Source: Byron McCann and Mary Sullivan, Cleantech Open Pacific Northwest Newsletter, October 29, 2011.
At the Cleantech Open Pacific Northwest 2011 Awards Expo earlier this month, a solid panel of four investors and a representative of a cleantech company with some funding successes considered the cleantech investment environment today and factors that could affect investment in the near future. The panel was moderated by John Miner, Managing Director of Pivotal Investments, a cleantech-only investor based in Portland, OR. John was formerly head of intel Capital. Panelists were:
- Keith Gillard, General Partner, Panagaea Ventures (Vancouver, B.C.)
- Lars Johansson, Co-Chair, NW Energy Angels (Seattle)
- Rick Luebbe, CEO, Energ2 (Seattle, WA headquarters and Albany, OR manufacturing)
- Mike Sherman, Managing Director, Chrisalix Energy (Vancouver, B.C.)
- Lucinda Stewart, Managing Director, OVP (Kirkland, WA and Portland, OR)
The following are panelists’ comments relevant to entrepreneurs who are seeking private capital:
Factors in the best investments, in your experience:
- Stewart – The best exits happen where the company has the same CEO from beginning to end. Also where no regulatory adjustment is required to achieve return on investment (ROI).
- Sherman – The best were where the product was something you never have thought of yourself.
- Johansson – Technology that is sustainable; sound go-to-market strategy
The role of the exit strategy:
- Gillard – We need to focus on exit opportunity.
- Johansson – Angels focus more on a successful business than a planned exit.
The importance of capital efficiency:
- Stewart – Capital efficiency is hard to evaluate for cleantech because less historical data is available (as compared to IT or biotech). She recommends a tangible milestone at end of each round.
- Luebbe – Consider non-equity capital, too. — What is the minimum efficient scale to be successful?
- Luebbe – There are different kinds of risks in each business situation; your job is to figure how to minimize each or to eliminate them.
The role of government policy:
- Luebbe – Government involvement is essential for highly capital-intensive industries.
- Sherman – Canadian viewpoint: Canada requires private matching funds and a government-industrial partner if they’re to invest.
- Johansson – Government support (grants) are most important at very early stage, and not later. Government shouldn’t pick winners. [Note: Government can support basic research that is at a too-early, unproven stage for venture capital.]
Basic wisdom for entrepreneurs:
- Miner – Entrepreneurs who harvest value from a strategic partner relationship more than the strategic partner tend to be more successful than most entrepreneurs.
- Sherman – The entrepreneur who is “constantly in pursuit of truth” is 10 times more likely to succeed. [This is a great axiom because getting down the facts without making unvalidated assumptions helps keep the venture off the rocky shoals.]
- Sherman – Question for entrepreneurs: Are you selling vitamins or painkillers? [This is a great analogy to describe the importance of solving real, painful problems for customers compared to discretionary solutions.]
- All – When approaching investors, be prepared; know what the investor has invested in; try to find someone to make an introduction rather than tossing a business plan into the ether; know exactly the value proposition you believe your target customer needs to solve their problem; be confident but open minded to advice.
All in all, the panelists provided terrific advice for both entrepreneurs and investors alike. They are actively engaged in finding clean technology investments, have a desire to see entrepreneurs succeed, and to build a healthy clean tech industry. That squares perfectly with the mission of the Cleantech Open, which is to “find, fund, and foster” the best cleantech startups on the planet.