TERU Focus Report - California PIER Venture Forum

The Roles of VC and Public Investment in Clean Technologies
June 10, 2011 -- Michael Theroux

Introduction

The California Energy Commission's Public Interest Energy Research (PIER) program staged a Venture Forum on June 7, 2011, bringing together leading venture capitalists (VC) and innovative energy companies in the clean energy sector. The intent of the Forum was to encourage higher levels of venture investments and greater interaction (and understanding) between the VC world and future PIER funded clean energy and fuels technologies. The Forum also spotlighted companies and projects supported by PIER that are helping California meet its energy policy goals. CEC staff indicated that this is the first of a series of Forums of this kind, each featuring different funding interests and clean tech companies. The CEC will also hold three PIER program workshops to discuss and seek input on the program focus and proposed initiatives.

The PIER program needs reauthorization and new funding allocations, difficult in this tight economy. Assemblyman Das Williams, 35th Assembly District, Santa Barbara, opened the Forum with an update on the positive progress of his re-authorization bill AB 1303, now on its way to the Senate. Assemblyman Williams noted that the private capital community needs to clearly see that the state is supporting emerging technologies through programs such as the PIER, but in return the state legislators must hear from their constituents that indeed re-authorization is important, urging individuals to contact their representatives.

PIER Program Director Laurie ten-Hope brought experienced entrepreneur and Angel investor Ron Hofmann to the podium to moderate the VC panel. Mr. Hoffman specializes in business development and technology assessment in the energy sector. He introduced the VC panel by explaining the context of "dilutive" and "non-dilutive" financing, the former including VCs, the latter exemplified by PIER support. PEIR staff presented the VCs with a sampling of questions designed to explore two major questions: (1) What are the current relationships and potential areas for improvement from agency to investor to tech start-up? And (2) As PIER reauthorization is considered, what might the program do to fine-tune to meet today's needs?

Venture Capitalist Panel

VCs, In order of presentations: Dan Adler, Director of the California Clean Energy Fund; Nat Goldhaber, Claremont Creek Ventures; Maurice Gunderson, CMEA Capital; Arati Prabhakar, US Venture Partners; and Jill Watts, Vulcan Capital (Google co-founder Paul Allen's investment arm).

Highlights from the presentations:

·    PIER was designed to address early-stage funding for society-critical business sectors that the Marketplace was not ready to support and to carry technology from demonstration to deployment, the first "Valley of Death" for start-ups.

·    A second critical yet under-served funding need: taking companies from proven, small commercial stage to "scale-up", to meet optimal market demand. This stage implies the need for a demand-driven incubation policy. Commercial-scale field tests are critical for carry-on funding and market acceptance. RD&D may be the least expensive support, but it does little for scale-up: use asset financing to support replicable modular distributed capacity.

·    The Public spends more annually on potato chips than on innovation and competitiveness; PIER is needed to drive state and federal spending toward the practical application of research, to step from a "good idea" through a test bed to a commercial product.

·    Matching business and technical expertise tends to get new products to market faster: PIER may consider University examples of Business Plan competitions. Yet the process of PIER (and the process of VC involvement) somehow needs to be stream-lined: the US is being out-stripped by China mainly because we stumble over complex protocol. Agency staff need Investment expertise: include VCs as advisors to PIER.

Questions and Answers:

(1) Has anyone observed a policy model that California can employ to cut through the quagmire of permitting and speed clean tech deployment?

·    The BiDole act of 1980 allowed universities to own intellectual property; this can provide a mechanism for public/private investment and commercialization and is becoming more broadly recognized for Clean tech advancement. It could be expanded to state/private.

·    Teru Note: Manal Yamout's innovative pathway developed under Governor Schwarzenegger effectively drove the Desert Renewable Energy Conservation Plan into place in record time. Ms Yamout is now Special Advisor to Governor Brown; her approach could be a template for other programmatic Clean Tech advancement efforts, perhaps managed by PIER.

(2) VC level of Interest in Conversion of Waste to Fuels and Energy?

·    All comes down to the Money: can the conversion be accomplished economically, given the challenges of feedstock supply uncertainties, expensive abortive and complicated permitting pathways, public opposition.

·   "It is the Role of Government to distort the Market for the Public's Benefit"; here, agency direction is needed to organize the needed supply infrastructure.

(3) Do surrounding states have, and/or need, a "PIER" program?

·    Arizona and Oregon have straight-forward permitting mechanisms for technology and project development, and little stands in the way of rapid commercialization. Oregon also has a many-layered support program.

Clean Tech Panel

To maintain the "Venture Forum" perspective addressing the questions surrounding re-authorization of the PIER program, this Focus Report addresses in detail only the VC elements, not the start-up case studies. Clearly, companies were chosen to provide examples of PIER support success; just as clearly, the majority now struggle with scale-up and the general lack of support for full-scale testing.

After the Clean Tech representatives completed their presentations, Teru posed one final question for the Clean Tech panel:

How important is external technology verification (ETV) to your company's ability to secure funding and successfully enter the global marketplace?

All companies presenting agreed whole heartedly: The ability to receive third-party assessment and validation remains one of the most important steps in commercialization. When we only present data we ourselves have paid for, it is completely understandable that few will expend their resources to support and adopt our systems and methods. There must be means to present systems for assessment by outside expertise. Without this avenue, marketing is simply unqualified promotion.

Whether the PIER program can provide grant funds directly to a technology or not, perhaps the programs most essential function should be to orchestrate at-scale trials and test beds, where emerging clean tech efficacy can be proven, or disproven. As noted by Dan Adler of CalCEF, the ability to embrace our failures and move forward is one of the most important of American qualities. A PIER-directed ETV program could provide a safe-haven for Clean Tech to try, fail, fix and succeed.