39. Cleantech Investing (Rob Day)

The Full Ratchet Podcast on iTunesNick Moran Angel List

Rob Day of Black Coral Capital joins Nick to cover Cleantech. We will address questions including:

  • Day CleantechAs many in the venture space are aware the cleantech sector overall has underperformed over the last decade and many VCs and LPs have decided to no longer invest in Cleantech. Last year CBS’ 60 minutes even aired a segment titled “The Cleantech Crash”, featuring some of Vinod Khosla’s failed investments. Since our audience includes a broad range of investors that may not be as familiar with the cleantech space, can you start off by illustrating the scope and sub-sectors within cleantech and which have performed poorly?
  • I know that you are actively involved in supporting the ‘next wave’ of clean tech investment, can you describe the current state of cleantech investing, and how investors like yourself are approaching the next wave of cleantech?
  • I’ve heard a lot about some clean tech investor’s rebranding cleantech investments or pivoting to other sectors such as agriculture, IoT, automation, or the sharing economy investments and branding them as “resource efficiency” plays. what are your thoughts on the cleantech brand and if startups need to avoid being labeled as a greentech or cleantech to secure funding?
  • Where do you see the most significant growth opportunities in the cleantech sector over the next 10 years and what advice do you have for early-stage investors that are interested in the sector?
  • I noticed that in your column on GreenTech Media you started the year with some Bold Cleantech Investing Predictions for 2015. Seeing as we are about a third of the way through the year are there any predictions that you would like to comment on so far, or potentially revise?

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Before we jump in, as some of you know, for a couple months now I’ve been in the process of a deep-dive on crowdfunding platforms, how the whole process of syndication works and trying to setup a syndicate on AngelList. Speaking of which, the next episode features Jon Medved of OurCrowd and we will be covering crowdfunding and the socialization of finance. But, in the meantime, I’d really like to get the feedback from you all if you wouldn’t mind sharing your perspective. My partner, Jeff, and I are trying to decide on a name for the syndicate and we’ve narrowed the list down to five options. The first option that came to mind, of course, was calling it Full Ratchet Ventures… but while it’s a fun name for the show that works well, the term itself carries negative connotation toward founders from an investment standpoint, so I don’t think it works as well in this context. Of the five options we’ve come up with, each is very different. Some are more run-of-the-mill, others are more unique to our approach and there’s one that’s really outside-of-the-box, so I’m curious to see what you all think. Seeing as many of you have listened for some time, I hope you’ve got a good sense for me and my philosophy and can help choose the name that feels most appropriate.

Guest Links:

Key Takeaways:


1- CleanTech Composition & Returns?

Rob cited energy, food, water, materials, and the transportation sectors within clean tech. Anything that’s directly relevant to the use or production of natural resources. And his approach looks at it more in terms of long-term drivers that are on the right side of natural resource usage with strong potential for capital returns.

As Rob mentioned, Cambridge Associates publishes their cleantech report and breaks it down into subsegments including:

* Renewable Power Manufacturing
* Renewable Power Development
* Resource Solutions
And while the overall performance of CleanTech has returned capital, net of fees, which is not a positive result, it’s the Manufacturing category, including production of solar panels for example, that has dragged down the performance of the overall sector.


2- Suspect Decisions

Rob talked about one of the major reasons that cleantech investors got in trouble and mentioned an anecdote about an excited venture capitalist that finally got a nuclear deal in the portfolio. These “”permanent dillatante”” investors that targeted startups in every cleantech category. As one might expect, this shotgun approach resulted in investments across a broad rage of segments, business models and verticals. And clearly, the drivers and nuances within each were very different, resulting in investments that were chasing trends instead of getting in front of them. There’s a good lesson for all of us here, extending beyond cleantech, that investments should be strategic and driven by those with a deep-understanding of segment. And also that once a major trend becomes obvious and well-publicized it may no longer be a value. Incorporating this, Rob now backs multiple bets in the same basic value-chain.


3- Emergence of Project Finance

The final takeaway relates to the changing nature of capital investment in the cleantech and other related spaces. No longer is it an industry capital is solely traded for equity on the hopes of hockey-stick growth. Rather individual projects are assessed and funded, creating a return of capital paid over a term instead of one-time, upon an exit. This has typically been the domain of private equity but the PE players are working with large pools of cash and often can not move the needle with smaller projects. The other advantage to this type of finance is that it can provide runway and the opportunity for innovative businesses to scale and roll-out additional projects in a capital efficient manner. While this will not replace the venture for equity funding model, it is a viable alternative for capital-intensive businesses that can produce near-term value.


Tip of the Week:   The Lost Category Capital

Below is the 'Tip of the Week' transcript from the Podcast Ep39: Cleantech (Rob Day): In this episode we discussed the opportunities within project finance. And in previous installments we have covered early-stage businesses that are deemed "lifestyle businesses" and may not be investment-grade. In this week's tip I want to talk about a couple instances that I've come across that aren't venture back-able and aren't of interest to PE. The first was a startup that had developed an efficient energy distribution product for the heavy machinery and defense vehicle sector. Their solution reduced assembly time, increased energy efficiency and decreased long-term maintenance and overhaul. It was a really neat, elegant sub-system. Yet, the business had been operating for multiple years and there clearly was no prospect for exponential scale or a $100M+ exit. (more…)Read More...

*Please excuse any errors in the below transcript

Nick:  Today #Rob Day joins us on the program to talk Cleantech investing. #Rob is a partner at #Black Coral Capital, and has been in the clean tech private equity industry since 2004. He also authors a column called Cleantech Investing over at greentechmedia.com. #Rob welcome to the program.


Rob:  Yeah hi Nick thanks for having me.


Nick:  Yeah can you kick us off by telling us how you got involved in venture investing?


Rob:  Sure. What I tell people all the time is that, I’m actually one of Cleantech guy who found themselves in venture capital the other way around. I actually started out thinking I was going to be involved in environment policy. Growing up that’s what I was interested in. I ended up doing my college senior thesis in non-point source pollution training program, for water treatments so really interested stuff like that. And went off and joined an environmental think tank called the #Well Resources Institute.  My job was actually working with businesses, naively at the time about that, hey business and economics is pretty similar to each other right? It was only actually when I started working directly with large companies, helping figure out how they can make more money, by doing things in an environmentally sound ways that I discovered hey these are actually quite a bit different, quite a bit different I liked it.


So after a few years of that and getting a lot of exposure, seeing what was going on with natural resource trends, the clear needs that were emerging, the potential for shortages and constraints that were coming along. I decided that I wanted to go up and take advantage of that business opportunity that I could see booming and there I was at a non-profit. So I went to Business school to figure out how to become an energy entrepreneur. I came out of Business school at a spectacular bad time to be launching at any time. So I went into Management Consulting, got to do a couple of interesting projects while I was in   Management Consulting. Including getting to do strategic overall of an investor Illinois utility, and then left to go figure out what start up I was finally going to be doing. Instead found myself working at a growth-state clean-tech venture capital firm, helping them generate deals and that was 10 years ago.

I spent 5 years doing clean tech venture capital, got to the early stage investing west coast, east coast, middle country, but always Cleantech. Then 5 years ago got recruited into #Black Coral Capital as it was getting launched. We are a single family office actually, not a venture capital. We are investing on behalf of one family, and at the time we were being established to help that family build out a long term wealth creation vehicle in clean tech broadly. We used clean tech because that was the language used at the time. For us though it’s a very broad swipe at it. We’re not intended to be impacting investors, or we’re trying to save the world or anything like that.  Our job is to help this family generate superior risk adjusted returns, by putting dollars to work in the sector, and it was exciting because it was a punch to the paper. We actually wanted to make money investing around this investment thesis, what will it look like. So that’s what we’ve been working on for the past 5 years.


Nick:  So they recruited you in as a clean tech investor. So they had some thesis or some focus on this sector in particular, as a wealth creation vehicle?


Rob:  Yeah that’s right. The idea was they spotted that there were these long term natural resource trends that anybody can go out and see we’re going to need more of everything. Along the lines of that we’re going to need a lot more efficiency, in the use of existing resources. We’re going to need a lot of alternative resources, and that’s not just in energy which everybody gloves on to, but that’s especially for food, for water. There’s a whole bunch of natural resources that pretty fall into that same basic thesis. Yet they had done a few one off investments that hadn’t worked out very well, sort of following the venture capital crowd. And did enough to realize hey we need to do something different. My colleague #Christian who was a former management consultant as well, had been working with the family.


He put his Mackenzie hat back on, and went out there and talked to people like me, and came back after so much years of research. And came back to them and said yeah, you should do something. These are clear trends. There will be large wealth transfers that take place. That’s said, nobody has proven they know how to make reliable returns off it. Yet you can’t just be a passive partner and expecting to get the earnings and returns that you would want from having identified that thesis. Besides it’s unclear that the existing venture capital model will fix it at all.  So what you’re going to need to do is build out a purpose build team. Give them a blank sheet of paper, and give them some time to figure it out. #Christian and I we’ve added a couple of other members to our team, and we’ve been working on that now for the past 5 years.

We’ve been slowly filling in that blank sheet of paper, and we’ve been learning some lessons the hard way, some lessons the good way. It’s actually been a lot of fun. A lot of fun to be able to take that opportunity, because I spent 5 years within a peer venture capital context, and learned some real hard lessons for myself. And had taken away a lot of hey, if I got to do it all over again I will do X, that kind of things. We’ve been able to put that into practice.


Nick:  Yeah before I rolled off with my last firm, I lobbied my way into a disruptive innovation development in the water analytics and water treatment industry.  I was very surprised and enthused by the amount of innovative opportunity, and disruptive innovation that industries such as that in the B2B space are just primed for. Assuming you can navigate the channel dynamics, and the industry dynamics, there’s tons of opportunities in a lot of these spaces to move on the curve of innovation.


Rob:  Yeah I mean it’s an opportunity and a challenge, right. And that what we’re talking about here are decades old value chains, and they have become very entrenched. They have for the most part, by Silicon Valley standards very antiquated technology that they’re still built on. You look at them you say wow, okay if software is really ruling the world, and we’re moving to a much more automated world. There are huge opportunities to apply the lessons learned from IT, and other successful venture sectors. And to completely cannibalising what looks like a bunch of very potentially vulnerable natural anomalies, just as it’s happened in a lot of other places around the business world.


That said it’s also a challenge because there’s a reason why, these decode old value chains are still in place. Some of those reasons are just because change hasn’t happened yet, and some of those reasons are very good and solid, and hard to overcome this. It is a very trying sector and so the market are much slower, because we really do have the opportunity to take a lot of lessons learned, from a lot of successful smart venture investing. Frankly I’m moving away from venture investing, towards learning a lot of lessons from other forms of asset categories as well, and apply them into this context.  It just really feels like we’re on the crust of radically changing how a lot of these IUG’s operates. And I think that’s going to be pretty exciting to watch happen live, in fact in some of these it’s already going on.  Even as a lot of people sort of look at it, and right now we’re coming at it from a pretty negative stance, but I think there’s a lot of change happening that’s pretty fun to take part in.


Nick:  I couldn’t agree more, despite the challenges that exists in some of these industries. So #Rob as many in the venture space are aware, the clean tech sector overall has underperformed over the last decade. And many VC’s an LP’s have decided to no longer invest in clean tech. Last year CBS 60 minutes aired a segment titled “The Cleantech Crash” featuring some of the #Vinod Khosla failed investments. Since our audience includes a broad range of investors, that may not be as familiar with Cleantech space. Can you start off by illustrating the scope of Cleantech, and may be the subsectors within Cleantech, and which have performed well, verses which have not performed so well?


Rob:  Yeah. We are not in the weird point in the hype cycle I guess, the trough of depression I think they call it, or disillusionment. To borrow from the Gartner concepts. We know there’s a lot of negativity that’s put out there, especially by people who are outside of the sector. And that sounds kind of like us versus them, but it’s just a natural factor what goes on. That folks like 60 Minutes are actually several years behind the times. That actually would have been a very fair segment if it was done in like 2009.


Nick:  Right.


Rob:  Because what they talked about was a vision of Cleantech investing, that was very true then and had started to collapse.  So yeah there was a Cleantech crash at that time. It wasn’t uniformed for me to cross all portions of what we call Cleantech, and I’ll describe what that means here, but when they put that out it was 2014. It was like 5 years after all of that happened and yet they presented it, as if it was happening real time. So that’s unfortunate but what do you expect out of 60 Minutes, right.


They have a sort of mixed reputation at this point in general. No look, Cleantech means everything nothing. Cleantech was a term, it was a label. It got applied on to actually a wide range of markets, technologies, business models. It really is more of a catch on than an actual category, and nothing has illustrated that more than the record of how such investments have gone. That said, certain types of them have absolutely dominated what’s got attention especially in the mainstream press and the like, and certainly Silicon Valley played a big role. You can go back and find these really delightful 2007 Arrow articles and like the New York Times magazines, talking about how capitalist were going to save the world, right.

It’s all talked about in these terms of these huge capital bets, where they’re going to radically change this one core technology. And they’re going to change how oil is produced, bringing entirely new batteries to market. So it’s all about breakthrough chemical engineering, or material science in a really hard core technology innovation. And hence absolutely part of   what we talk about here, when we look across these different markets which are energy, food, water, materials, transportation. Basically anything that’s very directly relevant to the use, or production of natural resources is kind of unbalance. The way we interpret Cleantech here at our firm, is we can just define it how we see it, as long as it’s on the right set of natural resource terms. Our job is to make money. We’re not trying to check off categories. We’re not trying to make sure we have one of this type, and one of that type. We’re certainly not trying to make some kind of specific impact, on one particular global problem or another. Our job is to make money, so it’s almost irrelevant how we find it.


Except that we should happen to find it by viewing the world through the lens of hey, there are these long term natural resource trends. At least be a tailwind for the investments that we make, if not be the primary investment puts us though. So for instance over the past couple of years, I’ve looked at everything from things like solar investments and efficient lighting, which are directly in our own house as we expect given label.  But I’ve also fairly recently looked at mobile workforce, document work flow management solution. Why? I talked about that entrepreneur and he says why are you talking with me, I’m not a Cleantech entrepreneur. I said that’s fine you don’t have to be a Cleantech entrepreneur, but I’m investing in companies that are going out and installing solar panels on homes. That are visiting businesses and doing energy efficiency that involves a lot of mobile workforces, doing a lot of documentation. That helped me identify that there is a big need. We ended up not doing that particular investment, but it wasn’t because of lack of fit for our investment approach. I’ll give you another illustration of how these labels, are getting kind of blurred and fuzzy these days. I would consider and I know investors who were very successful in their Cleantech investment into #Next.


Nick:  Sure.


Rob:  They identified it in part because the energy savings and that was the major reason why they got into investing in the company. Meanwhile there are other VC’s who invested in #Next. The energy savings is kind of nice that’s great, but they really liked Tony. They really liked Tony and his team, the revision, and their DNA. How they were going to get in involved with new product categories.

That’s fine. It’s almost irrelevant how each of them found that, they all found the same company. I was talking with a limited partner a few months back at a breakfast, and he mentioned Next has been a big win, and the portfolio was one of the components of the firm big back. I said yeah it’s also a big win for our sector, and he kind of looked at me and goes, well Next isn’t really Cleantech is it. And this sort of brings to a point what I’m trying to say here which is; yeah it means all things to all people. So what I’ll tell you right now is that, quote Cleantech end quote is completely on the odds right now. And meanwhile what our investors in Silicon Valley is investing into, the food value chain. They’re investing into transportation. They’re investing into SaaS-based approaches, to automated distributing assets, the internet of things. If you looked at what’s in the remaining Cleantech venture capital portfolios, actually that matches up pretty closely. They just recently pinned something where it says, Cleantech is dead and long live Cleantech.


Nick:  Yeah with regards to #Next, I mean you could call it IOT. You could call it home automation. You could call it connected devices. You could call it Cleantech. Anyone that argues that it’s not lowering energy usage and carbon omission is wrong.


Rob:  Yeah. I don’t think anybody would be saying that. I think people are trying to harness what’s the motivation. The motivations, the labels. If I’m a limited partner I don’t care what label it is. I care about the returns. Now to your point about okay it underperformed on returns. The 60 Minutes piece and the like would have you believe that, everybody has lost money in the sector and that’s not true.  #CalPERS, #CIO, former CIO unfortunately. He was fairly infamous for having not too long ago said, Cleantech has been a noble place to lose money. If you look at the CalPERS Cleantech specific venture portfolio, that actually looks right. But that is not reflective of the overall hot rated venture capital investments of Cleantech.


So I would point people to #Cambridge Associates. #Cambridge Associates has been doing this quarterly tracking of  all of the Cleantech venture investments, that they can identify whether it’s from generalist or specialist, whether it’s called Cleantech or not. They break those out into geographic breakdown, stage breakdown, and also into sub categories. They breakdown 4 different pockets whether its renewable power manufacturing, renewable power development, which is basically everything down stream implementing renewables. Energy optimization which is where you get more like efficiency in software and things like #Next. And then catchall for resource solutions for other stuff that’s not energy.

And if you look at the performance across those pockets, first of all overall Cleantech venture capital has return capital, fees, that’s basically it. Which is clearly not what anybody should be happy with, that’s an unacceptable result.  But when you look at the performance within each of those pockets, it’s not that surprising. It’s the upstream, solar panel manufacturing, biofuels manufacturing that is completely dragging down that performance. And things that have built more on stock ware or that have been more business model innovations, on financial platforms. Downstream those commoditize manufacturing place, they greatly enjoy the fact that prices have collapsed and things like solar panels actually have done quite well. So nothing there has absolutely moved the doors off, we all need to learn to do better. I’m not trying to be Pollyanna  about it. But you can see some very stark differences in the results, depending upon where and how you’re invested.

Nick:  You mentioned energy, food, water, transportation. Is it a challenge as a Cleantech investor to know what the key levels are, in each of those sub segments? And the different industry dynamics with regards to regulatory, and government roles as well.


Rob:  It is and I think it is something that a lot of us got wrong, and me definitely included. During what I would call the first half of my last 10 years in doing this. You sort of as a venture capitalist, you have this imperative to not have your investors be in conflict with each other. And because a lot of these value chains are very interlink. What you end up doing is feeling this pressure to do what I call, check list investment. Okay we made our solar better. We made our energy efficiency better. Okay now let’s go find a water bed. I actually got to sit in somebody else’s office one time, where they had invited me to speak at lunch to their whole team. While sitting there in the lobby waiting for that to come together, meanwhile I got to see one of their senior partners. As he kind of slid in from one individual office to another, within the firm. He kept saying to me; knock on the door come in, sit in the person’s office. I think I finally found this nuclear deal. This was a few years back, but just want to illustrate how a lot of us are approaching this in terms of, okay let’s make sure we have something in that category, that category, that category.  That was not just a specialist but also generalist, as the sector was heating up, and sort of created a time frame.

What I will say is a major downfall that you’re alluding to, is that puts you in a position of being permanent dilatant. You are always trying to play catch up, in terms of learning not just the regulatory factors and the like, but really why do customers buy these. Which is the single biggest question that I think we’re all learning, how to answer in these sectors. You can look at the value proposition on paper, and it doesn’t always result in sales. You have a company that offers pay back periods that are measured in months. A company system that not infrequently offers 6 month payback period d to industrial customers. But a recent example, they wanted the, oh this is when they won. Where the customer took 9 months to say yes to a 3 month payback period. This is something that would have paid for itself 40 times over, in the rated life of the system. Has been deployed in over a 100 different sites already, so it’s not a hey does it work question. It’s just not what motivates these buyers, right and the buyer never said no.

Obviously the buyer ended up saying yes, but there’s just a lot of different things that go on in the minds of the buyers. It varies by type of buyer, by type of solution, by type of market, selling to utility or business, or home owner’s home. There’s so much you have to learn. That the winning solution here has always been the traditional structure, which is we really need some people who spend all their lives doing it. And then you also need people out of the general specie, an investor community who are willing to partner with the specialist.  And when it works well, that works really well because the generalist have a wealth of venture capital, and entrepreneurship resources. They produce better conditions, capital, access to relationships. The specialist if they’re doing it right, they have the kind of specialized knowledge, even the specialist back then were becoming dilatants. As I was illustrating a bad example of that partner going through office to office, so that’s one of the reasons we all got in trouble. What you’re going to see now, at least what we’re doing is a willingness to back multiple players within the same basic value chain. And we’re finding that makes not only us smarter investors, but it helps actually help our entrepreneurs work with each other.


Nick:  Is that specialization at a sector level, or is it on business models? Are you looking for similar business models, structures, just across different Cleantech sectors?


Rob:  It can take different forms. So for instance there’s a whole specialised area of venture capital not around Cleantech. If you look at the folks investing in Cleantech, they aren’t necessarily big brand named firms, but there’s a bunch of them in that group that really know what they’re doing. That have entrepreneurs who had very successful financing vehicles that they built up, and now that they sold them they’re in an investor role, are folks who have been doing Cleantech investing now for a number of years.   There’s an obvious overlap there with a lot of stuff that’s going on in the implementation side, of those energy efficiencies, of solar. Frankly even food and water, transportation.


Because they are what we’re learning is, hey these are largely distributed intelligent automated assets, with compelling pay back periods but still a Capex requirement. If we can finance them, then it makes it no money down savings from day one, kind of value propositions that seems to resonate with customers. But that starts to makes us look a lot like a Think Tank platform. And so to approach the answer to your question, there are any number of ways to be a Cleantech specialist. You can be somebody like us, who made several bets within energy efficiencies, so we feel like we have a pretty good grasp of that particular vertical, and now we’re investing in downstream solar. Now we’re spending time to make sure to build out our expertise in food. Did a freshwater deal a few months back and we’re going to make sure and spend time building our expertise there, rather than make that one bed and move on. It can be done through specialisation and business model. Increasingly what we’re seeing is actually a blurring of the lines, between venture capital and project finance. And that’s something I’m particularly excited about, and that means you can be a real specialist to that form of investing.  And that can apply across like I said, a few non skill any number of these markets.


Nick:  So Rob I keeping hearing this sound boy about the next wave of Cleantech investment. Can you touch on what’s meant by this, and what’s coming?


Rob:  There is no single way that people are doing this differently. When I started talking about that, I started talking about it just to highlight to people aren’t doing it differently. You asked about 60 Minutes, right. You asked about the 60 minutes and you asked about Vinood. There’s this stereotype out there of Cleantech venture capital, which is increasingly and inaccurate stereotype. That it is always upstream, big technology bets that take a decade to gestate, capital in terms of big strings for the fence, in the sense of being very binary outcome. And what we’re learning if you look at the, it’s still early but the pattern of ways played in the sector they don’t look like that per say. Venture capitalist these days, 2015 venture capital model to make anything capital intensive if you want to, so not trying to separate that out. But what we’re looking at in terms of what Cleantech venture capital is about, usually isn’t inherently capital intensive.

It’s certainly more about business model innovation, and about relying upon increasingly commoditized IT innovations, as opposed to a material science bet. That said; there still people trying to figure out the clean technology side of this, but even there they’re doing it differently. They’re trying to figure out okay, how can we back a small team and keep them a small team, and not spend tens of millions of dollars, until we know that we got something that the market is going to value. So how can we run silent and deep such way for longer than most venture capitalist would, but because we’re working with technology innovation, that’s a long gestation period. People are still struggling to figure that out, but the point is that they’re not just doing what happened in 2006 time frame, which was essentially pre brand new growth rounds. If that doesn’t sound like it make sense, because in retrospect it didn’t.


Nick:  We touched on before this ability for companies to position themselves differently. A start-up could maybe not label themselves a s Cleantech investment. They may label themselves as a resource player. What are your thoughts on the branding, from a start-up stand point, and if Cleantech start-ups need to avoid being labelled, as Green Tech or Cleantech to secure funding?


Rob:  Yeah. I don’t think it’s necessarily true that everybody needs to avoid calling themselves Cleantech or Green tech, but it totally depends upon your circumstances. If you are actually still as an entrepreneur, focusing on the next generation of solar panel manufacturing, it’s kind of silly to try to pretend that you’re not, right. What I tell entrepreneurs is focus on what you actually do. Don’t say we are an energy efficiency platform, if what you really are doing is implementing financial services for the building industry. Don’t talk about how you are a Cleantech entrepreneur; if what you’re really trying to get people on Sandhill road to do is back your sharing economy play. It’s just true in all points of the cycle with all types of investors. You want to speak their language, and the language has kind of moved on from that label. Much more importantly than what labels you apply to yourselves, is what you’re actually bringing to the table. So tell people what you do. I tell people what you need to do is transcend the category, and it doesn’t mean refuse to show up at a Cleantech conference or something. Cause God forbid you hit hard with that label.  But what it does mean is you need to be able to explain to an investor, what your value proposition is and use the short hands or labels or whatever, that speaks to that investor without pretending, something other than what you are.


Nick:  I talk on the show about how you have to know your audience, but I hope that folks are misconstruing that message, and changing their business model or their pitch, to fit the audience. Start-ups fundamentally have to be true to their core.


Rob:  Yeah and also just to be clear that you’re building a valuable business. You are building economic value. You have thought through these things, and what is going to be a very hard task which is growing a start-up. You’re not approaching it because you solely, approached the sector because you feel like the world needs more solar panels, or whatever the case may be.  I mean I happened to believe that. There’s nothing wrong with believing that, but venture capitalist are capitalist. You need to be able to just demonstrate that you’re approaching a huge opportunity in that way.  Here’s the good news. These are huge fast growing markets. Any investors who refuse to invest in these fast growing markets, I have to question why that would be the case.

A lot of the generalists and VC’s I know are actually open minded, and so they do face a challenge to have to go speak to their investment committees, or go and speak to a limited partner about why did you do that investment, why didn’t you do this investment. But as long as you arm them to be able to speak to value propositions, market opportunities, huge fast growing markets, and don’t we wannabe part of that. Then you’re doing the right thing. That’s true not just for your business, but in terms of arming the specific VC you’re talking to, to speak with their stakeholders.


Nick:  I noticed your column on Green Tech media; you started the year with some bold Cleantech investment predictions for 2015. Are there any prediction that you’d like to comment on so far, or potentially revise? Could you also give us a longer look at, so maybe predictions for the next 10 years in Cleantech?


Rob:  Well to be honest this year I did a bit tongue and cheek, because my track record of predictions in prior years was very mixed. So I decided this year as long as I was going to be wrong, I might as well be fun and wrong.  Yeah of course my predictions so far have been true. So better to be bold and right, than moderate and wrong, I guess. But yeah I mean I said that there would be a slim IPO window, and for that year I said that it would be a flat year for Cleantech deals and dollars, a big year for implementation. I said that the Super Bowl was going to be Seahorse pets. I even said that #Elon Musk was going to be putting out  a line of clothing, which I thought was just tongue and cheek taking advantage of the fact he’s such a brand. But then on Aprils Fools day as he announced coming out with an Apple watch. So I even got to count that one in my victory category.


Nick:  You got a crystal ball Rob?


Rob:  No just better to be lucky than good. But I would point to one where I was kind of pessimistic and I said in the first half of the year, there would be some kind of significant market correction on Wall Street.  I’m not a Wall Street guy. I got no business making such predictions, and so I backed off of that one. So far that hasn’t happened, so I’m hopeful that I’m wrong on that one.


Nick:  So Rob what are you currently most focused on?


Rob:  Well really we’re figuring out how to finance smaller distributed assets, and that’s drawing us into a whole bunch of different verticals.  We’ve been doing that so far for the most part in downstream solar, and in energy efficiency.  We think there is a lot of opportunity to take that into food production, because a lot of what’s going on in food right now is entrepreneurs who are figuring out, on how to produce food closer to where its consumed. And those are not looking like little projects for little trumped up projects in or little from the project finance standpoint. Or we’re spending a lot of time actually looking at downstream energy storage. We’re trying to sort out right now whether we want to be on the customer side and the utility side of the meter, but either way we’re pretty convinced that battery prices are going to collapse, just like solar prices collapsed. And we’d love to be downstream, and that pretty much worked out for everybody downstream in solar.


Nick:  Sure.


Rob: That’s the kind of stuff that we’re getting into right now. I think that right now is a great opportunity to be figuring out new investment models, across all of these sectors and that’s what we’re focused on. We’re focused on establishing an entire new investment strategy that can be deployed across these different verticals. Look to caveat that, we don’t want to then just try to flip vertical to vertical, and not knowing what we’re doing. Because what we’re also learning is that you can’t just be a cookie cutter investor. What worked in roof top solar will not work exactly in energy efficiency finance, much less if there is other much more distinct verticals. So we are taking the time to get smart across.


Nick:  So maybe the perfect Segway. But if we could cover any topic in venture investing, what do you think should be addressed, and who would you like to hear speak about it?


Rob: I’d love to hear limited partners talk about what they see as being broken, with the venture model and how to fix it. I think a lot of us would recognise that venture models have been successful, but need to evolve. Because the entire model was established 20 plus years ago, at a very different scale and for a very different scale of company.

What we’re seeing now are the emergence of much larger funds, going much later stage. It starts to look much more like private equity writ large.


Nick:  Right.


Rob:  Yet still deploying the same venture capital structures, and in many ways start to create a lot of distance and a lot of mismatches. The old 2 and 20 model, I’m not sure implies when you’re ten funds in. I think a lot of limited partners would agree, but what I would really love to hear is a limited partner explain what they plan to do about it. Because I think a lot of people are talking about how it needs exchange, very few people actually are tackled going in. And even fewer limited partners backing those who are tackling it.


Nick:  So Rob what is the best way for listeners to connect with you?


Rob:  I’m pretty viable on Twitter. That would be @cleantechvc and I have a Gmail address. cleantechvc@gmail.com. As you can tell I established both of those back in the days, when Cleantech was a much more popular catch phrase. So I think I’ll keep it for a while.


Nick:  Well fair enough. I’ve been looking forward to covering Cleantech investing for quite some time on this show. So thanks so much for carving out the time, and for sharing your thoughts with us today Rob