To all my readers - Happy Canada Day!
While it is a bit weird to be celebrating a typically summer holiday in the dead of the Australian winter, it's a nice reminder of home all the same.
Monday, June 30, 2008
Happy Canada Day
To all my readers - Happy Canada Day!
While it is a bit weird to be celebrating a typically summer holiday in the dead of the Australian winter, it's a nice reminder of home all the same.
Friday, June 27, 2008
Australia's Per Capita Excellence - #2 on Internet Spend!
I don't know why, but Australia has an amazing amount of "per-capita" excellence. Now, part of scoring high on any "per-capita" ranking is to have very few people (the Vatican always seems to do well), but with 21m people Australia is big enough that some very real factors come into play. An example of both of this is the fact that, on a per-capita basis, Australia came in 3rd in the 2004 Olympics (with 49 medals - the US was 34th with 103 medals); however, it was behind the Bahamas (with 2 medals) and Norway (with 6).
However, in another very real way Australia has shown itself to dominate the world stage, and this is on internet spend per capita. A really interesting post on Techcrunch discusses potential valuations of social networking sites (the few comments on DCF are especially entertaining). But the part that I found particularly interesting was the following bit, showing the average internet spend per person for a given country:
The U.S. (at $132 per person), by the way, is only the 4th most valuable market per Internet user, trailing The UK ($213), Australia ($148) and Denmark ($144).
So, Australia has the second highest per-capita internet spend in the world. This is interesting. The time that I've spent here has given me some insights to why this may be. First off, the power of the internet is as the great market leveler. The more inefficient a market, the more likely the impact of the internet can be. Due to Australia's size and distance from major markets, it has been my experience that price competition in Australia between retailers is, shall we say, far from fierce (the car I purchased in Australia cost almost 2x what it would have in the US, for example). Being savvy people, this turns many Australians, where they can, to purchase products off the internet in larger numbers than would be the case when retailers would be more price competitive. That's at least my current theory. There may be other factors, but it's certainly interesting to discover that this country, which is a huge adopter of other types of technologies (internet penetration, mobile phone use, etc) is #2 on per-capita Internet spend.
However, in another very real way Australia has shown itself to dominate the world stage, and this is on internet spend per capita. A really interesting post on Techcrunch discusses potential valuations of social networking sites (the few comments on DCF are especially entertaining). But the part that I found particularly interesting was the following bit, showing the average internet spend per person for a given country:
The U.S. (at $132 per person), by the way, is only the 4th most valuable market per Internet user, trailing The UK ($213), Australia ($148) and Denmark ($144).
So, Australia has the second highest per-capita internet spend in the world. This is interesting. The time that I've spent here has given me some insights to why this may be. First off, the power of the internet is as the great market leveler. The more inefficient a market, the more likely the impact of the internet can be. Due to Australia's size and distance from major markets, it has been my experience that price competition in Australia between retailers is, shall we say, far from fierce (the car I purchased in Australia cost almost 2x what it would have in the US, for example). Being savvy people, this turns many Australians, where they can, to purchase products off the internet in larger numbers than would be the case when retailers would be more price competitive. That's at least my current theory. There may be other factors, but it's certainly interesting to discover that this country, which is a huge adopter of other types of technologies (internet penetration, mobile phone use, etc) is #2 on per-capita Internet spend.
Sunday, June 22, 2008
Hatch That!
Hey! My friend Ross Hill's online entrepreneurship magazine, HatchThat, published a discussion with me recently. I'm impressed with the breadth of people that Ross has spoken with, especially in such a short period of time. Check it out!
Non-Disclosure Agreements
Bill Snow has a great summary of why venture capital firms do not sign NDAs (non-disclosure agreements).
Here's his introductory paragraph:
Let’s take a look at one of the most common miscalculations made by early stage entrepreneurs: Asking potential investors to sign a non-disclosure agreement (NDA). In the pantheon of entrepreneurial mistakes, the NDA is right up there with the infamous line, “these projections are conservative.” Simply put, if you hope to raise money from VCs, you increase your chances of success by eschewing the NDA request. Most (if not all) VCs will not sign the darn things. There are bound to be some exceptions to this rule, but not many.
The rest of the article goes into why that is the case. However, the gist of the reasoning is that venture capitalists see a vast number of deals, and it is simply not feasible to enter into non-disclosure agreements with each of them. The liability and the potential conflicts are enormous.
It is the policy of most VCs not to sign NDAs for the business plans that they are sent. A simple poll of angel investors and VCs in Australia shows that many firms have similar policies. Yet, a large number of entrepreneurs approach me, and are adamant about having an NDA signed. Why is this?
I believe that this is due to cultural factors, bad advice, and ignorance of how the industry works. The cultural factors stem from, what I have perceived is an Australian bias that assumes that "people" (banks, investors, business partners, the government, etc.) have it in for the company. Rather than looking at what a business partner, such as a venture investor, can bring to a business (ie, maximizing the upside), an entrepreneur may be more likely to be suspicious on how the business partner can hurt the business (ie, minimizing the downside).
The second factor is bad advice. Entrepreneurs look to their advisors, such as their lawyers, or investment advisor (intermediaries) for guidance. I have been impressed by far too few of these professionals that I have seen. Most do not seem to understand the position that the venture/angel industry takes because they are ignorant to the industry's requirements. The entrepreneur then approaches the investor demanding an NDA, "because my lawyer said I needed one", and this can prevent things from moving forward.
The third factor is ignorance of the industry. This is, in part, what this blog hopes to correct. However, similar to point #2, there are few sources for Australian entrepreneurs to learn what the industry requirements are. When told that an investment firm will not sign an NDA, the entrepreneur does not have the background to understand why. However, I am optimistic that this is changing because a) entrepreneurs are becoming more sophisticated all of the time, and b) the number of sources of information for entrepreneurs is growing all of the time.
So, why the AVCAL NDA then? This comes from a difference between venture capital and later stage private equity. Although our friends in private equity have their own issues, discussed here and here.
So, to close I'd like to loop back to Bill Snow's article above. While asking for an NDA is not the kiss of death, starting an early stage raise with that discussion is not the way to lure in an investor. You control the information you release - keep the super proprietary details to yourself and only worry about disclosures once the deal has progressed sufficiently. I can pitch Google's value as an investment without disclosing their algorithm, and you should be able to do the same for you business as well.
Here's his introductory paragraph:
Let’s take a look at one of the most common miscalculations made by early stage entrepreneurs: Asking potential investors to sign a non-disclosure agreement (NDA). In the pantheon of entrepreneurial mistakes, the NDA is right up there with the infamous line, “these projections are conservative.” Simply put, if you hope to raise money from VCs, you increase your chances of success by eschewing the NDA request. Most (if not all) VCs will not sign the darn things. There are bound to be some exceptions to this rule, but not many.
The rest of the article goes into why that is the case. However, the gist of the reasoning is that venture capitalists see a vast number of deals, and it is simply not feasible to enter into non-disclosure agreements with each of them. The liability and the potential conflicts are enormous.
It is the policy of most VCs not to sign NDAs for the business plans that they are sent. A simple poll of angel investors and VCs in Australia shows that many firms have similar policies. Yet, a large number of entrepreneurs approach me, and are adamant about having an NDA signed. Why is this?
I believe that this is due to cultural factors, bad advice, and ignorance of how the industry works. The cultural factors stem from, what I have perceived is an Australian bias that assumes that "people" (banks, investors, business partners, the government, etc.) have it in for the company. Rather than looking at what a business partner, such as a venture investor, can bring to a business (ie, maximizing the upside), an entrepreneur may be more likely to be suspicious on how the business partner can hurt the business (ie, minimizing the downside).
The second factor is bad advice. Entrepreneurs look to their advisors, such as their lawyers, or investment advisor (intermediaries) for guidance. I have been impressed by far too few of these professionals that I have seen. Most do not seem to understand the position that the venture/angel industry takes because they are ignorant to the industry's requirements. The entrepreneur then approaches the investor demanding an NDA, "because my lawyer said I needed one", and this can prevent things from moving forward.
The third factor is ignorance of the industry. This is, in part, what this blog hopes to correct. However, similar to point #2, there are few sources for Australian entrepreneurs to learn what the industry requirements are. When told that an investment firm will not sign an NDA, the entrepreneur does not have the background to understand why. However, I am optimistic that this is changing because a) entrepreneurs are becoming more sophisticated all of the time, and b) the number of sources of information for entrepreneurs is growing all of the time.
So, why the AVCAL NDA then? This comes from a difference between venture capital and later stage private equity. Although our friends in private equity have their own issues, discussed here and here.
So, to close I'd like to loop back to Bill Snow's article above. While asking for an NDA is not the kiss of death, starting an early stage raise with that discussion is not the way to lure in an investor. You control the information you release - keep the super proprietary details to yourself and only worry about disclosures once the deal has progressed sufficiently. I can pitch Google's value as an investment without disclosing their algorithm, and you should be able to do the same for you business as well.
Sunday, June 15, 2008
The Hive networking event
Earlier this week I spoke at a networking event for entrepreneurs called The Hive . I was extremely impressed by the organization of the event, and I think it's a great opportunity for Melbourne based entreprenuers.
I have been looking for events like this to meet new entrepreneurs and to talk about my investment interests and there haven't been many well targeted events. There are various conferences about Cleantech and business financing, and there are various lunchtime seminars put on by government organizations (which can be quite good - especially Innovic's), however, my experiences at MIT have taught me that the most exciting startup activity happens when a bunch of really smart, really motivated people get together over a beer. This is what The Hive offers.
About 100 people were on hand to listen to me give some of my thoughts on the industry (I'll boil these down to a few blog posts in the future), but more importantly, I felt that this gave a really good cross section of those interested in starting their own companies. There was a lot of passion in the room, and that's something that I think fills me with the most optimism about the future of the Australian startup scene. If you are based in Melbourne be sure to check out future events!
I have been looking for events like this to meet new entrepreneurs and to talk about my investment interests and there haven't been many well targeted events. There are various conferences about Cleantech and business financing, and there are various lunchtime seminars put on by government organizations (which can be quite good - especially Innovic's), however, my experiences at MIT have taught me that the most exciting startup activity happens when a bunch of really smart, really motivated people get together over a beer. This is what The Hive offers.
About 100 people were on hand to listen to me give some of my thoughts on the industry (I'll boil these down to a few blog posts in the future), but more importantly, I felt that this gave a really good cross section of those interested in starting their own companies. There was a lot of passion in the room, and that's something that I think fills me with the most optimism about the future of the Australian startup scene. If you are based in Melbourne be sure to check out future events!
Wednesday, April 30, 2008
I Cut The Wrong Deal With An Advisor - Ask the VC
This is a great post from Brad and Jason over at "Ask the VC" (one of the blogs I like). Advisors can be a useful member of the team if they can help you structure your business plan and help prepare your company to be attractive to investors. However, remember, we are investing in YOU, not your advisor. So, outsourcing your fund-raising to an advisor is a non-starter strategy. Advisors should be just that, your advisor, the person next to you willing to give you support.
Advisors do have a role - some companies would never have received funding without the advisor's help. However, an advisor can also poison a deal by demanding unattractive terms. They need to find the sweet spot in the middle to reach the most success.
Unfortunately, the advisor in the post below isn't in the sweet spot:
http://www.askthevc.com/blog/archives/2008/04/i-cut-the-wrong.php
Advisors do have a role - some companies would never have received funding without the advisor's help. However, an advisor can also poison a deal by demanding unattractive terms. They need to find the sweet spot in the middle to reach the most success.
Unfortunately, the advisor in the post below isn't in the sweet spot:
http://www.askthevc.com/blog/archives/2008/04/i-cut-the-wrong.php
Saturday, April 12, 2008
How to make your company investor ready
Part of what I like to speak about are interesting technology trends - particularily Cleantech trends. However, other topics of interest for me include suggestions that I can make to potential entrepreneurs. This post is the latter.
We see a lot of variety in the deals we review here in Australia. There are the straightforward deals - smart founder, team of three or four, raised $200k of angel funding, prototype developed and some market traction with introductory customers. We put in money to unlock the full potential of the company and things can really take off. However, just as often we see the "non-straightforward" deals. These might be companies which have been operating on a shoe-string budget for ten years or more, often earning consulting revenue on the side while they try to develop their product. They may have fair amounts of debt, most of it from friends/family who didn't understand that VCs are much more comfortable with angels that hold an equity position, than debt. The company may have a smattering of different products that they have tried over the years, with varying degrees of success. There could be an attractive way forward with a new market opportunity that makes the company attractive for a VC, but given the company's history, there is a lot of baggage to get through.
So, here are my suggestions for making your company as clean as possible before approaching investors (or, at least, before entering final due diligence when the lawyer's bills are running!)
Convert Debt to Equity
One of the things investors have constantly worry about is fraud. Money that immediately leaves the company to repay debt (or to pay advisors, for that matter, if they have excessively high fees - which I would classify, in some cases, to be much more than 4~5%) makes investors very uncomfortable. The reason that the company is valued for what it is by investors is partly due to what the company has accomplished, and partly due to what the company is expected to accomplish. If the company is fully debt financed, especially by the founding members, it says that the founders don't have as strong a vested interest in the company as they would with equity, and are keen to get as much money back as soon as possible, and then participate in the gains of the company. Therefore, expect to have debts paid to founders convert to equity. Debts owed to related parties or third parties may be paid, but in this case, be sure to have clear documentation of the debts prepared to be able to justify these payments. However, if you want to make your company as attractive to investors as possible, raise equity funding from your early stage backers, not debt financing.
Have Accounting Records Clearly Prepared
If your company matches the "straightforward" description that I mentioned above there is likely to be little trading history for the company, and what is there should be simple and easy to understand. However, if you have a longer history of trading (which, arguably is a good thing), then be sure to be able to present clear accounting records documenting the company's history. If it is difficult to verify the company's trading history, if it is difficult to verify the inventory the company claims as an asset, if it is difficult to verify that the company revenues have been what is being claimed, or if it is difficult to understand the company's historic cost structure (and margins) then investors are going to be very uncomfortable. If you have an attractive story, but little documentation to back it up, investors may be interested in supporting your story, but uninterested in supporting a fantasy. Without clear records, some investors won't be interested in taking a risk, based solely on your say-so. Other investors may take the risk on your company, but they will simply discount away anything they are uncomfortable about in the valuation. To have the deal be as attractive as possible to both parties, be sure to keep good records.
Clean Up Complicated Contracts
Have a special agreement with your CTO where the company pays for her car payments? Have an contract with your suppliers where they provide better payment terms in exchange free use of your testing facility? Have you agreed with a distributer to an exclusive licence of your technology over a key geographic region? If you have bizarre agreements or contracts, either within the company, or with external parties, this just further compalicates the deal - either find ways to simplify these agreement, or, again, be able to clearly demonstrate the boundaries of the agreement to the investor - and justify why the agreement was initiated in the first place. This will help calm fears which might come when the investor reviews these agreements in the due diligence, and it will build trust that you are being upfront on the state the business and how it got there.
Remove Conflicts of Interest
Don't try to operate two businesses at once - a consulting business and a high-growth product development business, and argue that you can split your time between two businesses. When investors put their money in, they are backing the founders - and for this they want to be sure that the founders will be focussed on the success of the business. If the investors are worried about your other businesses/committments, they can be uncomfortable about proceeding. If you do have multiple businesses, or subsidaries that are unrelated to the investment that can be conflicted, or even merely distracting, then plan on disengaging yourself from these businesses before proceeding. Structure your responsibilities so that 100% of you commitment is on the new venture, and you will find investors much more interested in backing you.
A key message through all of these points is clarity, transparancy, and accountability. In all cases, show clear documentation, and be able to justify past decisions the company has made, so that the investor feels comfortable that they understand what company they are purchasing, and that they understand what the company needs to do going forward. Without this clarity you may find that the investor feels too concerned about the complicated nature of a deal, and the deal cannot proceed.
This is obviously something both parties want to avoid, so do what you can to make your company as attractive as possible, and you will be in a better position to attract investment!
We see a lot of variety in the deals we review here in Australia. There are the straightforward deals - smart founder, team of three or four, raised $200k of angel funding, prototype developed and some market traction with introductory customers. We put in money to unlock the full potential of the company and things can really take off. However, just as often we see the "non-straightforward" deals. These might be companies which have been operating on a shoe-string budget for ten years or more, often earning consulting revenue on the side while they try to develop their product. They may have fair amounts of debt, most of it from friends/family who didn't understand that VCs are much more comfortable with angels that hold an equity position, than debt. The company may have a smattering of different products that they have tried over the years, with varying degrees of success. There could be an attractive way forward with a new market opportunity that makes the company attractive for a VC, but given the company's history, there is a lot of baggage to get through.
So, here are my suggestions for making your company as clean as possible before approaching investors (or, at least, before entering final due diligence when the lawyer's bills are running!)
Convert Debt to Equity
One of the things investors have constantly worry about is fraud. Money that immediately leaves the company to repay debt (or to pay advisors, for that matter, if they have excessively high fees - which I would classify, in some cases, to be much more than 4~5%) makes investors very uncomfortable. The reason that the company is valued for what it is by investors is partly due to what the company has accomplished, and partly due to what the company is expected to accomplish. If the company is fully debt financed, especially by the founding members, it says that the founders don't have as strong a vested interest in the company as they would with equity, and are keen to get as much money back as soon as possible, and then participate in the gains of the company. Therefore, expect to have debts paid to founders convert to equity. Debts owed to related parties or third parties may be paid, but in this case, be sure to have clear documentation of the debts prepared to be able to justify these payments. However, if you want to make your company as attractive to investors as possible, raise equity funding from your early stage backers, not debt financing.
Have Accounting Records Clearly Prepared
If your company matches the "straightforward" description that I mentioned above there is likely to be little trading history for the company, and what is there should be simple and easy to understand. However, if you have a longer history of trading (which, arguably is a good thing), then be sure to be able to present clear accounting records documenting the company's history. If it is difficult to verify the company's trading history, if it is difficult to verify the inventory the company claims as an asset, if it is difficult to verify that the company revenues have been what is being claimed, or if it is difficult to understand the company's historic cost structure (and margins) then investors are going to be very uncomfortable. If you have an attractive story, but little documentation to back it up, investors may be interested in supporting your story, but uninterested in supporting a fantasy. Without clear records, some investors won't be interested in taking a risk, based solely on your say-so. Other investors may take the risk on your company, but they will simply discount away anything they are uncomfortable about in the valuation. To have the deal be as attractive as possible to both parties, be sure to keep good records.
Clean Up Complicated Contracts
Have a special agreement with your CTO where the company pays for her car payments? Have an contract with your suppliers where they provide better payment terms in exchange free use of your testing facility? Have you agreed with a distributer to an exclusive licence of your technology over a key geographic region? If you have bizarre agreements or contracts, either within the company, or with external parties, this just further compalicates the deal - either find ways to simplify these agreement, or, again, be able to clearly demonstrate the boundaries of the agreement to the investor - and justify why the agreement was initiated in the first place. This will help calm fears which might come when the investor reviews these agreements in the due diligence, and it will build trust that you are being upfront on the state the business and how it got there.
Remove Conflicts of Interest
Don't try to operate two businesses at once - a consulting business and a high-growth product development business, and argue that you can split your time between two businesses. When investors put their money in, they are backing the founders - and for this they want to be sure that the founders will be focussed on the success of the business. If the investors are worried about your other businesses/committments, they can be uncomfortable about proceeding. If you do have multiple businesses, or subsidaries that are unrelated to the investment that can be conflicted, or even merely distracting, then plan on disengaging yourself from these businesses before proceeding. Structure your responsibilities so that 100% of you commitment is on the new venture, and you will find investors much more interested in backing you.
A key message through all of these points is clarity, transparancy, and accountability. In all cases, show clear documentation, and be able to justify past decisions the company has made, so that the investor feels comfortable that they understand what company they are purchasing, and that they understand what the company needs to do going forward. Without this clarity you may find that the investor feels too concerned about the complicated nature of a deal, and the deal cannot proceed.
This is obviously something both parties want to avoid, so do what you can to make your company as attractive as possible, and you will be in a better position to attract investment!
Wednesday, March 12, 2008
4th AustralAsian Cleantech Forum
I just returned from the two day cleantech conference in Melbourne entitled the "4th AustralAsian Cleantech Forum" (http://www.cleantechforum.com/).
My co-worker Ivor and I had the opportunity to check in with a number of people we hadn't spoken with in a while. The conference is showing tremendous growth over last year, and last year's event was pretty decent. It was good to run into a number of familiar faces - this is giving me confidence that I'm seeing more and more of the players in Australia's cleantech community. As well, 14 companies pitched to the group - 7 either in Seed or Series A stage, and 7 in Series B stage (or later, as some of the companies had already gone public).
The companies showcased an interesting mix of technology. There were two ocean power companies, a high-performance diesel engine, biodegradable plastics, some water recycling companies, a couple of concentrating solar technologies, and some clean coal companies. All in all, a pretty diverse mix, and hopefully an impressive preview of the further improving dealflow happening in Australia.
In addition to the company showcase, there were several presentations and panel discussions. Premier John Brumby opened the conference. It was good to see him there as he is a big supporter of the cleantech opportunity and the benefits it can provide to the state of Victoria. Several US LPs were there, including representatives of CalPERS and Pacific Corporate Group Asset Management. There is growing interested by US investors in the Asian cleantech space, and I think many of them are realizing (as is our thesis) that Australia, as an English-speaking country with a British-based legal system is a great launching point to Asia.
Also of interest is the greater role that India is playing within this forum. Jeffrey and Peter Castellas, the founders of Cleantech AustralAsia have put together a good team to link opportunities, both for investment, and for companies entering the Indian market, between India and Australia. This is a great move. Every VC understands that tapping into the Indian and Chinese market is incredibly valuable for a growing company, and yet both markets can be very challenging. By leveraging the connections between Australia and India, this market entry can be made easier.
All in all it was a great event.
Friday, January 25, 2008
Rooftop Wind Gets Traction
Welcome back! It's been a wonderful Christmas break, but it's time to get back to work. The new year has started quickly at Starfish, with my time being split between tying up loose ends left from before Christmas, to getting a jump on a bunch of new opportunities.
However, there is a business concept I've seen a couple of times now that I think is interesting. It is a concept that I had the privilege to hear about when I was at AeroVironment (AV's Architectural Wind product is shown below, and another company, Marquiss Wind Power's product is shown to the right), and this is rooftop wind. Similar to rooftop solar, in that this allows the power generation to be close to the source (and therefore compete economically with the retail price of electricity, not the wholesale price). In addition the units, if designed well, allow the building to function as a wind funnel, channelling (and accelerating) the wind over the top of the building. The turbines can be located in a zone of far greater wind-speed than the typical mean windspeed at ground level. This gives the turbines decent performance.
The final benefit is that the turbines can improve the visual aesthetics of a building. This is something that AV has done in spades with the ravenclaw look to their product. What's brilliant about this is that the initial reaction to having a bunch of turbines on a roof of a building is concern about noise and the building visuals. With an attractive design, the concerns over aesthetics are addressed, and the turbines allow a building's "green cache" to be much more easily seen and promoted.
Well today it was announced that Marquiss Wind Power raised $1.3m from Velocity Venture Capital and Strategis Early Ventures. They have a ducted fan design (shown above and to the right). They are in their early design phases and their product looks a lot like the earlier iterations of AVs product, but there is room for improvement. Like many other cleantech products widespread adoption will be determined by the economics, so lifetime reliability, and $/W will be key.
However, I'm interested that four different firms (at least) are pursuing this concept. I imagine that will actually be good news for these companies. When trying to prove a new concept to skeptical customers, a number of competitors in an early growing market can be a good thing as competitors are far more likely to validate the concept than compete for a specific sales dollar. So, it will be interesting to see if more companies jump in this space, and to see whether or not the economics can succeed.
However, there is a business concept I've seen a couple of times now that I think is interesting. It is a concept that I had the privilege to hear about when I was at AeroVironment (AV's Architectural Wind product is shown below, and another company, Marquiss Wind Power's product is shown to the right), and this is rooftop wind. Similar to rooftop solar, in that this allows the power generation to be close to the source (and therefore compete economically with the retail price of electricity, not the wholesale price). In addition the units, if designed well, allow the building to function as a wind funnel, channelling (and accelerating) the wind over the top of the building. The turbines can be located in a zone of far greater wind-speed than the typical mean windspeed at ground level. This gives the turbines decent performance.
The final benefit is that the turbines can improve the visual aesthetics of a building. This is something that AV has done in spades with the ravenclaw look to their product. What's brilliant about this is that the initial reaction to having a bunch of turbines on a roof of a building is concern about noise and the building visuals. With an attractive design, the concerns over aesthetics are addressed, and the turbines allow a building's "green cache" to be much more easily seen and promoted.In the last year in Australia I have seen not one but two companies with a similar concept. Both had different product designs, one using a vertical axis. These products had some cost and reasonable payback difficulties. However, I thought, at the time, that it was interesting to see more work done on the concept.
Well today it was announced that Marquiss Wind Power raised $1.3m from Velocity Venture Capital and Strategis Early Ventures. They have a ducted fan design (shown above and to the right). They are in their early design phases and their product looks a lot like the earlier iterations of AVs product, but there is room for improvement. Like many other cleantech products widespread adoption will be determined by the economics, so lifetime reliability, and $/W will be key.However, I'm interested that four different firms (at least) are pursuing this concept. I imagine that will actually be good news for these companies. When trying to prove a new concept to skeptical customers, a number of competitors in an early growing market can be a good thing as competitors are far more likely to validate the concept than compete for a specific sales dollar. So, it will be interesting to see if more companies jump in this space, and to see whether or not the economics can succeed.
Tuesday, December 25, 2007
New Startup
It's been a busy two months since I last posted. Australian businesses tend to take a fairly lengthy break (certainly by US standards) around Christmas time. The upside of this is that it's nice to have some time off; the downside is that everyone works furiously trying to complete projects before the Christmas shutdown. During this furious period, I've been progressing a couple of deals, which hopefully I can talk about in the upcoming months. This has prevented regular blogging, but like most errant bloggers, I'll optimistically declare that things will pick up again in the new year.
However, yesterday I confirmed progress on what might be my most exciting startup yet. A seed round was completed a couple of months ago and today we've confirmed that things are growing. What's most exciting, is that it looks like we can expect an exit as early as August! Amazingly, in terms of growth, I'm really confident that we'll see well over a 1000x increase by time of exit, and likely almost another 20x increase over the next 20 years! So, this is pretty amazing news, and I'll keep you all posted.
Merry Christmas!
However, yesterday I confirmed progress on what might be my most exciting startup yet. A seed round was completed a couple of months ago and today we've confirmed that things are growing. What's most exciting, is that it looks like we can expect an exit as early as August! Amazingly, in terms of growth, I'm really confident that we'll see well over a 1000x increase by time of exit, and likely almost another 20x increase over the next 20 years! So, this is pretty amazing news, and I'll keep you all posted.
Merry Christmas!
Monday, November 05, 2007
CAFE - Automaker's best interests
ArlingtonBlue left a comment on my post about CAFE (not CAFÉ) the other day - thank you Arlington, I look at the stats and see I have many readers, but few posters; it's nice to have some dialog.
What was interesting about the comment was the suggestion that CAFE was not in the automaker's best interests. This is something I better need to understand. The typical line of reasoning over any regulation is that the regulation is bad for the auto companies. Catalytic converters, low emission vehicles, seatbelts/airbags, what have you - if it's regulated, it's bad news. However, I look at things differently, so would love to know where I'm wrong. Right now the car companies are in a very competitive industry, which little to differentiate vehicles, other than price (at least Ford, GM, and other such companies are often flogging "FACTORY INCENTIVES", whereas Honda, less so). Surely when a new regulation comes onboard that affects all car companies equally, this provides a new potential source of competitive advantage? If a new regulation came in that all cars had to have huge chrome fins, and Cadillac was the best car maker in the world at chrome fins, wouldn't they have a huge advantage over Hyundai?
So, for an automaker to argue against a regulation means that a) they don't think it is being applied uniformly, or b) they basically are admitting that they suck and don't have a chance in hell of competing under the new regulatory scheme. Regarding a), sometimes regulations only affect car makers who produce above a certain volume. So, GM would be unfairly biased a kit car manufacturer in keeping emissions down. Usually, this isn't any issue by the very nature of the fact that the kit car manufacturer isn't truly competing with GM. Regarding b) if a car maker is saying that they have no chance in competing under a new regulatory environment because they are not as innovative and skilled as their competitors, then I think Adam Smith (and myself) have opinions over what should be the long-term viability of that car company.
Anyone have theories over why economically rational automakers should oppose any regulations, and not see them as opportunities?
What was interesting about the comment was the suggestion that CAFE was not in the automaker's best interests. This is something I better need to understand. The typical line of reasoning over any regulation is that the regulation is bad for the auto companies. Catalytic converters, low emission vehicles, seatbelts/airbags, what have you - if it's regulated, it's bad news. However, I look at things differently, so would love to know where I'm wrong. Right now the car companies are in a very competitive industry, which little to differentiate vehicles, other than price (at least Ford, GM, and other such companies are often flogging "FACTORY INCENTIVES", whereas Honda, less so). Surely when a new regulation comes onboard that affects all car companies equally, this provides a new potential source of competitive advantage? If a new regulation came in that all cars had to have huge chrome fins, and Cadillac was the best car maker in the world at chrome fins, wouldn't they have a huge advantage over Hyundai?
So, for an automaker to argue against a regulation means that a) they don't think it is being applied uniformly, or b) they basically are admitting that they suck and don't have a chance in hell of competing under the new regulatory scheme. Regarding a), sometimes regulations only affect car makers who produce above a certain volume. So, GM would be unfairly biased a kit car manufacturer in keeping emissions down. Usually, this isn't any issue by the very nature of the fact that the kit car manufacturer isn't truly competing with GM. Regarding b) if a car maker is saying that they have no chance in competing under a new regulatory environment because they are not as innovative and skilled as their competitors, then I think Adam Smith (and myself) have opinions over what should be the long-term viability of that car company.
Anyone have theories over why economically rational automakers should oppose any regulations, and not see them as opportunities?
Thursday, November 01, 2007
Turning Green into Gold
I write about cleantech deals a lot because that is the primary investment focus for me (I say primary because I get involved in IT, manufacturing, and other engineering deals that fit my expertise as well). However, our friends over at Cleantech Ventures, who exclusively look at cleantech deals have co-authored a white paper examining the cleantech venture industry in Australia. It was written by Anastasia O'Rourke (currently finishing a PhD at Yale) and co-authored by Hans de Zwart of Cleantech Ventures.Given that it is talking about Australian Cleantech Venture, the title Turning Green to Gold could not have been more fitting, and was even obvious to me, a non-Australian (for those who don't know, Green and Gold are Australia's colours, so to speak).
From the blurb:
Cleantech Ventures and Cleantech Network LLC (USA) have co-authored a benchmark report representing the first-ever comprehensive analysis of cleantech venture capital, buyouts, merger and acquisition and IPO activity in Australia.
It's a pretty good review of the Australian context of this industry and the link for the report is here.
Wednesday, October 31, 2007
Seriously...it's just CAFE, not CAFÉ
This is an amusing case of Microsoft changing the world, for the worse. In the US auto industry, many of the incumbent automakers are up in arms about increases to the Corporate Average Fuel Economy (CAFE) standards. CAFE is the acronym for the Corporate Average Fuel Economy. However, when you type CAFE into Microsoft Word (or other Office programs with Autocorrect) it will change the word to CAFÉ automatically. This has happened so much that I'm beginning to think that people feel that CAFE actually is spelled with an accent (I suppose it gives it more flair than a typical acronym). In all the articles in the media now about increases in CAFE standards, I'm seeing this happen more and more in real journalism. Gads!
Read Higher emissions standards to benefit U.S. automakers from CNet, and you'll see what I mean. Good article though, but it's just CAFE, not CAFÉ!
Read Higher emissions standards to benefit U.S. automakers from CNet, and you'll see what I mean. Good article though, but it's just CAFE, not CAFÉ!
Thursday, October 04, 2007
Success with Powerpoint
Ok, I think I've figured out how to post a powerpoint presentation. Here it is:
There is one minor bug - the animations don't work, so the first graph shows the stock prices of Ballard and Sunpower, but doesn't say which is which. Sunpower is the yellow one and Ballard is blue.
Otherwise, not a bad service.
There is one minor bug - the animations don't work, so the first graph shows the stock prices of Ballard and Sunpower, but doesn't say which is which. Sunpower is the yellow one and Ballard is blue.
Otherwise, not a bad service.
Monday, October 01, 2007
Welcome to Alice Springs!
I'm here in sunny Alice Springs. I'm not kidding, the weather forecast varies from "sunny" to "mostly sunny". The high temperature is 37C, which is 98 to my US friends, and it looks like the perfect place to hold a solar conference. I'm speaking at the ANZSES conference this week. My keynote compares the fortunes of Ballard Power Systems and Sunpower and tries to compare and contrast the fortunes of the fuel cell industry ten years ago to the solar industry today.
If I can figure out how to post a powerpoint presentation, I'll put it up after I present (thanks for the tips, Shuman!). The basic gist is that the solar industry today is looking a lot like Ballard was in 1998. Both Ballard and Sunpower rose from $1b~$2b market caps to ~$6b market caps in roughly 18 months.
Both companies have had a long string of successes. Both companies are built on the premise that there is a huge market to be served (automotive for BPS and utility power for SPWR). Both companies have their hopes pinned on expected, but not yet achieved cost reductions.
So what happened? Well Ballard went from stratospheric to ex-orbital (is that a word?) between January and March 2000. The value of the company shot up to around a peak of a $15b market cap! At this time the markets had thought that Ballard's product (the Mark-900 automotive fuel cell) was ready for mass-production and the market. Over the next 2, 3, 4 years it became clear that, while the product was fantastic (full disclosure: I was a proud Ballard engineer during this time) there were just too many hurdles to getting to market. Ballard's value fell and it is now "only" a $500m company.
What's different with the solar industry and will it suffer the same fate? While it is true that the solar industry, globally, is heavily subsidized, and if those subsidies went away there would be a massive decrease in the new installations of solar, the solar industry does not face the difficult path that the fuel cell industry did. The fuel cell industry faced a huge "chicken and egg" problem - no one would buy a fuel cell vehicle without refuelling stations established - no one would establish fuelling stations without an installed fleet of vehicles. There were many other difficulties too, but let's stick with this one as it is the one which is not solvable with technical improvements. This "chicken and egg" problem prevented, not just mass-production, of fuel cells, but darn near any production of fuel cells. Fuel cell companies could not even begin to start riding the learning curve of production down to reduce costs.
Solar, on the other hand, doesn't face such a barrier. This is allowing solar energy (and here I'm just speaking of PV) to be produced in huge quantities. Each solar cell produced costs less than the cell before that. This is giving the solar energy the momentum it needs to continue to drive down costs, and then eventually compete without subsidy against other forms of electricity generation. This slow, but steady, improvement is an opportunity the poor fuel cell was never provided. Ballard's engineers built a killer product, but it was required to compete fairly with the automotive engine from day 1, and build out a supporting installed base at the same time.
So, are solar energy stocks overvalued? Perhaps, perhaps not. If I knew for sure I'd be calling my broker. However, we at Starfish feel that the opportunities in the solar industry are certainly real, and that, this time, there are real, long-term, sustainable, businesses to be built that have a decent path to market. I'm here in Alice to see if I can support any. Oh, and to soak up some sun!
If I can figure out how to post a powerpoint presentation, I'll put it up after I present (thanks for the tips, Shuman!). The basic gist is that the solar industry today is looking a lot like Ballard was in 1998. Both Ballard and Sunpower rose from $1b~$2b market caps to ~$6b market caps in roughly 18 months. 
Both companies have had a long string of successes. Both companies are built on the premise that there is a huge market to be served (automotive for BPS and utility power for SPWR). Both companies have their hopes pinned on expected, but not yet achieved cost reductions.
So what happened? Well Ballard went from stratospheric to ex-orbital (is that a word?) between January and March 2000. The value of the company shot up to around a peak of a $15b market cap! At this time the markets had thought that Ballard's product (the Mark-900 automotive fuel cell) was ready for mass-production and the market. Over the next 2, 3, 4 years it became clear that, while the product was fantastic (full disclosure: I was a proud Ballard engineer during this time) there were just too many hurdles to getting to market. Ballard's value fell and it is now "only" a $500m company.
What's different with the solar industry and will it suffer the same fate? While it is true that the solar industry, globally, is heavily subsidized, and if those subsidies went away there would be a massive decrease in the new installations of solar, the solar industry does not face the difficult path that the fuel cell industry did. The fuel cell industry faced a huge "chicken and egg" problem - no one would buy a fuel cell vehicle without refuelling stations established - no one would establish fuelling stations without an installed fleet of vehicles. There were many other difficulties too, but let's stick with this one as it is the one which is not solvable with technical improvements. This "chicken and egg" problem prevented, not just mass-production, of fuel cells, but darn near any production of fuel cells. Fuel cell companies could not even begin to start riding the learning curve of production down to reduce costs.
Solar, on the other hand, doesn't face such a barrier. This is allowing solar energy (and here I'm just speaking of PV) to be produced in huge quantities. Each solar cell produced costs less than the cell before that. This is giving the solar energy the momentum it needs to continue to drive down costs, and then eventually compete without subsidy against other forms of electricity generation. This slow, but steady, improvement is an opportunity the poor fuel cell was never provided. Ballard's engineers built a killer product, but it was required to compete fairly with the automotive engine from day 1, and build out a supporting installed base at the same time.
So, are solar energy stocks overvalued? Perhaps, perhaps not. If I knew for sure I'd be calling my broker. However, we at Starfish feel that the opportunities in the solar industry are certainly real, and that, this time, there are real, long-term, sustainable, businesses to be built that have a decent path to market. I'm here in Alice to see if I can support any. Oh, and to soak up some sun!
Sunday, September 30, 2007
More press coverage!
The Bendigo conference managed to generate a lot of press coverage. In the Sunday Age, a newspaper here in Australia, there was a feature story on the work we are doing here at Starfish. I am sometimes hesitant about the way that venture capital will be portrayed - either saviours of the economy and creators of jobs, or the financial barbarians at the gate, but I think this came off quite well.
Tuesday, September 18, 2007
Renewable Energy Conference
I just returned from Bendigo, Victoria. Bendigo is a regional city within Victoria, and one of the more successful regional centres. The conference showcased how regional Australia could benefit from a growing renewable energy industry. This reiterated how climate change should not be discussed in terms or "economy" vs "environment". Rather, addressing the full costs of carbon emissions will create tremendous opportunities for economic growth (especially in regional areas) addressing the problem.
I got to give an interesting presentation, and if I figure out how to host files off of Blogger, I'll try to post it here. A number of people seemed to really like it. I may have ruffled a few feathers in the fuel cell industry when I said that it was very difficult to make investments in the fuel cell space now after the tremendous exposure that fuel cell companies received in the last ten years. However, with my years at Ballard, and my exposure to Plug, UTC, GM and other fuel cell developers, I still am pretty confident I know what I'm talking about.
The ABC (Australian Broadcasting Corporation) interviewed me for their radio segment, which discusses portions of my talk. If you want to listen to it, it's listed here. It was great to see the enthusiasm at the conference, and it was good to meet up with some entrepreneurs. If anyone reading this blog has any questions about anything I mentioned, be sure to leave a comment and I'll try to respond.
Note: the picture and the interview (I imagine - although I suppose I provided most of the content) are copyright the ABC.
I got to give an interesting presentation, and if I figure out how to host files off of Blogger, I'll try to post it here. A number of people seemed to really like it. I may have ruffled a few feathers in the fuel cell industry when I said that it was very difficult to make investments in the fuel cell space now after the tremendous exposure that fuel cell companies received in the last ten years. However, with my years at Ballard, and my exposure to Plug, UTC, GM and other fuel cell developers, I still am pretty confident I know what I'm talking about.
The ABC (Australian Broadcasting Corporation) interviewed me for their radio segment, which discusses portions of my talk. If you want to listen to it, it's listed here. It was great to see the enthusiasm at the conference, and it was good to meet up with some entrepreneurs. If anyone reading this blog has any questions about anything I mentioned, be sure to leave a comment and I'll try to respond.
Note: the picture and the interview (I imagine - although I suppose I provided most of the content) are copyright the ABC.
Friday, September 07, 2007
Hello to RMIT
I had an interesting discussion with business undergrads today at RMIT in Melbourne (apologies to Georgia Beattie, who I accidentally called Georgina...oops). As undergrads I was fairly encouraged that they were as interested as they were in venture capital, business strategy, and what makes a successful start-up. Very likely some of them are reading this blog, so if that's you, I hope you found it useful. I had fun talking with you.
Thursday, September 06, 2007
Other VC Blogs
Since I've begun writing my blog I've been reading a number of other blogs by various other VCs. In fact, it was the fact that there are so many other VC blogs that got me thinking of starting this in the first place. I'm actually kind of dismayed at the low quality of most of the posts. It seems that a lot of bloggers just enter something - anything - so that they can update their RSS feed. Most of the time they will simply take a clip from another website and then add the comment - "This sounds great!".
However, I have found a few that I think are pretty good. I then came across Marc Andreessen's blog, which, hands down, has some of the best content I've seen on startups and VC funding. It's funny, because I know that I'm just doing what I described above as being bad (having a post about nothing other than other people's posts), but Marc's site is pretty special.
blog.pmarca.com
However, I have found a few that I think are pretty good. I then came across Marc Andreessen's blog, which, hands down, has some of the best content I've seen on startups and VC funding. It's funny, because I know that I'm just doing what I described above as being bad (having a post about nothing other than other people's posts), but Marc's site is pretty special.
blog.pmarca.com
Sunday, September 02, 2007
More on Climate Change
When I mentioned in my last post, that the IPCC is requiring that the per capita CO2 emissions on this planet peak and start to decline soon, I should mention that I don't actually know if the IPCC have specifically made those recommendations. However, I arrived at that conclusion after reviewing their data, so I thought I would share it with you.
This also relates to the discussion of a carbon tax vs. a trading system. In a carbon tax situation, the price of the carbon is fixed, and the amount of carbon is let to float. This is good when it is important to know the likely impact on the economy, but not so good if you want to know the effectiveness of the CO2 reduction. The other approach is to set a level of CO2 reduction required, and let the price float. This is good if you want to constrain CO2 production to known levels, but not so good if you want to know the effect on the economy. One thing discussed in Australia is the notion of a "safety valve" - ie, a cap on the price of carbon. The name "safety valve" clearly shows a bias to the economy and making sure it is "safe". If the price of CO2 is very high, it could be for a good reason - that the levels of CO2 emissions are still too high, and greater economic forces are needed to come down, but, as I said, the language of "safety valve" is biased towards economic performance, not emissions control.
Nevertheless, let's get back to the issue of determining when per capita CO2 emissions need to peak and fall. The book, "Six Degrees: Our Future on a Hotter Planet" by Mark Lynas discusses various effects that each one degree increase in temperature for the planet can mean. The great concern isn't just the global warming, it is the risk that one, or more, positive feedback triggers can occur, which would greatly affect our planet and dramatically hinder our ability to do anything. These positive feedback events include the melting of the polar icecaps (reducing the reflectiveness of the Earth and causing the Earth to heat up more), the methane release of thawing permafrost, the burning of the Amazon, etc. The link I provided is actually a summary of the book from The Guardian, and is an interesting read.
The end result is that we don't really want to increase temperatures past two degrees increase, otherwise we end up triggering the "tipping point" events which lead to runaway destruction. So, now let's turn to the IPCC for some charts. This paper from Bert Metz shows the temperature rise from various emission scenarios. The two graphs of interest are below.
Now, looking at the second graph first, we see that pretty much anything past A1, A2, or B is certainly going to result in a long-term temperature rise of three degrees or more. If we want to avoid this, we need to follow emissions profiles for A1 or A2 (or, at the most reckless, B).
Now we turn our attention to the first graph. We see that for A1, A2 and B, the emissions all peak at similar times (around 2020). The only difference between the different scenarios is the rate of decline in CO2 emissions. So, 2020 - since it is now 2007, this means that we have to begin an actual decline in emissions in the next 13 years - yes?
However, this is where the ever growing population that I discussed a few months ago comes back into play. The population is ever increasing! So, for the population simply to continue with the same rate of CO2 emission, in an increasing population situation, means that the per capita CO2 emissions need to drop. Therefore, the per capita emissions need to begin to decline sooner than 13 years, maybe closer to 10.
Ten years. Ten years ago was 1997 and the handover of Hong Kong to China. Ten years ago was the death of Princess Diana. Ten years ago I joined an exciting fuel cell company, Ballard Power Systems, in hopes of helping its mission of having the "Power to Change the World". Ten years seems like a long time in some respects, but an absolutely terrifyingly short time in others. We don't need to slow down the growth rate of emissions, we need to slow down our actual rate of emissions, and continue to decrease our rate of emissions. We're driving towards a brick wall and discussing weather we should have a foot fully on the accelerator, or less fully on the accelerator...we've got only ten years to look for the brake. Unfortunately, we're not driving in an easily stopped sports car either, we're on the lumbering freight train called the global economic system. The demand for solutions cannot be greater.
This also relates to the discussion of a carbon tax vs. a trading system. In a carbon tax situation, the price of the carbon is fixed, and the amount of carbon is let to float. This is good when it is important to know the likely impact on the economy, but not so good if you want to know the effectiveness of the CO2 reduction. The other approach is to set a level of CO2 reduction required, and let the price float. This is good if you want to constrain CO2 production to known levels, but not so good if you want to know the effect on the economy. One thing discussed in Australia is the notion of a "safety valve" - ie, a cap on the price of carbon. The name "safety valve" clearly shows a bias to the economy and making sure it is "safe". If the price of CO2 is very high, it could be for a good reason - that the levels of CO2 emissions are still too high, and greater economic forces are needed to come down, but, as I said, the language of "safety valve" is biased towards economic performance, not emissions control.
Nevertheless, let's get back to the issue of determining when per capita CO2 emissions need to peak and fall. The book, "Six Degrees: Our Future on a Hotter Planet" by Mark Lynas discusses various effects that each one degree increase in temperature for the planet can mean. The great concern isn't just the global warming, it is the risk that one, or more, positive feedback triggers can occur, which would greatly affect our planet and dramatically hinder our ability to do anything. These positive feedback events include the melting of the polar icecaps (reducing the reflectiveness of the Earth and causing the Earth to heat up more), the methane release of thawing permafrost, the burning of the Amazon, etc. The link I provided is actually a summary of the book from The Guardian, and is an interesting read.
The end result is that we don't really want to increase temperatures past two degrees increase, otherwise we end up triggering the "tipping point" events which lead to runaway destruction. So, now let's turn to the IPCC for some charts. This paper from Bert Metz shows the temperature rise from various emission scenarios. The two graphs of interest are below.
Now, looking at the second graph first, we see that pretty much anything past A1, A2, or B is certainly going to result in a long-term temperature rise of three degrees or more. If we want to avoid this, we need to follow emissions profiles for A1 or A2 (or, at the most reckless, B).
Now we turn our attention to the first graph. We see that for A1, A2 and B, the emissions all peak at similar times (around 2020). The only difference between the different scenarios is the rate of decline in CO2 emissions. So, 2020 - since it is now 2007, this means that we have to begin an actual decline in emissions in the next 13 years - yes?
However, this is where the ever growing population that I discussed a few months ago comes back into play. The population is ever increasing! So, for the population simply to continue with the same rate of CO2 emission, in an increasing population situation, means that the per capita CO2 emissions need to drop. Therefore, the per capita emissions need to begin to decline sooner than 13 years, maybe closer to 10.
Ten years. Ten years ago was 1997 and the handover of Hong Kong to China. Ten years ago was the death of Princess Diana. Ten years ago I joined an exciting fuel cell company, Ballard Power Systems, in hopes of helping its mission of having the "Power to Change the World". Ten years seems like a long time in some respects, but an absolutely terrifyingly short time in others. We don't need to slow down the growth rate of emissions, we need to slow down our actual rate of emissions, and continue to decrease our rate of emissions. We're driving towards a brick wall and discussing weather we should have a foot fully on the accelerator, or less fully on the accelerator...we've got only ten years to look for the brake. Unfortunately, we're not driving in an easily stopped sports car either, we're on the lumbering freight train called the global economic system. The demand for solutions cannot be greater.
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