Cleantech Funding Meeting Notes

These are my raw notes from the CleanTX funding forum meeting: Other People’s Money: The New Funding Landscape.

Summary:

  • longer time to payback than Web 2.0, IT companies
  • VC world is suffering through..ahem…”creative destruction.”
  • find customers
  • be flexible

Frankly, sounds like typical funding advice except the relience on science and atoms.

Michael Breen

CFO, Extreme Power

Extreme power creates utility level storage that sits between wind farms and the grid. Breen shared their funding journey.

Extreme Power Milestones
2004 Seed Investors
2006 Emerging Technology Fund
2006 National Science Foundation (South Pole)
2007 SAIL VC
2009 DOE Loan Guarantee Application and Award $150 mil
2009 DOE Smart Grid Grants
2009 DOE loan guarantee manufactinrg app $500 mil
20009 State of Michigan battery Incentive Grant $100 mil
2009 Oakland County, MI Recovery Bond $100 mil
2009 System Live in Maui
2010 Large Scale System Orders

“The cost of asking for grant money is much lower than the brain damage suffered by asking for money in Menlo Park.”

“You can be defeated by your own realism, if you let it come to the surface.”

What Breen is saying is that applying for grants gives you a great story to tell. If you do it right, you can leverage your applying for grants when having discussions for other forms of funding.

“The cost of asking for grant money is much lower than the brain damage suffered by asking for money in Menlo Park.”

Steve Smaha

Angel Investor, Central Texas

1st cleantech company he invested in in 1999.  Waste water.  Science worked, technology didn’t scale.

Invested in 7 companies.  5 are cleantech.

Central Texas angel $50,000 – $100,000 investments are average.  The days of $250,000 investements ended in 2000, 2001.  Few Central Texas angels invest in Cleantech. They don’t understand it.  It doesn’t have the 18-24 month return that IT had in the past.

Wants to invest in companies that make money and also make the world a better place.

Not looking for increment change because you have to beat someone who’s already in the market.

Looks for:

  • honest
  • coachable
  • curious in how things work
  • products over services

Cleantech Startups and Angels:

  • Think they need more capital and time to get to revenue than tech angels undersand
  • Often have highly dilutive funding needs and/or project finance funding
  • Need a global sales model from day #1

Wants to see a company who’s thought about how they’re going to t sell to Europe or Asia.  If you don’t have any story to tell about that, there’s a problem.  Don’t think like Californai startup companies because they’re really plugged into california funding opportunities that don’t exist in other states.

Texas Emerging Technology Fund: it’s convertible debt.  It takes 9 months get the money.

“There’s no such thing as free money.”

“Generally, investors look at SBIR for science fair projects.”

“You need to think about how you’re going to sell outside of the US.”

If you get a small amount of money and meet your milestones and do what you say you’re going to do,  you’re next chunk of money will be cheaper.

Victor Hwang

Managing Director, T2 Venture Capital
Nuclear VC environment.

On the plus side:

  • Competitors are dying
  • Survivors can live to fight another day.  And Win.
  • Today’s winners will be in a great position because in three years, there will be fewer of them.

Federal Technology Funding Guide. The best guide for funding for people who don’t know funding. www.larta.org

Produced by the Kaufman Foundation.

VC’s exist because money wants to be put to work.

In the ’70′s, if you were a fiduciary for a billion dollar fund, you funded in safe investments.  In the 1980′s, the rules were changed that allowed the fiduciaries to invest in more risky ventures.  About 1% of the big money out there gets farmed out to Venture Capital.

Your startup money is competing for the same kind of money people are using to invest in stocks, bonds, etc.  Equities have returned an average of 10% to 11% a year for the past 100 years.  VC’s are looking for 20%/year, 30%, returns because the risk is so large.

Prediction:  You’ll see the disappearance of half the VC’s.

Local venture ecosystems can no longer compete. VC’s need to be global. “It can’t just be a good deal for Central Texas, or Silicon Valley. It has to be the best deal in the world.”

“Innovation is everywhere.  Capital can be found outside the US.”

How do you find money?  “It’s all sales.  It’s all personal marketing.  What a lot of entrepreneurs don’t realize is that they need to be able to sell 1 on 1 across the table.”  Steve Smaha, “If you can’t do that, you need to find a business partner that is as fired up about something as you are.”

“Expect to be highly adaptive.  The environment is constantly changing.  You have to be open to change.  Building these companies is excrutiating.”

Q&A

Last question:  What about bootstrappers?

A: Steve Smaha: They’re mainly Web 2.0, IT companies.  Rarely battery, etc.  Cleantech has higher capital requirements.  If you can find a boot strapper that access to customers, please introduce them to me.  I’d like to get to know them.