Short segue

I thought this was a great quote from David Landers, of Allen & Buckeridge (Sydney-based VC):

There’s no shortage of quality management talent in Australia. The problem is that they are working for Australia’s best organisations and corporations. It’s very hard to lure them into the shaky, ‘maybe if’ world of early-stage venture.

It can be very hard to find good management depth in entrepreneurial teams, but I think the quote is spot-on. It's not that Australia has a shortage of talent (at least, on a per-capita basis). What is a problem (and this is similar to what I experienced when I was living in Canada) is that the large companies (particularly resources and finance) are where good, stable careers are forged. The allure of the start-up hasn't got the same cache as in the US. The good news is that this is a classic virtuous cycle, and the Australian tech community and startup successes of late is changing that mentality.

Solar - Part 1a, Ausra switches on new power plant

Ausra switches on new power plant

From the San Jose Business Journal:

[Ausra] switched on the first solar thermal power plant built in the country in nearly 20 years today at an event in Bakersfield.

This is the first plant Ausra has constructed in the U.S. and is crucial to Ausra’s ability to raise financing beyond the venture capital it already has, its executives said. The demonstration today was important for Ausra to showcase its technology, said CEO Bob Fishman.

“We do this to prove to PG&E and the rest of the world and to customers that we’re for real and that it works and that we’re not just talking about doing solar power, we’re doing it,” Fishman said. “And to get them to accept the technology and purchase it, I think requires a demonstration that can actually do what we say it will do.”

Ausra’s 5 megawatt system is a test facility and produces enough electricity to power about 3,500 average homes. It includes 720 mirrors that are 8 by 50 feet long that direct the sun’s rays to a solar thermal tower. The heat from the sun heats water inside the tower turning it to steam and that steam. The steam runs a turbine that produces electricity. And that electricity will be sold to Pacific Gas & Electric Co.

Ausra’s investors include Kleiner Perkins Caufield and Byers and Khosla Ventures as well as KERN Partners, Generation Investment Management and Starfish Ventures.

Speaking for me personally, I'm really proud of the progress that Ausra has made in commercializing their technology. Many technology founders underestimate the difficulty of scaling up a technology, and when it comes to bending metal and pouring concrete, meeting budget and schedule can be pretty harrowing, and numerous companies have stumbled trying.

I'll return with a detailed discussion of solar next time, but I thought this announcement fit well right here.

Solar Energy - Part I

Let's start this discussion with Solar Energy. Solar is the 800lb gorilla in terms of investments right now. The last six years' of VC investments are shown on the chart below. Solar clearly dominates. I thought it would be worthwhile to use this chart as a means of prioritizing these posts - so solar clearly is first.

I actually took this from PBS here, which credits the Cleantech Group.

There are a few reasons that solar energy has attracted so much funding, but the main ones include the fact that solar is such a broad field, solar has already proven successes, and that solar has a pretty clear path to a pretty big market.

Solar Energy technology pretty much is any technology that extracts energy from the sun. This includes solar PV, concentrating solar PV, solar thermal, and concentrating solar thermal. Within each of these are multiple subsets. Solar PV consists of monocrystalline, polycrystalline, thin film, triple-junction, and dye-based cells. Concentrating solar PV can be low (3x concentration), medium (10~100x concentration) and high (~1000x concentration). Solar thermal for heating can be simple 1x roof-top water heaters. Solar thermal for utility scale power generation can be tower configurations, trough design, linear Fresnel, or dish designs.

And, it doesn't stop there. Companies which lower the amount of silicon used and companies which allow for cheaper silicon to be used have been funded. Companies which improve the production yield, or better improve manufacturing processes have been funded. Companies which lower the cost of installation, or improve the tracking of solar modules have been funded. In short, anything that can lower the cost of electricity, anywhere along the solar value chain is of interest.

Why is this? Well, basically energy is a commodity. Barring any kind of "feel good" attributes of green-energy, most people don't have any clue what energy turns their lights on. In a hyper-rational, non-subsidized world that has no clue about external factors like global warming, the day that solar is 1 cent/kWh more expensive than the cheapest form of power, nobody wants it. The day that it is 1 cent/kWh less expensive than the cheapest form of power, everyone wants it. And by "everyone", we mean all 6 billion people on the planet. This is the ultimate tipping point.

So, VCs understand that there is a big market, and this market will crack open if solar power can be made cheaply enough. A lot of the cost of solar PV modules has been their silicon content, which has driven investment into anything that will use less silicon. Concentrating solar PV assumes that by replacing the expensive silicon part within a module with cheaper lenses and mirrors, the overall cost of solar energy will drop. Thin-film solar modules attempt to drastically reduce the silicon content (or eliminate it entirely) by using different materials. Solar thermal, in whatever form, expects that, for utility-scale electricity generation, the best approach is to generate steam and spin a turbine - benefiting from a lot of the work done in the past on thermal power plants.

It's an interesting situation, and one that is encouraging. Back in my Ballard days, when fuel cells were going to change the world, Ballard's mantra was that "we'll make the fuel cells, other suppliers will solve all the other problems". Those "other problems" included hydrogen storage, hydrogen infrastructure, and vehicle manufacturing. There was a huge chicken-and-egg problem which Ballard struggled to overcome. Yet, in the solar industry, there seems to be room for many of these innovations and business models, and the single-mindedness of "decrease cost per watt" has focussed the entrepreneurial community in an extremely positive way.

Next time - more specifics on the technology and path to market.

Ocean Power and the Cleantech Universe

Well, there has been a lot of interest in the Ausra investment. Some samples of press releases are here, here, here, and here, plus others.

It's great to see the interest in solar thermal technology. However, recently I've started an exercise examining the entire spectrum of all that fits within the cleantech universe. Rob Day had an excellent article on ocean power and it got me thinking about posting my thoughts on the other technologies (wind, solar, fuel cells, biofuels, water recycling, demand management software, hybrid vehicles, batteries, large-scale energy storage, etc. etc. etc.)

So, I'll let Rob's post lead off for ocean power, and I'll be following up in subsequent posts on other technologies. Stay tuned!

Australian Solar Potential

As I mentioned on Rob Day's blog, Australia has fantastic solar resources, and the political climate has changed dramatically to be more embracing of renewable and low-carbon technology. Australia is racing towards an emission trading scheme by 2010. However, the preponderance of coal-fired power plants provides an additional opportunity for solar thermal technology. By augmenting the power production of coal-fired power plants (of which Australia has many), solar thermal technology can lower the carbon footprint of these plants in an extremely economical way.

One particular solar thermal company which found its origins in Australia has raised a $60m Series C round. It's worth checking out.

Fundraising Survival Guide

Paul Graham (of Y Combinator fame) has recently posted a great essay on how to survive the difficult task of fundraising.

I particularly like this because it talks about the pressures experienced by the entrepreneur and the behaviour witnessed by both parties - investor and entrepreneur. There are very rational reasons that lead VCs to act the way they do. One of my favourite quotes from him was the following:

Problem number 3: investors are very random. All investors, including us, are by ordinary standards incompetent. We constantly have to make decisions about things we don't understand, and more often than not we're wrong.

We don't like to call ourselves incompetent - but the truth is that being good at being a VC involves learning a lot about something new very quickly. Even with a certain degree of specialization, the entrepreneur will know more about the particular business than the VC. Of our areas of focus (life sciences, IT, and cleantech), I primarily focus on cleantech. However, within cleantech there are still a huge range of subsectors - solar, wind, fuel cells, batteries, smart meters, biofuels, grey water, black water, carbon storage, synfuels, etc. While I've had the privilege of being involved in startups in a number of these areas, if you come to me with a new material that dramatically improves the energy efficiency in some market somewhere, I'll need to understand how much value the market will place on your offering, the technical feasibility of what you've done, the difficulty it will be to ramp up manufacturing, the cost sensitivity of the inputs, the competitive landscape, etc. So, we get good at learning quickly.

However, all of this dance of information exchange can seem, to the entrepreneur, to be frustrating. The entrepreneur has been living this vision for the past "x" months/years and can't understand why everyone else doesn't see what they do. We try to recognize the situation from the entrepreneur's point of view. and this is why, if we aren't going to progress an investment, we strive to provide companies with a quick "no" rather than a slow "no", and this is why we try to give feedback where we can - although often it is difficult for us to provide feedback because the reasons for us progressing an investment can often be intertwined with other investments we are considering. Nevertheless, the road to funding can be a long one, and Paul's post I think helps chart the course.

VC Fund Economics

I wanted to link to this great post by Fred Wilson - Venture Fund Economics.

"When I write about venture fund returns, there are always comments and questions that lead me to believe that the economics of a venture fund are not well understood. And since most of the readers and commenters on this blog are people who work in the startup ecosystem, I think its important that the economics are better understood. So I am planning on some posts on this topic in the coming weeks."

I thought a number of my readers may be interested in the drivers of VC returns. Note that these returns are also the aggregate of the entire fund. Each individual company invested in needs to be able to return a much higher amount to get this overall performance. I delve into that a little bit here.