The challenges of venturers investing in clean technology over the past few years has led to a re-evaluation and evolution to what some are calling clean-tech 2.0, based on closer collaboration with fossil fuel and natural resource incumbents and energy efficiency.
But, as the head of corporate venturing at one of the largest firms in the oil and gas sector said: “Whether this is clean-tech is a moot point as there is not much clean about extracting and processing fossil fuels and minerals.”
And while clean-tech 2.0 has less allure than the visionaries in version 1.0 trying to create energy from renewable sources, such as solar, wind, wave or biofuel, it is potentially easier for investors to see how they can make money from a widget or process that makes an existing process more efficient and slightly less dirty.
According to data provider Bloomberg New Energy Finance, a record $260bn was invested in clean energy in 2011, yet commercialisation challenges persist for new companies due to uncertain public policy as well as basic economics as cheap natural gas is hurting alternatives energy sources.
Data provider Cleantech Group said energy efficiency led 2011 in investment sectors by total number of deals. Cleantech said that, overall, $9bn was invested by venture capital firms (VCs) in the clean-tech industry, up from $8bn in 2010.
In the longer term, however, oil major BP in its Energy Outlook 2030 report said only renewable and gas to increase net share on primary energy consumption, which was driving corporate venturing units to also maintain an interest in primary energy production methods through corporate venturing.
But the shift in strategy towards efficiencyis coming as the big companies that make up many of the largest customers for entrepreneurs are increasingly looking to them for new ideas and developing corporate venturing units to help facilitate their transfer of innovation to and from their parent businesses.
Large companies outside the energy production sector, such as industrial groups Siemens, ABB, General Electric and Alstom, are also active in clean-tech 2.0 investments. (See the forthcoming Global Corporate Venturing review of the industrial sector for more on this topic.)
The interest by large corporations in findingentrepreneurs is one of the most positive factors for the VCs that have poured billions into clean-tech.
As Harvard University professors Shikhar Ghosh and Ramana Nanda said in a paper, Venture Capital Investment in the Clean Energy Sector, in August 2010: “While there are several start-ups in clean energy that are well-suited to the traditional venture capital investment model, our analysis highlights a number of structural challenges related to VC investment in the sector that are particularly acute for start-ups involved in the produc-tion of clean energy.
“One of key bottlenecks threatening innovation in energy production is the inability of VCs to exit their investments at the appropriate time. This hurdle did exist in industries such as biotechnology and communications networking that faced a similar problem when they first emerged, but was ultimately overcome by changes in the innovation ecosystem.
“However, incumbents in the oil and power sector are different in two respects. First, they are producing a commodity and hence face little end-user pressure to adopt new technologies.
“Second, they do not tend to feel as threatened by potential competition from clean energy start-ups, given the market structure and regulatory environment in the energy sector.”
If these structural challenges are changing then the overall outlook will gradually improve, albeit too slowly for some investors’ dwindling funds and patience.
Andrew Garman, co-founder and managing partner of VC New Venture Partners, which has just closed its second clean-tech deal by investing in advanced materials company Brisbane Materials, agreed there were parallels in clean-tech with the relationship between information technology start-ups and the telephone utilities that developed in the 1990s.
He said: “The great age of IT investing in the 1990s and 2000s, at Bell Labs and other places, came as entrepreneurs started to be able to sell to the carriers and suppliers and where one win with a utility or manufacturer could make a start-up.
“Now we are seeing parallels between IT and clean-tech as the energy companies in oil and gas are co-investing with venture capital firms in energy efficient technologies.
“The past year has seen a focus on clean-tech 2.0, such as the use of novel materials sold to OEMs [original equipment manufacturers] to be capital efficient.
“The theories that dominated clean-tech 1.0, PV [photo-voltaic] solar cells, biofuels, and battery and electric vehicles, are capital-intensive, difficult to scale and with high barriers to entry or needing government subsidies. The jury is out on many of these investments.”
For other investments, the jury has already come in, with a litany of bankruptcies of solar companies, including:
- Solyndra,
- QCells (bought after bankruptcy by Hanwha in July),
- Sovello,
- Soltecture,
- Evergreen Solar,
- SpectraWatt,
- Odersun,
- Solibro,
- Global Solar Energy,
- Abound Solar
- Solon and
- Energy Conversion Devices (Uni-Solar).
Meanwhile, others have returned just a fraction of the money invested in them or seen down rounds, including Nanosolar’s $70m round in June at a reported $50m pre-money valuation against $2bn a few years before, and China-based Hanergy’s purchase last month of MiaSolé for $30m after the US-based solar panels maker had received more than $455m of venture funding from a consortium including steel maker ArcelorMittal and utility Nippon Koatsu Electric Company.
For biofuels, there have been some delays in progress as Synthetic Genomics, which alters DNA to produce artificial or modified life, has found it difficult to create biofuels from natural life after oil major Exxon Mobil’s $600m commitment to the company to work on the technology in 2009.
But there has been less turmoil in this subsector, with a number of flotationsof corporate venturing-backed biofuel companies in the past 18 months, including Solazyme and Gevo.
These companies are ranked first and second in early balloting for trade paper Biofuels Digest’s top 50 companies in the sub-sector. Corporate venturing units have also this year backed others in the Biofuels Digest shortlist, including Amyris (which raised $83m) and LanzaTech ($55m).
Deals
With the transition from clean-tech 1.0 to 2.0 there have been fewer deals in the sector.Global Corporate Venturing has tracked nearly 100 investment rounds in the 12 months to the end of September, compared with 150 in the previous year.
The aggregate value invested fell to $2.9bn from $3.9bn in the two year-periods, respectively.
There have been relatively few exits in the US in the past year, with a succession of planned flotations pulled or delayed in favour of further private fundraising.
The expected initial public offerings (IPOs) included:
- electricity grid efficiency company Silver Spring Networks, which raised $30m from technology companies EMC and Hitachi in December;
- energy efficiency materials maker Aspen Aerogels, which filed for an IPO in June last year but has yet to list;
- solar panel maker BrightSource, which pulled its IPO in May;
- Canada-based biofuel company Enerkem’s and microbe business Luca Technologies’ pulled IPOs in April;
- and biochemicals company Elevance, which raised $104m in its series E round from a consortium including crop trader Cargill in July and pulled its flotation in September.
The one expected “rock star” IPO, according to news provider Cleantech Group, on a US exchange that has listed this year, Enphase Energy, floatedat the bottom of its range and raised about half its initial plans.
However, solar panel installer SolarCity this month said it would raise $200m in its IPO after filing in April and having raised about $1.6bn in private funding.
All nine of the clean-tech IPOs in the second quarter came from China.
Some of the deals in the past year also reflect the challenging outlook for clean-tech 1.0 vintage deals, with China-based Wanxiang acquiring minority-to-majority stakes in GreatPoint Energy and A123 with promises of further investment to scale up their technologies in Asia as the economic outlook has worsened in western markets.
Meanwhile, elsewhere in Asia, New Zealand-based biofuel company LanzaTech has received backing from Malaysia-based Petronas’ Technology Ventures unit in one of the oil major’s first public deals.
But the oil and gas and natural resource companies have been increasingly active in clean-tech 2.0 deals, including ConocoPhilips-backed venture capital fund Energy Technology Ventures investing in Foro Energy, a US-based start-up commercialising high-powered lasers developed at the Colorado School of Mines for the oil, natural gas, geothermal and mining industries.
Cenovus Energy, a Toronto and New York-listed energy company, is investing $1.1m through its Environmental Opportunity Fund in Hifi Engineering, a Canada-based company that develops fibre optic technology to improve underground well monitoring.
As Judy Fairburn, executive vice-president of environment and strategic planning at Cenovus, said at the time the deal was announced in May: “This is a great example of how technology can help us continuously improve the way we produce energy.
“Leaks affect production, emit greenhouse gases and are expensive to repair. Hifis technology allows us to fix these leaks quickly and cost-effectively.”
Petronas has also been active in its technology transfer, with collaborative research efforts with two strategic partners, US-based Cameron International Corp and Australia’s Commonwealth Scientific and Industrial Research Organisation (Csiro), for breakthroughs in carbon dioxide capture and pipeline repairs, respectively. Petronas Technology Ventures is commercialising these technologies.
Firms
Petronas is just one of about 20 energy and resource companies to have formed or expanded a corporate venturing unit over the past year, according to research by Global Corporate Venturing.
While US-listed oil major Chevron is still regarded as the “gold standard” in the sector by its peers, and again awarded the title of most influentialcorporate venturing unit by Global Corporate Venturing (see table), others have set up sophisticated programmes or evolved and expanded their units.
Anglo-Dutch oil major Shell has added a Pathfinder team to develop internal innovations while relaunching its Shell Technology Ventures unit to fund start-ups.
Shell’s world-class Gamechanger programme to develop ideas into technologies it can use will act as a funnel for both additional teams (see profile in related content).
Shell has also effectively created the post of chief innovation officer to coordinate its corporate venturing programme with the other parts of its business development toolkit tapping into internal and external sources of innovation.
It also retains a stake in Kenda Capital, which manages the first Shell Technology Ventures fund after backing from secondaries asset management firm Coller Capital and one of its limited partners (investors), Abu Dhabi Investment Authority.
Ireland-based energy group NTR has struck a partnership with asset manager BlackRock Alternative Investors to set up a renewable power team. Jim Barry, chief executive of NTR, is also chief investment officer of BlackRock Alternative Investors, which joined a consortium investing $30m in biofuel company LS9.
France-based oil major Total has also used a commitment to a venture capital fund, Ecomobilité Ventures, to explore future trends in transport.
The other limited partners in the Ecomobilité fund, car maker PSA Peugot Citroën, mobile phone operator Orange and train operator SNCF, bring different perspectives as part of a strategic collaboration.
Similar innovation toolkits have been developed at oil majors ConocoPhilips, which is understood to have a corporate venturing team of 19 under Richard Garmain as well as a commitment to the Energy Technology Ventures fund managed by General Electric, and Saudi Aramco, which formally set up Saudi Aramco Energy Ventures in the summer.
Aramco is looking as much to how to incubate internal innovation as part of a regional innovation policy as how to attract entrepreneurs to work with it by commiting to invest in Norway-based Energy Capital Management (ECM), spun out from Norwegian state-owned energy group Statoil, with a cornerstone amount for European deals so it can have a closer alignment of interest than in traditional venture capital relationships.
Aramco is looking for a similar partnership in the US, while Russia-based gas giant Gazprom has set up a $100m fund under its Leader subsidiary to invest in Silicon Valley, California.
ECM’s work with Aramco has come as Statoil moved to reintegrate its corporate venturing unit as Statoil Technology Invest (STI).
STI said it was investing Nkr150m ($26m) this year in young companies with technology to improve the effectiveness of Statoil’s oil and gas or renewables operations.
STI, which has invested Nkr800m in the past five years, forms part of Statoil’s technology commercialisation unit, which also runs Statoil’s Loop programme that works with suppliers to fund new product developments.
The majority of the new and expanded corporate venturing units in the sector have placed strategic aims as the primary driver, such as findig clean-tech 2.0 energy efficiency to make their fossil fuel exploration, extraction and processing methods more effective as well as acting as eyes and ears for renewable fuels that might be disruptive in the longer-term.
South Africa-based energy and chemicals group Sasol has backed UK-based battery company Oxis Energy and is considering whether and how to formalise a corporate venturing approach (see case study in related content).
Spain-based Repsol is supporting the early stage through its Foundation Entrepreneurs Fund, which followed the launch in late 2011 of Repsol New Energy Ventures to take minority stakes in an expected 20 deals initially, including a 20% stake in biofuel company Alga Energy and linking with EDP Inovção to invest in Windplus, a Portuguese affiliate of Principle Power making the foundations for deep-water floating wind turbines.
Fundación Repsol and Spain’s ESADE Business Angels Network, the school’s alumni private investor network, have signed an agreement to cooperate on the Entrepreneurs Fund in energy efficiency.
Other corporate venturing units looking at early-stage deals include Manti Resources, a US-based exploration and diversified services business that helped found incubator MalibuIQ alongside oil exploration wildcatter Charlie Winn, David and Frank Hanna via their family office Bravo Ventures, Google chairman Eric Schmidt’s TomorrowVentures, Paul Candies and Phillip Plant, both partners in Pioneer MPW, and car maker General Motors.
In January, MalibuIQ teamed up with US-based HRL, formerly Hughes Research Laboratories, which performs research and development for its members, including aircraft maker Boeing, General Motors and government agencies.
UK-listed oil major BP has changed its venturing unit’s reporting line to the chief technology officeras a way of bringing its team, traditionally focused on alternative ener-gies, back into a more mainstream strategy.
BP’s Castrol division has also set up the InnoVentures corporate venturing unit to explore the lubricants sector and develop early-stage initiatives.
People
BP’s move in reporting lines came as Justin Adams, ex-head of emerging business and ventures at BP, left to explore how collaborative firms can work together on a fund model for sustainable land development (see his keynote presentation to the Global Corporate Venturing Symposium in May).
Other departures from the sector include Kenneth Davies, who left Constellation Energy in June to join Altenex as head of origination.
At local peer Shell’s new Pathfinderand Shell Technology Ventures units, Geert van de Wouw has moved internally to manage the Kenda relationship and external ventures while Rachel Nutter rejoined the oil major in July from clean-tech investment group Carbon Trust to manage the Pathfinder project.
Chevron has also created new roles to help transfer its technology to a venture, with Shakir Shamshy and Dane Zehrung joining the US oil major in November.
Other notable moves include Statoil hiring local energy group Norsk Hydro’s Richard Erskine to be head of Statoil Technology Invest, Juan Benitez and Mark Blackwell joining Cenovus, while Manti Ventures hired Brad Corona, formerly an investment banker at Jefferies, in April.
New units at Petronas, among others, has also required some senior hires, with Ahmad Zaki Mohamad Idris joining Petronas Technology Ventures in March, and Jon Nieman and Fahad Khusheim joining Bruce Niven and Majid Mufti at Aramco Energy Ventures.
The close relationship between energy groups and venture capital firmsthey have committed to, has helped a transfer of knowledge back to oil majors, including Christophe Verny’s return to France-based Total’s Energy Ventures team after a secondment at Chrysalix.