal
Pernick says other green technologies aren't far behind solar. "We're
see a lot more in biofuels—ethanol and biodiesel—and also advanced
batteries, as well as systems integration and packaging of these types
technologies," he says.
MORE THAN ENERGY.
Large-scale venture backing for clean tech is a relatively recent
1999, clean energy technology made up less than 1% of the total venture
In 2005, it was at 4.2%, or $917 million out of $22 billion—a more than
increase from the previous year, according to the Clean Edge report. All
largest venture capital firms have gotten into the act, joining a group
long-established specialist firms that had been around since the early
But for apt entrepreneurs, green growth areas aren't
energy technology. Sales of organic foods are expected to grow 11%
the next four years, according to the Organic Trade Association's 2006
Manufacturer Survey. And the green building industry will grow to $38
five times what it is today, by 2010, according to the National
Home Builders (see BusinessWeek.com, Summer 2006, "Do
Need To Be Green?").
So, how can entrepreneurs score the kind
financial backing that Roscheisen's Nanosolar received? BusinessWeek.com
to fund managers at three major venture capital firms, and executives at
angel investor networks that fund small or early-stage companies to find
which green technologies they see as entrepreneurial hotspots now, as
what are the green growth industries of the future.
(MDV), which currently manages a $400 million fund with interests in
from software and systems companies to clean tech and life sciences, is
the large VC firms that funded Nanosolar. MDV has made six investments
past several years, three of which they've announced publicly:
Power Systems, and Energy Innovations. The other three remain under
"SOLAR FARMS." Erik
general partner at the firm, manages the clean tech area for the
says despite the flurry of solar-related activity, there's huge
left in it, since the problem of supply—which cannot keep pace with
demand—hasn't yet been convincingly solved. More technology startups
Nanosolar's are in the works, but Straser says there's still a lot of
be made in "solar integration," which includes the delivery,
storage of energy produced by these systems.
role in all types of solar development, says Straser. Besides improving
installation technology, "another business angle might be to buy lots of
installers and create a single large installer that could get better
pricing and have other efficiencies of scale," he says, since
technology is supposed to become ubiquitous. "There's going to be solar
some point," he predicts. "Instead of growing wheat, the new farmers
Draper Fisher Jurvetson (DFJ), another large, mainstream
capital firm, is dedicated to the clean technology industry. DFJ has
actively investing for about five years and has done approximately 12
"We're probably the most active of the traditional venture funds," says
Atluru, DFJ's managing director.
BONANZA. What kind of deals is DFJ looking to do in the
I was an entrepreneur, I'd jump all over the advanced fuel industry,"
Atluru. He says techniques of cellulosic ethanol production, which uses
disposable materials rather than just corn, are being perfected in
labs. Adds Atluru, "Advanced fuels are where solar was three or four
He sees huge growth potential and IPOs in the offing.
Atluru's claims. The market for biofuels hit $15.7 billion globally in
more than 15% from the previous year and is predicted to grow to $52.5
by 2015, according to the Clean Edge 2006 report. Ethanol is a
sector, with a number of pending IPOs (see BusinessWeek.com, 6/12/06, "Should
You Bet on Ethanol?"). Alternatives to corn-based ethanol, still
underdeveloped in the U.S., make up a huge potential market, says
Aside from the large venture firms like DFJ and MDV,
there is a
group of smaller, more focused funds that are more likely to fund
earlier-stage projects. The group includes Nth Power, Enertech Capital,
Chrysalix Energy Management, and has funded clean energy startups for
a decade. Nth Power, founded in 1993, focuses on energy and advanced
and manages more than $250 million and an active portfolio of more than a
Nth Power's main emphasis is energy production, its portfolio extends to
technologies and advanced materials. "We've funded companies in
sensor and sensor networks to batteries to advanced metering solutions,"
Rodrigo Prudencio, one of the principals of the firm. Prudencio says
critical for entrepreneurs interested in green energy technologies to
"Where are the pain points in the energy value chain as they affect oil,
and power companies, or how they affect consumers, and how can
develop a business around that opportunity?" Prudencio says there is
potential in developing smart metering systems that conserve energy in
and industrial environments.
But before pounding the pavement for
funding, Prudencio also cautions today's entrepreneurs that not all
opportunities are created equal, and thus, they don't all require
venture funding. "If I'm in a business where accessing $5 [million] or
million will give me access to a $3 billion market, then pursuing
capital makes sense. If I'm pursuing a $200 million market, it may make
bootstrap," says Prudencio.
Indeed, venture capital is far from
type of funding available to green startups. Angel investors who support
social ventures are a good source for early-stage green
Investor's Circle, a 160-member group made up of
minded investors, is one such example. Since 1992, Circle members have
more than $107 million in 171 deals, ranging from renewable energy and
food to health care, education, and media, says Woody Tasch, the CEO and
chairman of the organization. Members team up to gather injections that
from $250,000 to $500,000 for projects that might be considered too
or too small for traditional VC backing.
FOR INVESTORS. While many see trouble for smaller
the organic food space with Wal-Mart's (WMT) entrance (see
BusinessWeek.com, 3/29/06, "Wal-Mart's
Organic Offensive"), Tasch says he sees growth and opportunity. "I
say renewable energy or organics are the easiest way to make money—the
runs are still in finding the next Google. But you've got huge,
predictable movements in these sectors, so if you're trying to create
shareholder value and do some real interesting work, this is the place
says Tasch. He points to organic beef production as one example of a
growth business possibility.
Carol Sands, founder and one of the
directors of Angels' Forum, a private group of 25 investors who invest
corporate and family venture funds that in turn invest in green
couldn't agree more. Sands points to four common segments that make up
of green investing possibilities—energy, transportation, water, and
sectors. Of the four, Sands says the other sectors, which include energy
management, new sensor technology, agriculture, and chemicals, may be
ignored and thus ripest for entrepreneurial innovation. "It's going to
relatively easy to develop these technologies and isn't going to take a
time to adapt them—it offers a reasonable time frame with a reasonable
return," says Sands.
Sands says there needs to be more
between the entrepreneurial types and lab rats, since there's a glut of
ideas just waiting to be discovered. "There are a large number of
who are searching for the next business…to get involved in. My answer to
look to clean tech," says Sands.
FIELD. The funding history of Light Engineering, a company
supported by Angels' Forum, illustrates the boom in the industry. In
Matt Johnston, Light Engineering's CEO, was looking to fund his
company, which could challenge traditional industrial manufacturing by
cleaner, smaller motors and generators, both VCs and angels expressed
interest. Seven years later, Johnston says the industry is buzzing. "I
15-minute presentation [on clean energy] just to help out a friend, and I
approached by about 30 people. It was pretty overwhelming. This is
big topic again," says Johnston.
That level of interest signals
Johnston that it's almost time to sell Light Engineering, which he says
to do within two years. But just because some entrepreneurs are
cash out, that doesn't mean green is anywhere near mature. With more and
funding possibilities, whether through venture capital, angel investing,
bootstrapping, opportunities for green entrepreneurs are rich.
Gangemi is a reporter
BusinessWeek Online in New York
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