CleanTech Market :
VC Opportunities for Taiwan
Hank Habicht
Managing Partner, SAIL Ventures
Taipei Forum
January 14, 2009
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Objectives for Today
1. Describe global and U.S. trends in Clean
Technology (“CleanTech”) development and
investment, including projections for 2009
2. Outline the role venture capital and public-private
partnerships play in bringing new technology to
market
3. Discuss opportunities for Taiwan and ideas for
accelerating investments and market growth for
Taiwan CleanTech firms and products
A key to success is teaming with the right partners
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Taiwan Can Help Change the World
Thesis: Clean Technology can change how we produce
and consume. Success depends on:
•
•
•
•
Entrepreneurs funded by VCs and public
Government support for new ideas/ventures
Customers willing to try new ideas
Strong partnerships (businesses & government)
Taiwan has excellent combination of innovation,
entrepreneurial business culture and partnerships to
succeed in Cleantech
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Current Perspective
• SAIL Venture Partners: CleanTech focus, based in
California and Washington, D.C; 5 Partners; 10
current portfolio companies (www.sailvc.com)
• GETF: developing clean energy and water projects
globally (www.getf.org)
• Commissioner, National Commission on Energy
Policy (www.energycommission.org)
• Steering Committee, Energy Future Coalition
(www.energyfuturecoalition.org), ACORE,
and 25x25
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SAIL Team Synergy
Thomas Cain
Hank Habicht
David Jones
Walter Schindler
Alan Sellers
Operations/
Engineering
CleanTech
Markets/Policy
Business & Financial
Models
Deal Structure/Exits
Management
Systems/People
 Founded and grew startup to $100M and 2,000
employees
 Serial Entrepreneur in IT
and Energy
 Led DAI, Frontstep,
Interact, Starco, and
Evans
 Led 2 NASDAQ
Turnarounds
 COO of EPA
 US Attorney General –
Energy & Environment
 Senior VP Safety-Kleen
 Head of M&A and Corp
Acct sales
 Principal in Environmental
Venture Fund (3x)
 25-Year Venture
Capitalist as Managing
Partner
 60 Investments
 Northwest Pipe
 Co-invested with 100
other VC’s
 Chairman NASBIC
 Founder ACORE
 4 Early-Stage Funds
 Chairman or Director of
15 Companies
 Advisor to Secretary of
Energy and NREL
 YPO Exec Ed @ MIT &
Harvard Business
School
 Princeton BA
 Chairman or Director of
12 Public/Private
Companies
5
 Virginia JD
 Dartmouth BA
 USC JD & MBA
 Managing Partner Gibson
Dunn and Crutcher
 Alternative Energy Expert
at GDC
 60 M&A / IPO’s
(Ultrasystems, PIMCO
and RemedyTemp)
 US Bank Advisory Board
 CEO Roundtable—UC
Irvine
 20 years strategic advisor
on value creation
 Partner Westar Capital
 Executive Pacific
Holding Company
 EVP Dole Foods
 VP Ultrasystems
 General Counsel Pacific
Holdings
 25-year Boards
 Wilmington Trust
Advisory Board
 Wharton MBA
 Harvard JD
 Columbia JD/CPA
 Yale BA, MA, PhD
 Yale BA
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Strategy and Execution
• Deploy networks of experts to find optimal
combination of technology, team and scalable
business model
• Deep understanding of domain trends: Identify
biggest problems whose solutions can be
profitable in a VC timeframe
• Sophisticated and documented process
• Engage all partners to deliver victories, add
value and build deep relationships with portfolio
companies
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What is CleanTech?
Clean
Technology
• Technology innovation in the more efficient use of energy, water, food
and other scarce and valuable global resources:
- Optimize use of natural resources
- Reduce ecological impact and
- Add economic value by lowering costs and improving profits
Large,
Growing,
Profitable
Markets
• CleanTech is the world’s fastest growing investment category
• The 3rd largest venture capital investment category:
over 14% market share in North America, 18% in Europe
• CleanTech markets are large multibillion dollar global markets
Enormous
Growth
Potential
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• “May be the largest wealth creation opportunity of the 21st century”
• Multiple waves of technological innovation
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The Market: Why 2009 is a Big Year
•
•
Impact of credit crisis and volatile energy prices
Competition for scarce energy and water
resources
Political transitioning: Obama’s Agenda
(proposed $150Billion to invest in cleantech)
Climate change has become a top priority
The power of emerging economies as buyers
and users of clean technology
•
•
•
Strong drivers of change in energy and water markets
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Many Ways to Finance Innovation
•
Entrepreneur Personal Funds
•
“Friends and Family”
•
Personal credit card & other borrowings •
•
Venture capital
•
Corporate direct investment
•
Venture leasing
•
Mezzanine Financing
•
Merger and Acquisition
•
Initial Public Offering
•
Secondary/Follow-on Public Offering
•
Private Placements – Debt & Equity
•
Buyout/Acquisition Financing
•
Corporate R&D
•
Corporate Debt
Angel investors
Source: “Green Technology and Venture Capital Investment” presentation, The National Venture Capital
Association, March 2008.
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Style
Venture Capital: New Clean/Environmental Technologies
Stage
Analysis of Investment Styles –
Risk and Return Profiles, Financing
Technology
Identification &
Business
Formation
Angel / A
B/C
Pilot
Plant
D / IPO
Demo
Plant
Fin.
Returns
Risks
High
•Technology Selection
•Business Formation
•Initial management
selection
•Execution Strategy
•40% + IRRs
•New “disruptive technologies, such as:
- Solar thin film, other non crystalline technologies
- 2nd generation biofuels, including cellulosic
ethanol
- Coal gasification; carbon capture & sequestration
- Battery technology (auto)
100% Equity
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First
Commercial
Scale Plant
Project
Finance
Project
Development
•Financial risks
•Performance
guarantees
•Site and permits
•Engineering & design
•Additional scale up:
•Construction cost
•O&M
•Performance
•Site selection
•Permitting
•Securing
equipment
•Contractors’ cost
estimates
•Organizational
structure and
management
•Financing
•25%-30% + IRRs
•Development promote:
-Repayment of costs at financial close
- Equity promote to developer
•Growth: wind, solar thermal, geothermal,
biofuels, waste-to-energy, hydro
70 -100% Equity
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Portfolio of
Assets
(Infrastructure)
Medium
•Technology scale up
risk from “bench scale”
to integrated
demonstration scale
•Engineering, design
•Management
Buyout/
Expansion/
PIPES
Clean Energy Infrastructure
Existing and New Technologies
Low to Medium
•Off-take agreements (i.e.
Power Purchase
Agreements or “PPA”s)
•Engineering,
Procurement and
Construction (“EPC”)
contracts
•Supply agreements &
logistics
•Project debt & equity
financing
•Hedging
•Valuations
•Growth
potential/
incremental
development
•Capital
structure
•12% - 20%
IRRs, depending
on cash flow
volatility – i.e.
low (landfill gas);
high (biofuels)
•25% + IRR
•Growth
•Equipment/services
•Generation/develop.
•$100bn total market
cap all clean energy
70 – 80% Debt
Varies
Source: Sustainable Development Investments presentation by Citi Alternative Investments
US Venture Capital Investment in Perspective
• US GDP (national income) $12.5 trillion
annually
• Hedge fund intake $1.5 trillion over last 3
years (estimated)
• Mutual fund intake $158 billion in 2006
• Buyout intake $103 billion in 2006
• Venture capital intake $28.6 billion in 2006
– Venture capital fundraising & investment Is 0.2%
of total GDP
Source: BLS website, Investment Company Institute, Thomson Financial, NVCA
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Global Insight Study
• In 2006, venture backed companies:
– Provided 10.4 million US jobs
– Had sales of $2.3 trillion
• Represents 17.6% of GDP
– Still dominated venture-created sectors
•
•
•
•
56% of biotech revenue
78% of computer and peripherals revenue
94% of computer and peripherals jobs
88% of software sector jobs
– Outgrew the economy 2003-2006 in
every sector
Source: Venture Impact 2006 by Global Insight
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Venture-Backed Employment
VC-Backed US Jobs (millions)
As a % of total US Pvt Jobs in 2006
10.4
10.5
10
9.4
9.5
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Outpaces 2003 - 2006
Total US Job Growth
8.7
8.5
4.0%
3.6%
3.0%
8
1.7%
2.0%
1.0%
7.5
2000
2003
2005
0.0%
VC-Backed Growth
Source: Venture Impact 2006 by Global Insight
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Pvt Sector Growth
Venture Capital Investment is Productive ...
• For VC every dollar invested in 1970-2001,
there was $7.90 in US revenue during 2006
• For every $28,463 of venture capital
invested in 1970-2001, there was one job in
the year 2006
•
Note these ratios are based on investment through 2001 ($296B)
because investment after that time has likely had little effect on 2006
jobs and revenues. If investment through 2006 ($421B) is used, the
ratios would be $5.55 and $40,364 respectively
Source: Venture Impact 2006 by Global Insight
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CleanTech VC Scales Relatively
Top 6 U.S. Venture Capital Industries, Percent Change Q3 2001 to Q3 2007
Source: CleanTech Venture Network
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CleanTech VC Scales Absolutely
Annual North American CleanTech Venture Capital Deals and Investment Totals
2001 to Q3 2007 (Millions of dollars)
Source: CleanTech Venture Network
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CleanTech Index
45 US Traded
Stocks
Combined
Market Cap of
approx $280BN
Minimum market
float of $150M
and 50%+
of sales or
operating profits
from CleanTech
businesses
Source: CleanTech Venture Network
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Can CleanTech Make Money?
CleanTech Venture Capital: Performance
CleanTech IPO’s have yielded returns to pre-IPO investors of
5.5X, while European venture-backed IPO’s have generated
returns of over 8X.
Returns on CleanTech M&A transactions have been 4.3X on
invested equity
A hypothetical portfolio of CleanTech venture capital
investments would have delivered an estimated IRR of
approximately 30%.
Based on a 2006 study by the CleanTech Group
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Where Did the CleanTech Money
Go in 2008? (A Record $8.4 Billion)
Top Venture Capital Clean Technology Sectors
Amount Invested and percent of total
Technology Sector
$3.3 billion
Solar
(40%)
Biofuels (including
ethanol, biodiesel,
synthetic biology, algae)
$904 million (11.0%)
Transportation (including
electric vehicles, advanced
batteries, fuel cells)
$795 million
(9.5%)
Wind
$502 million (6.0%)
Electric Grid
$345 million (4.1%)
Agriculture
$166 million (2.0%)
Water
$148 million (1.9%)
Source: The Cleantech Group; January 12, 2009 Report (www.cleantech.org )
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What Makes A Market Attractive to
Venture Capital?
• Capital formation
– Prudent man rule – enabled pension investment
– Limited Partner laws
– Capital gains tax reduction
• Empowered entrepreneurs
– Capital gains tax reductions
– Stock options/team building tools
– Reasonable bankruptcy laws
• Protect companies – Patent and IP laws
• Abundant customers willing to do business with
SMEs
• Exit markets – the NASDAQ
• Face-to-face investing/proximity
• Adoption--Cultural acceptance of new ideas
Source: “Green Technology and Venture Capital Investment” presentation, The National Venture Capital
Association, March 2008.
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Investment Drivers
1. High Energy Prices
2. Imported Mideast Oil
3. Climate Change
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Investment Drivers
4. Electric Grid Capacity Issues
5. Successful Cost Reductions/Technology
Innovations
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Investment Drivers
6. Public Awareness/Corporate Action
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A Venture Capital Perspective
We look for:
• Huge TAM (Total Available Market)
• “White Space” = Unmet Needs and Big Problems
• Team + Technology = Major Market Advantage
• Time Frames
Ø Near-term beachheads (market share)
Ø Exits in 5-7 years
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Urban Infrastructure Needs Makeover
The World’s Urban Infrastructure Needs More Than $40 Trillion
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Reducing Carbon – Targets
Source: CleanTech Venture Network
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Examples of CleanTech
Energy Efficiency – New Spark Plug causes more complete
combustion, greater fuel economy and less pollution
Alternative Energy and Renewable Fuels – Solar, wind,
and biomass power; waste to energy; biofuels
Electrical Efficiency – New Electric Motor is 50% more
efficient, reducing strain on the electric grid
Energy Storage – Batteries that last for the life of the product,
or perform large-scale load leveling
Lighting – New light source technology uses 1/10 the
electrical power
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Clean Energy Yields Big Benefits
Driver
Global Clean Energy Transformation
Opportunity
2020
U.S. Benefits
2050
2020
2050
Economic
$300-600 billion
per year of new RE
and EE investment
$600-1200 billion
per year of new
RE and EE
investment
Up to $30 billion
per year of new
exports and 750,000
jobs, plus lower prices
and
balance of trade
benefits
Up to $200 billion
per year of new
exports and 8 million
jobs, plus lower
prices and balance of
trade benefits
Climate
10-20% reductions
in GHG emissions
50-80% reductions
in GHG emissions
10-20%
reductions
in global emissions
50-85%
reductions in
Global emissions
Energy Security
10-20% decline in
oil use from 2005
25-40% decline in
oil use from 2005
Decreased volatility
and 6-9% reduction
in global oil
prices
Decreased volatility
and 15-20%
reduction in
global oil prices
Development
Universal energy
access
Universal energy
access
Global
economic
growth and
stability & U.S.
leadership
Global
economic
growth and
stability & U.S.
leadership
Source: IEA, IPCC, Mckinsey, and other sources with NREL benefits analysis
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Innovations in Efficiency
1. Demand Side Management: The
resurgence of “Negawatts”
2. Lighting: 30% of the load at 15%
efficiency
3. Edison Vs. Tesla: AC Vs. DC
4. Green Buildings: Coming of Age,
20 years later
IEA says 80% of CO2 Reductions from Efficiency
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Green Buildings
A platform for multiple technologies
• Combined heat and power systems
• Nano-insulation
• “Smart” windows
• Advanced lighting applications
• Renewable power sources
• Smart appliances
• Load shifting/storage
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Connecting Vehicles and Grid
• Electric vehicles to use off-peak power
• Key is advanced batteries with maximum
energy and power density
• President Obama goal: 1 million plug-in
Hybrid Vehicles
• Major Companies inU.S. Battery
Consortium
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Drivers for Global Water Markets
• 20th century: Population grew 3x, water use
grew 6x
• Shortages: 3 billion people face
water scarcity by 2025
• Water market exceeds $500 billion
(GlobalWaterIntelligence)
• Private equity accelerating
• India and China
– Water-spending growth >20% annually
• Infrastructure needs ($5 trillion):
Big gaps in coverage
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Water Technologies
(Both hardware and practices)
• Information/analytics/monitoring
• Demand-side technologies, cost-effective efficiency
opportunities
– Agriculture: 10-50% (e.g., CIMIS)
– Industry: 40-90% (e.g., GEMI)
– Cities: 30%
• Supply-side technologies
–
–
–
–
Adv. purification (e.g., adv. sewage treatment, recycling)
Source augmentation (e.g., rainwater harvesting)
Water security
Desalination
• Next big thing: Energy-water interface
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Selected Investments of
SAIL I
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Other Investors
Dr. Anji Reddy, Johnson & Johnson, Acumen Fund,
International Finance Corporation, Dow Chemical
Examples of SAIL’s value-add
Problems Solved: Globally Affordable
pathogen free drinking water
conveniently accessible.
Product: UV water purification systems
Source: Approached by WHI & Dow
Chemical, co-investor
IP Estate: solid patents
Management: Tralance Addy, President &
CEO; David Katz, CFO
Environmental Impact: Major human
quality of life; life expectancy;
education; carbon reduction.
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Provided key guidance on international business,
strategic relationships and business model. Helping at
high levels to source financing for village systems
from corporate, International banks and Indian
institutions.
Awards
Toshiba Green Innovation Award 2007
Discover magazine’s Award for Technical Innovation &
“Best of the Decade” invention
US News & World Report cites as one of “20 Ways to
Save the World”
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Other Investors
Problems Solved: Eliminate peak-power
requirements due to air-conditioning by
shifting consumption to night.
Product: Refrigeration-based air conditioning
unit that makes ice at night
Source: Trade show
IP Estate: Robust patents
Management: Frank Ramirez, CEO; Greg
Tropsa, COO; Brian Parsennet, CTO
Goldman Sachs, Good Energies, Joe Gorman,
Pete Higgins, Energy Capital Partners
Examples of SAIL’s value-add
Focused company on reducing costs through offshore sourcing. Assisted in market development
with regulators and business introductions.
Awards
2005 Innovation Quotient Award
2005 Top 10 Green Building product
Environmental Impact: Reduce 95% of peakpower demand for A/C; lowest-cost
LEED/Title 24 building credits; each unit
reduces GHG equivalent of 2 cars.
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2003, 2004 & 2005 “Most Promising Company,”
Energy Venture Fair
2004 “World’s Best Technology” Gold Award
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Other Investors
Altira Ventures
Examples of SAIL’s value-add
Problems Solved: Incomplete burning of
gasoline or 2-cycle fuel.
Product: Replacement intelligent plug
(ultracapacitor) that generates several
thousand times the spark of current
plugs.
Source: Trade show
IP Estate: Robust IP
Management: Dan Parker, CEO; Lou
Camilli, President; Jim Scott, CMO; Brian
Templeton, CFOEnvironmental Impact:
Reduction of gasoline consumption in US
by 30 million gallons/day (11B/yr) and
reduction of pollutant generated on
remaining 360 million gallons/day.
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Introduction to advanced direct selling technology;
Genalytics. Tim Ford, ex-CEO of JC Whitney.
Secured commitment from Nissan engineers to
test.
Test Results
Vehicle
Economy Torque 0-60
Marquis
10.5%
11%
5%
Corolla
2.2%
5%
10%
Avalanche 8.4%
11.2% 7.8%
BMW 740i 8.4%
6.9%
8.0%
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Problems Solved: 400M 60% efficient HVAC
electric motors in US/yr. Millions more in
Washer/Dryers, pools, dishwashers,
refrigerators
Product: Low-cost, brushless DC motor with
Electronic Communication (ECM) at 90%
efficiency.
Source: Firm Advisor
IP Estate: Robust IP
Management: James Jeung, CTO
Director: Thomas Cain
Environmental Impact: DOE estimates US electric
grid is 60% electric motor. SN Tech motors are
80% more efficient than existing. Result is
removing pressure on grid and eliminating
peak-power issues.
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Other Investors
Korean Angel investors
Examples of SAIL’s value-add
Recruitment of CEO, CFO, initial sales staff.
Identify new rapid adoption market. Define initial
marketing strategy and initiate IP estate
development.
Awards
Silver Medal – 18th, 20th, 26th Salon International
Inventions, Switzerland
IFIA Cup Prize, Germany
Gold Prize IENA
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Problems Solved: Reduce pollutants from burning fossil
fuels through simple-to-apply additives.
Product: Proven products for diesel, biodiesel and 2cycle. Products in final commercialization for
residual & gasoline. Product in development for
coal.
Source: Referral
IP Estate: Patents of biotechnology (beta-carotene)
Management: Jim Cleary, CEO; Fred Jordan, CTO;
Kevin McGlensey, President; Jerome Kaiser, CFO
Environmental Impact: Reduction of millions of tons of
NOx and particulates; removes significant
conventional pollutants from each gallon of fossil
fuel.
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Other Investors
Paladin Homeland Security Fund, Ridgewood
Ventures
Examples of SAIL’s value-add
Led company to obtain 1st certification, Texas LED.
Sourced major strategic customer, protected IP. Led
development of 1st manufacturing facility. Raised
$27M in Series C financing.
Awards
Red Herring’s “100 Most Innovative Companies”
EPA Scientific and Technology Achievement Award
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Problems Solved: Catalyze the CleanTech Sector
through building networks of conferences, indexes,
advisory services and recruiting.
Product: CleanTech Venture Network (US, Europe,
China); CleanTech Advisory Service; CleanTech
Executive Search; CleanTech Forum, CleanTech
Indices
Source: Strategic target
IP Estate: CleanTech trademark
Management: Nick Parker, Chairman; Keith Raab, CEO
Environmental Impact: Leading enabler of CleanTech
investments and purchases of sustainable
technology. Leader in investment partners in US,
China and Europe.
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Other Investors
Credit Suisse, Bob Epstein (closing with a top-tier
investment bank)
Examples of SAIL’s value-add
Advised company on internal operational matters,
expansion and strategic relationships; developed
high-level government contacts, private partners
and sponsors.
Enablers
Ernst & Young, Global Environment Fund,
Jefferies, Wilson Sonsini, Masdar, HellerEhrman,
Canaccord Adams, 3i, Rockport Capital,
Expansion Capital, John Deere
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Large scale Storage
Initial Customers Home Depot, Grainger,
Freescale, TEES
Examples of SAIL’s value-add:
Problems Solved: Efficient, safe, economical
storage of massive amounts of electricity to
buffer wind/solar farms, replace peak power
plants, load shift buildings from peak.
Product: Solid lead acid 1kw battery and power
management system designed to place in low
cost massive array configuration.
Source: Personal Contact with Angel Investor
IP Estate: Robust IP & Trade Secret
Management: Carlos Coe, CEO; Aeron Hurst,
Technologist; Michael Breen, CFO
Environmental Impact: Reduction of fossil fuel
consumption for electrical generation, enable
renewable fuel usage, relieve current grid
stress points.
Secure IP of batteries and power management.
Resolve market exclusivities. Create strategy for
trade secret protection. Facilitation of major new
customer acquisition. Creation of business plan.
Test Results
•Imperceptible resistance under load
•Less than 7% round trip energy loss
•$200K /MW hr of storage
•10-20 Year Battery Life
•5000 100/5 deep discharge cycles
•250,000 90/20 charge/discharge cycles
•Full charge in 5 minutes
•100MW/hr array configurations
Other Institutional Investors None
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Finding the Best Deals
• SAIL Team focuses on strategic priorities,
contacts network of sources weekly
• Dedicated networks of science and
business advisors
• All 5 partners have extensive deal networks
• Partners review more than 10 possible
deals per week – deeper review of 1/10
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Directions in CleanTech
• CleanTech sectors and potential portfolio allocations
include:
–
–
–
–
–
–
–
–
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Renewable Energy
Energy Efficiency
Water Quality and Supply
“Smart” Electricity Grid
Electric (PHEV) Vehicles
Enabling Technologies
Alternative Materials
Pollution/Waste Reduction and Conversion
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CleanTech Top 10 Regions
The Top 10 CleanTech Regions in Q1 – Q3 2007
• US : West Coast ($1.3B)
• US : Northeast ($526M)
• Western Europe ($394M)
• US : Southwest ($299M)
• US : Northwest ($283M)
• Southern Europe ($212M)
• US : Southeast ($107M)
• Western Canada ($104M)
• Eastern China ($100M)
• US : Midwest ($85M)
The top ten regions accounted for
3.40B out of 3.65B for Q1 – Q3 2007, or 93%.
Source: CleanTech Venture Network
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Issues Affecting CleanTech Investments
• U.S. Climate Policy/Global Carbon Prices
• Linkages among entire financial value chain
(Debt/Project Finance-VC-Later EquityEmission Credits)
• Fiscal Incentives/Tax and Pollution Credits
• Emerging economies – especially India &
China
• Research, Development and Customer
Adoption –”Culture Change”
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Critical Success Factors for Venture Investing
• Ability to grow value and achieve exit in a
strategic acquisition or IPO – requires
technology packaged in business model
with real customers
• Investing at stage of growth that balances
risk and value
• Team with value-added partners
• Work with government but do not rely on
government
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Partnerships that Help Companies Succeed
• Successful CleanTech firms must partner
with government, NGOs and other private
firms
• Partners must enhance ability to grow
market share and conserve cash
• A country’s economic and policy
environment must create right incentives to
take risks (capital gain taxes, investment and
R&D tax credits, stock options, IP laws,
incentives for customer adoption of new
technologies, exits)
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Areas of Potential Collaboration
between Taiwan and Other Investors
• Electricity – grid management; efficient
delivery and storage of power (Island
strategy)
• Renewable power and waste to energy
• Transportation – new electric vehicles and
cost-effective, long-life storage technologies
• Green buildings – effective building
management
• Water management and monitoring
• Chemical alternatives & new materials
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SAIL into the future
• Build sector-leading returns
• Fully deploy Partners’ collective skill sets and
global relationships
• Add value across spectrum of business needs
• Deliver economic value and measurable
environmental improvement
• Create the leading CleanTech venture platform
combining domain mastery with passion for results
• Partner with great companies and governments …
like Taiwan
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Questions?
Thank you!
hhabicht@sailvc.com
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