Finding the capital necessary to take what looks like a great product from the ‘garage’ or university lab to the marketplace is difficult during the best of times. In today’s environment, clean energy and technology entrepreneurs could probably identify even more with Tantalus, the character from Greek myth always striving to reach, but never able to grasp, the fruit hanging above his head.
That’s where so-called ‘angel’ investors, such as the CalCEF Clean Energy Angel Fund, step in. When it comes to financing a ‘seed stage’ clean tech or renewable energy venture “there’s a gap that can stretch anywhere from half-a-million to $6 million or so dollars…
“When you talk to these companies in this area you hear that it’s really tough to raise money… Angels sort of fill the gap between friends, family and the founder and providing more substantial amounts of capital,” Susan Preston, the angel fund investing ‘guru’ who is now leading the CalCEF Clean Energy Angel Fund team, explained to Triple Pundit.
Out of Bankruptcy…
The CalCEF Clean Energy Angel Fund emerged in the wake of Pacific Gas & Electric’s 2001 bankruptcy petition, Preston recounted. Part of the court agreement was that PG&E would use $30 million to capitalize a non-profit company whose aim would be to promote and fund the development of clean energy technologies.
“Much of that–about $24 of the $30 million– was placed in three venture funds. Venture funds don’t invest or focus on seed stage investing. It’s typically only around four or five percent of their money, so I got involved with the non-profit as a consultant to help develop an angel fund strategy to help them find ways of funding companies at a much earlier stage where we don’t see the VCs and it’s very hard to get funding. Eventually that became the California Clean Energy Angel Fund.”
The CalCEF Clean Energy Angel Fund team put together a prospectus, went out on the road and has so far raised about $10 million of the total $20 million it is looking to raise. About 2/3 of that came from institutions, including state pension fund manager Calpers through their investment arm PCG Asset Management, Preston explained.
“That was a big shot in the arm, a real show of confidence. Pacific Capital Growth Asset Management places money for Calpers associated with Calpers’ ‘green’ initiative. It’s a significant capital commitment.”
Clean Energy: A Strong Story
Raising capital has gotten a lot tougher what with the collapse of the banking system and deepening recession, especially for ‘seed stage’ start-ups, even if they’re working in sectors such as renewable energy and clean tech that can benefit from the federal government’s recently enacted economic stimulus programs. That isn’t deterring Preston or the CalCEF team, however.
Focused on, but not limited to California, they’re looking to invest in promising seed stage clean energy start-ups.
“Fund raising has slowed down, but we believe we still have a very strong story to tell…People like what we have to talk about, particularly in light of Obama and the recent stimulus package. There will be a lot of government support, and not only in the US but internationally,” she commented.
“The focus is on ‘shovel-ready’ projects and economic triage of a sort but there’s an enormous number of dollars being placed in this area, particularly clean energy and it bodes extremely well for this area…When you look at recent numbers from [Price Waterhouse Cooper's] MoneyTree, even though VC numbers were down significantly the clean tech bucket was up significantly in 2008.”
Energy Efficiency, Grid Storage & Enzymes for Biofuels
So what specific areas does Preston and the CalCEF Angel Fund team see as promising? “We’re very keen on energy efficiency. As a small fund we have to look for companies that are capital efficient. We believe firmly that energy efficiency is one of the real, fundamental opportunities to address the issue of energy security and the costs of energy…It’s the lowest hanging fruit.”
Along those lines, the angel fund has already made investments in HID Laboratories, developer of energy efficient high intensity lighting and dynamic demand response energy management solutions.
The CalCEF Angel Fund investment team is also considering investing in three companies developing technology that address different aspects of energy efficiency. One is developing grid back-up power storage solutions including a sub-five watt battery for micro-grid applications.
Energy efficiency technologies that can be proven to be effective technologically and economically offer the greatest opportunities in the clean energy sector, according to Preston. “The payback is almost immediate and you wind up with lower overhead and production costs.”
The Fund’s also invested in Allopartis, a start-up formed by three UC Berkeley PhDs who are focused on developing enzymes to catalyze conversion of biomass into biofuels. “Biotech was an area in which we didn’t think we’d be able to play. But we focused in on this one particular company and we think they are a fabulous opportunity for us to do that,” Preston commented.