by Rona Fried
| A version of this article originally ran in Progressive Investor, our monthly sustainable investing newsletter. It provides on-going analysis of clean tech investment opportunities: renewable energy, organics, forests and emerging areas on the private and public sides. |
“We think there’s a tectonic shift coming,” said Tim Draper, a partner with one of the largest venture capital firms, Draper Fisher. “With a finite supply of fossil fuels, over time the price of conventional energy will increase, allowing some of these alternatives to come in.”
The “alternatives” he’s referring to – and more often investing in – is the array of clean energy technologies working their way through the research pipeline toward commercialization.
Private investments in clean technologies are on the rise ($1.2 billion for 2004, up 3.4%, according to Clean Tech Venture Network), but the hottest area is nanotechnology, which deals with materials and devices manufactured on the scale of billionths of a meter. U.S. corporations and venture capital firms are funneling an unparalleled investment into the field, about $2 billion a year – almost half of all venture investments worldwide. The feds and states are also investing heavily.
In a poll of 63 experts from around the world, the University of Toronto Joint Centre for Bioethics came up with a list of the top applications for nanotechnology in 10 years. All of them are directly related to environmental concerns:
1. Energy storage, production and conversion, including more efficient solar cells, hydrogen fuel cells and new hydrogen storage.
2. Agriculture, where nanomagnets are being developed to remove soil contaminants, and nanotech devices could release fertilizers at a strictly controlled rate, increasing soil fertility and crop production.
3. Water treatment and remediation, where nano-membranes and clays could purify or desalinate water more efficiently than conventional filters at a fraction the size.
Incubators Provide Guidance
Although this investment climate is rosy for clean energy, the vast proportion of venture capital dollars goes to later stage companies. Early stage companies have a very hard time breaking in. That’s where business incubators come in – to help early stage companies develop their businesses to the point where they can stand on their own or attract investors.
Incubators are a great place to find emerging stars and technologies, prime for partnership or investment. The U.S. is home to the National Alliance of Clean Energy Business Incubators, established by the National Renewable Energy Lab and consisting of 10 clean energy incubators scattered around the country.
I spoke with the directors at two incubators that are at opposite ends of the spectrum, Richard Amato directs the Austin Clean Energy Incubator (CEI) in Austin, Texas, and Pradeep Haldar is director at the Energy & Environmental Technology Application Center (e2TAC) at Albany NanoTech research centers in New York.
The Austin Clean Energy Incubator, which is part of the Austin Technology Incubator at the University of Texas, is a fairly typical incubator. The small, professional staff works with about six companies at a time on issues ranging from business plan development to assistance with acquiring customers or strategic partners, to global expansion.
CEI’s current portfolio companies include Austin Biofuels, an early stage biofuels distributor; E60 Vision, a company that makes remediation software; and Allied Energy Systems, which manufacturers efficient HVAC systems. Amato and staff are helping Austin Biofuels expand to a regional distributor, E60 to “productize” their service, and Allied Energy to grow to a regional manufacturer.
Super Incubators Help R&D Intensive Firms
The companies may be at different stages and have varying needs, but they have one thing in common: their need to get beyond the “Valley of Death,” the no-man’s land of raising investment capital. Businesses may get federal funding to create a prototype, but then they need major investment to build equipment, test it and prove it before it can be commercialized. Investors aren’t usually interested in companies at that stage, because it requires a major capital infusion without proof that the technology will work in the real world. With a software business, you can go to family and friends, or trade equity for assistance. But clean energy technologies require too much capital for that.
One solution lies in the successful model employed at Albany Nanotech, located at the University of Albany-SUNY. Two billion dollars in private, state and federal funding financed this state-of-the-art nanotechnology infrastructure. The Albany Nanotech complex includes the new College of Nanoscale Science & Engineering, which provides portfolio companies access to an entire research and teaching organization focused on the field.
This advanced facility attracts companies like IBM and GE and other companies from around the world, which make use of the equipment to explore new initiatives and test technologies. These companies provide financial and member support to the incubator.
The very same capital-intensive facilities and equipment are available to startup businesses. They can use the infrastructure there to test their products and get them to the stage where investors are interested. Thus, the extensive facilities shared in the incubator enable start-ups to eliminate the need for capital to build a prototype, test it and prove the technology works.
E2TAC also offers more typical incubator services such as matchmaking, networking, and joint promotions for partner companies. One of its initiatives is New Energy New York, which facilitates collaboration among companies in the state. Because of all this activity, many investors visit regularly to be the first about potential breakthroughs – at both the start-ups and the established companies.
This is a great incubator model for clean technologies that require large amounts of capital to test and develop their products. By investing in regional facilities, companies can share the equipment and infrastructure. Were it to be expanded beyond nano to other clean technologies, it would spur the advancement of a legion of small businesses, many of which otherwise would never make it through the Valley of Death. It would foster self-sufficiency by attracting established companies to use the facility, as well as providing mentoring, collaboration and even customers for the new businesses.
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Austin Clean Energy
Incubator
Albany NanotechEnergy and Environmental Technology Applications Center: www.e2tac.org
New Energy NY
National Alliance of Clean Energy Business Incubators
This article is an excerpt from an article that appeared in the May, 2005 issue of Progressive Investor.
Rona Fried, Ph.D., is president of SustainableBusiness.com, the online community for green business: daily sustainable business and investor news, Green Dream Jobs, Business Connections and the sustainable investing newsletter, Progressive Investor.
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