Clean-tech firms attract growing share of venture
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By Terence Chea, Associated Press
PALO ALTO, Calif. — Martin Roscheisen, CEO of
Nanosolar, holds up a plastic vial filled with dark, purple liquid — the
secret ingredient behind a new kind of technology startup that's
turning heads in Silicon Valley.
In a private laboratory here, Nanosolar scientists
are designing low-cost solar electricity cells that Roscheisen submits
will make solar power competitive with conventional energy sources.
The purple liquid is a nano-engineered material
that "self-assembles" into tiny solar cells that convert sunlight into
"We're at the threshold of making solar
electricity profitable," says Roscheisen, whose firm raised $6.5 million
last year from U.S. Venture Partners, Benchmark Capital and other
investors. "We're seeing a lot of interest. We're being contacted all
the time by investors."
Across the country, venture capitalists are
opening their wallets to upstarts that, like Nanosolar, develop "clean"
technologies in anticipation of a growing market for products that
generate revenue without harming the environment.
In 2003, investment in clean technology ventures
rose 8% to $1.2 billion while overall venture capital investment fell
14% to $18.2 billion, according to the Cleantech Investor Network. The
Howell, Mich.-based group defines clean technologies as technologies
that allow for more efficient use of natural resources and greatly
reduce ecological impact.
Venture capital firms are pouring money into
clean technologies related to water purification, agriculture,
transportation, manufacturing, recycling, air quality and alternative
energy such as solar, wind and hydrogen.
"We're getting a bigger and bigger piece of the
pie year after year," said Keith Raab, Cleantech's president and chief
executive. He expects more than 300 attendees at the Cleantech Venture
Forum in San Francisco April 28-30.
Among the startups that pulled in the most money
last year were Evergreen Solar, a Marlboro, Mass.-based developer solar
electricity systems that raised $29.5 million, and Powerspan, a New
Durham, N.H.-based maker of pollution-control technology for the energy
industry that secured $20 million.
Still, some venture capitalists remain wary about
investing in environmentally friendly companies after getting burned in
the 1980s, when solar and wind energy startups raked in venture
dollars, and in the 1990s, when hydrogen fuel cells were hot.
Nanosolar was the first green venture investment
for Menlo Park-based Benchmark Capital, but general partner Bill Gurley
said the decision was motivated more by its belief in the startup's
management team than the sector itself.
"There haven't been a lot of success stories in
the cleantech space," Gurley said. "There's no Microsoft, E-Bay or Cisco
that says this is a fertile ground for venture investment."
Others believe the latest funding boom is
different — that a variety of technological, political and economic
forces have converged to make clean technologies ripe for investment.
"The fundamental economics suggest there's a good
payout for a whole fleet of alternative, renewable technologies," said
Kyle Datta, managing director of the Rocky Mountain Institute, a
Snowmass, Colo.-based nonprofit that promotes eco-friendly capitalism.
The sector has gotten a boost from a new
California plan to invest $1.5 billion of the state's pension funds in
environmental technologies. State Treasurer Phil Angelides said the
"Green Wave" initiative is aimed at helping the state improve financial
returns, generate jobs and clean up the environment.
"I want to see California in the best position to
reap the benefits of this growing sector of the global economy,"
Angelides said in an interview.
The California Public Employees' Retirement
System, the nation's largest pension fund, voted in March to invest $200
million in clean technology startups, and agreed this month to pump
$500 million into environmentally responsible stocks and mutual funds.
"This is just the tip of the iceberg," said the
Cleantech Venture Network's Raab. "I think you'll see other pension
funds following suit."
The market for alternative energy is sure to grow
as global oil prices rise, fossil fuels become more scarce, states look
for more reliable energy supplies and the United States reduces its
dependence on foreign oil, investors say.
"There are other people at the table that are
changing the supply and demand curve on a global scale," said Erik
Straser, general partner at Mohr Davidow Ventures in Menlo Park. "The
Chinese and Indian governments are seeking a better way of life for
their citizens. To do that they need access to energy."
The market for clean technologies also is being
driven by increasingly stringent regulations on air, water and energy.
And as the Internet, telecommunications and computer sectors mature,
venture capital firms with plenty of money to spend are hunting for new
On top of that, many corporations are now keen to
promote "green" business practices, if only to show they're good
"If you can cut costs and reduce pollution, it's
attractive to your investors, employees and customers," said Bob
Epstein, co-founder of the nonprofit group Environmental Entrepreneurs.
It helps that the sector is attracting more
seasoned entrepreneurs such as Nanosolar co-founder Roscheisen, who
previously started the Internet firm eGroups and sold it to Yahoo for
$720 million in 2001.
Nevertheless, many venture capitalists urge
caution in investing in "clean tech", given that the sector has many
unproven technologies, a complex marketplace and a history of poor
"People sell so much on the promise and don't
spend enough time on the execution," said Benchmark's Gurley. "You set
yourself up for a bubble that can pop."
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