Venture Capitalists Are Enthusiastic Yet Cautious
By Zachary A. Goldfarb
Washington Post Staff Writer
Monday, November 26, 2007
Everybody seems to be looking for ways to make money on technologies that are said to reduce fossil-fuel emissions, wean the country from foreign oil and, generally, save the world. Venture capitalists have invested $3.64 billion nationally this year in search of promising ideas in what they call "greentech" or "cleantech."
Locally, a few prominent venture capitalists have invested in the field. But they are wary about the bubble-like feeling that has taken hold across the country. Such investing has its own unique risks.
Backing Web companies or software companies often requires only a few million dollars. But investing in greentech can require lots of research and development, as well as buying factories to make the technologies. Environmental laws regulating the industry can change rapidly, or not at all, making it tricky to pinpoint the right moment to release a product.
Michael R. Steed, founder of the District's Paladin Capital Group, said many greentech companies are overvalued. With the president promoting investment in alternative energy and Congress preparing an energy bill that could shift an enormous amount of money into the area, Steed said, "everyone is running in saying because of what Congress is going to do, my company is worth three times what it was."
Still, Paladin is one of the Washington area's largest investors in greentech with four companies in its portfolio. Last month, it led a group of investors putting $77 million in HelioVolt, an Austin firm.
HelioVolt builds thin solar panels made of a material known as copper indium gallium selenide that is said to produce the same amount of energy for almost half the cost of electricity, at 50 cents per watt, possibly enabling the widespread expansion of solar technology to buildings and homes. Silicon solar panels, which can cost $2 per watt, have been the target of investments for three decades.
"The best deals we're seeing are deals which bring to the table disruptive technologies," Steed said.
Paladin, with former CIA and NSA directors on board, invests with homeland security in mind. For example, Paladin wants power to be distributed widely and stored where it's needed in cases of emergency, rather than at central power plants.
"It isn't that we'll just do anything in the alternative energy base," Steed said. "We want to support products and services that focus on distributed power as opposed to core power."
That kind of specialized approach to investing in greentech is typical of local firms. "It's a big and important space that investors are going to be looking at for many years to come," said Jonathan Silver, founder of the District's Core Capital Partners.
Core Capital was part of a $35 million investment in Infinite Power Solutions, a Littleton, Colo., firm that is creating thin film batteries that the company claims significantly reduce the space that electronic devices need for batteries. By next year, Silver expects to have invested in three or four more cleantech companies.
Still, he sees risks.
"You can get a technology right and a market size right, but if the market timing takes longer to evolve or it's smaller than you think, it can be a big risk," Silver said.
"What's going on, on Capitol Hill, can really be central to the success or failure of cleantech investments," said Jean-Luc Park, director of venture investments for Bethesda's Calvert Group, which has $15 billion in holdings geared toward achieving a social benefit.
Park has been looking at companies that install solar systems, rather than invent the panels, figuring that such businesses would not be so affected by regulatory swings.
Park has learned the trials of such investing through his backing of hydrogen energy, which for years has been touted as a cleaner, more efficient alternative to natural gas but failed to gain much traction.
"The hydrogen economy has unfortunately taken a lot longer than we hoped," Park said.
Now, hydrogen's time may be coming. Calvert has backed H2Gen, an Alexandria firm that's received $49 million in funding from several venture capitalists. H2Gen technology converts gas traveling through pipes into clean hydrogen, bypassing the need for a new transport system that was needed with first-generation of hydrogen-energy technologies.
"Energy security and environmental security are coming together," said C.E. "Sandy" Thomas, president and founder of H2Gen. "Hydrogen is one of the solutions that solves both."
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