Top VCs plug into renewable energy
By Mary Kathleen Flynn

All hail the guinea pigs. Venture capital investors in “clean” energy are effectively experimenting with a set of technologies on the cusp.

But of what? A “revolutionary” shift away from fossil fuels, an incremental innovation, a portfolio-liquifying meltdown?

All of the above, no doubt. For all the high-flown rhetoric about defibrillating the whales and refrosting the ice caps, much of the excitement around renewable energy centers on the vast financial rewards, and risks, awaiting investors piling into clean technology.

Although Vinod Khosla is by far the best-known VC champion for alternative energy, he hardly has the field to himself. Here are six other investors who, lab coats in hand, are taking the clean-tech movement forward.

Problem solvers
EnerTech Capital has invested in clean energy for 11 years and has put its $290 million under management to use at 32 cleantech companies. With the market for clean energy just starting to coalesce, the Wayne, Pa., firm seeks to invest in a broad array of technologies in hopes that a few will pan out and one or two will take off.

Tucker Twitmyer, a managing partner with EnerTech, says that in looking at deals he focuses on technologies that solve concrete energy problems, rather than address environmental concerns.

“When you start with a $4 trillion a year worldwide industry and you talk about introducing innovation, it is a daunting task to understand what the market will buy and how they will buy it,” Twitmyer says. “If you can figure out how to nudge the incumbents just a tiny bit, you’ve created an enormous bit of value, and you’ve created tons of venture opportunities.”

EnerTech’s first fund has generated a 46 percent net realized rate of return, and Twitmyer says the second fund is in the top quartile. Among its portfolio companies worth watching are solar-panel maker Advent Solar in Albuquerque, N.M., and Comverge, an East Hanover, N.J., developer of utilities that in late March filed for a $75 million initial public offering. The firm’s previous exits include a $145 million IPO in 2000 for Capstone Turbine of Chatsworth, Calif.

The collaborators
Also early in the cleantech boom, San Francisco’s Nth Power invests its more than $350 million under management exclusively in renewable energy. It typically sinks $2 million to $3 million in early-stage companies, often growing the investment to as much as $10 million.

Nth Power’s investments include Seattle biofuels maker Imperium Renewables, with the firm participating in a $10 million seed round led by Palo Alto, Calif.-based Technology Partners. Nth Power also joined another round in February when Imperium raised $113 million from at least a dozen investors.

Nth Power last year lost one of its two co-founders when Maurice Gunderson left and later joined CMEA Ventures, leaving co-founder Nancy Floyd as managing director. Past exits for Floyd include Alameda, Calif.’s Silicon Energy, an enterprisewide energy management software company that was sold to Spokane Wash.-based Itron in 2003 for $71.2 million.

Now managing six funds and $770 million, CMEA invests in early-stage life sciences, information technology, and energy and materials companies. The firm’s portfolio includes Superprotonic, a Pasadena, Calif., company also backed by Nth Power, and other investors, that is commercializing fuel cell technology developed at California Institute of Technology.

CMEA looks for the “value round,” Gunderson says. “We try to determine the place in a company’s life where the greatest increase in valuation will take place and invest then.” Although it declines to offer details, CMEA also is considering investing in later-stage energy companies, and Gunderson expects opportunities to arise for more mature cleantech players in a couple of years. For now, the most attractive investments are in transportation fuels, premium power, alternative generation and energy intelligence. “These are the areas where there are great transformative effects happening in energy,” he says.

The new kid
Although tech entrepreneurs mostly know Josh Green as a trusted adviser and attorney at Heller Ehrman Venture Law Group, he became a full-fledged VC in December when he joined Mohr Davidow Ventures. Green has spent more than 25 years nurturing start-ups in a wide range of industries, including the Internet, telecommunications, medical devices and semiconductors. His mandate at the Menlo Park, Calif., firm is to broaden its focus on energy. Mohr Davidow’s clean energy investments include solar concentrator maker Energy Innovations of Pasadena, Calif., thin-film solar maker Nanosolar of Palo Alto, Calif., and fuel cell system maker Jadoo Power Systems in Folsom, Calif.

Biofuel believer
While Richard Branson collects the headlines, Virgin Fuels managing partner Shai Weiss is charged with figuring out which renewable energy projects to fund with the $400 million Virgin Fuels has earmarked for clean tech. To date, the London-based spinoff of Virgin Group has invested $150 million, with its first investment in Cilion, the Goshen, Calif., ethanol maker also funded by Khosla, among others.

“While the majority of the fund will be invested in lower risk, expansion and growth equity, we will make other selective investments with greater technology risk,” Weiss says. “We invest in companies at the inflection point of growth or disruptive innovation.”

Virgin Fuels also participated in a joint venture called VBV, or Virgin Bioverda, with Irish firm Bioverda, a division of NTR, to invest $336 million in ethanol plants in the American Midwest. The venture includes Bioverda’s investments in Ethanol Grain Processors, of Obion, Tenn., and Indiana Bio-Energy of Blufton, Ind.

The refugee
Internet impresario Bill Gross, known for his assembly-line production of online companies during the Internet boom, is another convert to clean energy. Long before he hatched his first dot-com, Gross paid for college by selling solar energy conversion kits through ads in the back of Popular Mechanics. Today, his Idealab incubator is brewing energy start-ups such as eSolar, which is seeking to make electricity generation from large-scale solar thermal plants cost-competitive with fossil fuels.

Of the budding clean energy movement, Gross says, with the same fervor he brought to Internet companies, “We have the potential to change the entire lifestyle of the planet and bring it up to the level we enjoy in the U.S., to lift people out of poverty and to stop resource wars.”

© 2007 The Deal.com. All rights reserved.

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