11/16/09

Engineering 498 - Environmental Innovation Challenge

Entrepreneurial and Funding Environment for clean energy.

Sources of Funds (Govt, Stimulus,Angel/VC) - the deeper consumer/incentive problem.

Lack of a market mechanism to get money back.

Speakers:

Daniel Malarkey - Assistant Secretary of Commerce

Rick LaFaivre - OVP

Rick LaFaivre:

started as a professor of comp sci

this building is where comp sci started

comp sci training by trade

went from academics to industry

1999 – jumped into venture space - la jolla, ca

Involved with a venture incubator

on campus incubator at UCSD

after some time, moved back up to Northwest to be close to grandkids

decided to stay in venture space - joined OVP

OVP - leading venture cap firm for last 26 yrs in Pacific Northwest

Has offices in Kirkland and in Portland

Investments - 25% in Ca    75% in pac norwest

don’t do consumer interfacing

focus specifically on technology 

10-12 yrs ago – investments focused in digital biology - intersection of  comp sci and biotech

now that sector is a 1/3 of portfolio

Energ2 made them look at this whole clean tech space

the key to investments is tracking the paradigm shift - looking for an inflection point 

paradigm shifts - bumps along with existing paradigm for a bit – but then eventually supplants existing

believes he will live through 3 shifts

1st - rise of the computer

1981 - 2001:   completely transformative

enablers - high speed networking, microprocessor

multiple multi billion dollar companies - microsoft, amazon

currently in a more mature state

still things to be done - beginning to see glimmerings of artificial intelligence

2nd - digital biology

2001 - human genome discovered

prior to this - mostly a wet field

Now for $5000, a company can decode a complete genome

will transform medicine

we’re currently in the middle of this big paradigm shift

3rd - clean tech

just starting

play out over the next 20-30 years

this one has a big pull 

society is pulling this sector for progress

global warming - finite amount of resources

huge amounts of investment and innovation

this paradigm shift has a different feel to it - people are here to help

little bit of frothiness – so make sure you do your homework

clean tech just shot ahead of biotech this quarter  

lots of trial and error in the beginning

it’s its own model

look for enabling platforms

Energ2 storage - spun out of material science at UW

Energ2 went to OVP - asked for 20 million dollars to fund a production facility

if I can build it by the drum - can build it by the ton

OVP - only firm in town currently doing energy investing

currently have 5 investments in this space

only one is in Washington

one in east coast - spin off from Cornell University

3 in California

trying to do more here in the state

pac norwest - should be a hotbed here

lots of birkenstocks and priuses

recently had the Clean Tech Open - Rick was co chair

53 applicants

12 semi finalists

3 finalists to send to SoCal for national competition

Venture Capitalists looking for scalable, leveragable technologies

do we have enough venture cap in the state in this field

pulling firms from the valley to help out

look at 500-600 business plans per year in order to do 6 investments

huge whittling process

Daniel Malarkey

Econ and Public Finance background from Harvard’s Kennedy School of Business

did some work in the public sector

then moved to economic consulting - private sector work - 8-9 yrs

got a call from a former employee - came and worked for Amazon 

moved from that to work on the local monorail project

then moved onto his own company - biodiesel

100M project

play was in the tech, the markets, and stock supplier

ultimately realized it was uneconomic to turn canola into biodiesel

food vs fuel - food fought back quickly

true testament to how quickly things change

net result/lesson learned: feed stocks don’t work as biofuels - need to get to the next generation of biofeuls

transitioned from technology to production companies

when you actually get to making stuff - hundreds of millions of dollars

moving up to full scale production - problems for project finance 

wanted to address in this class:

the shift since the beginning of the yr with the federal stimulus package

quick tour and entrepreneurial opportunity

Venture Capitalist funding in clean tech

2008 8.4

2007  6.1

2006  4.5

2005  2.1

2004  1.4

2003   1.3

2002   0.9

2001   0.5

in us billions of dollars

federal ARRA clean energy funding

segmented to competitive, entitlement, federal agencies, guarantees, tax benefits 

$77.1B  (10%) to clean energy - represented a major policy move

efficiency   (28.7B)

renewables/R&D  (24.5B)

smart grid  (17B)

electr vehicles/alt. fuels   (5.4B)

green jobs   (1.5B)

for companies that are starting up – this is a huge help

founders happy - VCs are happy

this money, however, has changed the focus of some businesses- 

need technology, need management team, need marketing, and product

led to a number of firms ‘taking the eye off the ball’ to focus on this application process

we are one of 5 states that focused a large percentage of money to in state start ups

some in efficiency, some in renewables, some in new innovations

got $200M worth of applications and were only allowed to hand out 20M

attracting a lot of talent

nature of a start-up --  scarce resources –owners have to be thoughtful on where their focus is

these successful applications have to be peanut - buttered - spread around

energ2 - had to hire a lobbying firm to help with all this

rick and daniel both up front

don’t hire a lobbying firm to deal with the state

really hard for a seed stage company to go after this money

too many people worrying about getting money and not focusing on company

only 2 companies getting money were venture backed - rest are big (like GE)

one key advantage in the region – universities

uw - bioengineering, clean tech

wsu - bioengineering fuels

several spin offs in various stages

D - IT ecosystem in the area already in place

smart grid will have a huge IT component

from a sector perspective - agriculture is big here - helps with biofuel research 

R - boeing and bio engineered jet fuel

E - why is VC so much more aggressive in Oregon

D - oregon has a lot of state incentives

backfired - scandal – $2M to fund a $40M program

constitutional prohibition

distrusting the railroad

states should not play with start ups

E - where do VC funds come from and go?

R - lots of money to going to solar and next gen solar

lot of work in biofuels

lot of work in energy storage - electric vehicles and the grid

company in spokane - networked energy storage systems for the grid

solar - still room for improvement in tech advancement

wind - build it out - not much more advance

D - need a renewable tech that gets you 10c/kwh

needs to be a grid parity

R - vancouver - solar production at 4c/kwh - interesting to see where that goes

E - how do you guys feel about regulatory risk?

D – Ex: currently a $1/gal subsidy for biofuels

R - how long will that last

is that even a good public policy

long term - two real solutions

solar

nuclear - nuscale coming out of OSU - modular design

but it needs to $70-90 M to get through NRC regulations

not a VC sector

D - working with the government is not best/easiest for new tech firms

old hats tend to perform better

region’s low power rates are barrier for companies focusing on energy efficiency

how do we move to clean tech and still keep the low cost

very interested in natural gas

combined cycle gas turbines

fuel cell tech

natural gas will have to play a key role in the next 20 yrs to transition to clean tech

fossil fuels will leave, clean tech not ready yet – need a transitional support à natural gas

Demand Energy Networks - smart storage units for the grid - spokane

east coast - engineering polymers - CO2 and CO to make polymers

bay area - tigo energy - solar panels efficiency

bay area - carbon flow - infrastructure for the carbon trading market - IT 

bay area - vertizon - bio pathways for producing clean chemicals

how do you apply computational tech to bio

same thing -  how do you apply computational tech to energy

what is interesting is intersecting vectors of two completely different sectors - thought exercise

Ex: biology and computers

geno – what advice do you have for new companies that are likely frustrated that the government money appears so far away and out of reach and VCs try to stay away from brand new start-ups?

look at early stage grant opportunities

washington technology center - small scale focused ideas - nanotech

northwest energy angels

the valley of death - the gap - idea to business

E - boring is good

don’t have to be looking for $2M out front

can look for a slight variation to existing tech

ex:  parking lot dimming

just needed 300K  to start - 

R - not every deal is a VC route

Student: how do you get money for an open source idea

R - have 1 in their portfolio

business model:  things that need to be done to that are not competitively advantageous

Ex: meeting a government requirement that all the competitors in the field need to comply with

Student: what will happen after stimulus package money is gone?

D - not gonna get another one - to big of a deficit

entrepreneurs should be looking something that will be viable a few years out

what market are you in - what works in CA won’t necessarily work up here

gov - made clean tech within the state a priority

what changes can we make in the regulatory environment to help this area out

look for companies that work at today’s energy prices

R - one thing we learned from the tech bubble - need a market strategy

who is the customer

what is my value proposition

all the fundamentals of business 101

E - as students, where should they be going locally, what should the see, what should they be involved in

PNNL - visit there

smart grid demonstration centers

carbon sequestration, biofuels

things like that  - great thing to delve into

D - Seattle city light and utilities

not innovative companies - but learn what their problems are

get to know who your customers might be

R - mckinstry

Oil:

R - price will be coming up

closing straight of hormuz

carbon tax

inevitable - price will go up

D – agree with R

silly to build about a plan around $140/barrel oil

need to compete at today’s prices - if works today will be even better

R - will be a bubble

internet, ethanol

need to extract the real value out of the bubble

big picture analysis will be over several decades

Nuclear Discussion:

R - nuclear waste issue -  controversial

sustainable energy production  - works 

france is 70% production

D - cost issue is the big speed bump

existing tech doesn’t add up

need something new

look at:

quantum computing in BC

fusion company in BC