Tuesday, May 17, 2011

The Cleantech Ecosystem in New England

Today Cleantech is one of the top three venture capital backed sectors in the US with 17% of investments made in Energy. In Q1 of 2011 Cleantech investment was up over 50% from Q1 of 2010 but this only tells part of the story. The Cleantech sector has grown tremendously over the past four years and although investment is up overall, the number of deals and especially dollars invested in seed funding has dropped.

Peter Rothstein, President of the New England Clean Energy Council, painted a complex landscape of the Cleantech sector for attendees of the May 17th MassTLC seminar, The Cleantech Ecosystem in New England. New England is home to over nine clean energy incubators, world-class research institutions, including Boston University and MIT, and one of the nation’s most active Cleantech venture capital pools. Still, a Cleantech start-up without a revenue stream will have difficulty raising money. “Even tougher,” added Marcie Black of Bandgap Engineering, ”is when you have a capital intensive product like a solar panel”. Bandgap’s solution to this challenge is to work within the current parameters of solar wafer manufacturing while still producing a more efficient product.

Martin Flusberg of Powerhouse Dynamics has been shipping energy management software for a year now and with a form of revenue they have been able to raise some seed capital. Strong feelings arouse on the east coast versus west coast funding, the later tends to have more deals and include more Series A deals.

Stuart Patterson has been there. With his company Equilibrium unable to find funding in 2009 he sold the company to EnerNoc. This was lucky for Nexamp a renewable power and clean energy solution provider. Staurt, CEO of Nexamp, wanted the company to be a one stop shop for Energy Management software and services, and renewable energy hardware and implementation. With their successful implementation of solar projects over the past several years though, the company focus had been more on renewable projects and not as much on the software side. With their acquisition of SolVera, Stuart is hoping to focus on the software side of the business while his co-CEO John Malloy will help to run the solar and renewable side of the business.

PepperDash is a self-funded company using revenues from products to fund work on what Howard Nunes, CEO, called a Predictive Facilities Management System. Howard discussed how their company is still in the proto-type phase and currently looking for partnerships to deploy their systems. Their model of self-funding gets around the challenge of finding early funding in New England, but it can also slows down the product development cycle.

Marcie Black, CTO and founder of Bandgap Engineering had always been interested in clean energy and saw it as a way to solve many of the world’s problems. While working at Los Alamos she started Bandgap but did not find the support she needed to move her idea forward until she moved herself and the company to the Boston area. She stated that it was very important for her company to be near an innovation cluster like the one in New England. Having VC backing from the east and west coast, as well as, overseas, Marcie is confident Bandgap’s technology will go to market more quickly.

Tom Zarella, CEO of SustainX, doesn’t worry about funding. The compressed air energy storage company that spun out of Dartmouth College just raised $20 million which should bring them close to commercialization. Their unique technology and ability to reach technological milestones consistently has given investors the confidence to overlook risks involved in Cleantech investments.

The discussion then turned to job creation and market growth. The panelists expressed frustration in the fact that there is not a comprehensive national policy. Each state has different incentives and mandates which makes it challenging to enter new markets in the US. On the other hand, European markets tend to be more standardized. Partnering with utility companies can help to overcome issues of market entry, but they are very slow adopters.

As Peter Rothstein wrapped up the panel, he talked of the future with some hope that new capital and new companies will continue to come to New England. The Cleantech ecosystem is what drives job growth and in turn capital growth. As more companies are created in the ecosystem, they require more services and suppliers creating more jobs.

Since there were more questions than time during the discussion, we would like to continue the conversation on the blog. Please post any questions you had of the panelists and we will post their answers.

Here are some additional links on Cleantech in New England and the panelists’ company websites,

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