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Richard T Stuebi Presentation Transcript

  • 1. AN OVERVIEW OF ENERGY VENTURE CAPITAL Richard T. Stuebi President, NextWave Energy November 18, 2004 Energy Advancement Leadership Conference, Houston
  • 2. TOPICAL AREAS
    • Overview of venture capital
    • VC in overall energy finance spectrum
    • Facts about energy VC marketplace
    1
  • 3. FAILURE RATE OF NEW VENTURES Percent Source: U.S. Department of Commerce, New Jersey Institute of Technology 2
  • 4. TYPICAL VC PORTFOLIO # Invested $ mm Return multiple Year 5 value $ mm “ Dogs” 3 $3.0 0 x $0.0 “ Walking Dead” “ Cash Cows” “ Home Runs” Source: Venture Capital Online Return CAGR NA 4 $4.0 2 x $8.0 15% 2 $2.0 5 x $10.0 38% 1 $1.0 10 x $10.0 58% TOTAL 10 $10.0 2.8 x $28.0 23% Only 3 out of 10 investments produce favorable returns 3
  • 5. VC CONCERNS
    • Misguided strategies
      • Excessive reliance on government support to spur/sustain market
      • “ Me-too” strategies, no differentiating advantage
      • Customer needs not urgent enough to adopt new technology
    • Implausible analyses
      • Overoptimistic or unwarranted assumptions
      • Insufficient research in pricing and attainable market share
    • Excessive technical orientation
      • Inadequate marketing and sales experience
      • Questionable management skills
      • “ Perfect is the enemy of the good enough”
    4
  • 6. WHY VC’S INVEST
    • Huge, rapidly growing, real market
      • Market size: multiple millions per year desired
      • Market growth: 10% + per year
      • Demonstrated customer willingness to pay
    • Compelling business model
      • Recurring revenue streams vs. large, one-time sales
      • Sustainable advantage over competitors
      • Solves urgent customer “pain”
    • Attractive, realistic financials
      • Logically supportable assumptions
      • Plausible revenue, cost and profit projections
      • Reasonable valuations of venture
      • Solid capital formation plan
    • Strong management team
      • “ Bet on jockeys, not on horses”
      • Deep commercial orientation and business acumen
      • Demonstrated successes in related fields
    Most important factor 5
  • 7. TOPICAL AREAS
    • Overview of venture capital
    • VC in overall energy finance spectrum
    • Facts about energy VC marketplace
    6
  • 8. ENERGY SECTOR FINANCE Asset-based energy infrastructure projects Energy technology venture capital Businesses involving energy services Energy sector finance 7 Increasing risk/return
  • 9. ENERGY FINANCE ALTERNATIVES
    • Windfarms
    • Cogeneration
    • Energy efficiency
    • Hydrogen infrastructure
    Examples Key success factors Risk/reward profile
    • Well-structured contracts (especially off-take)
    • Favorable economics
    • Management team with strong development/ operating experience
    • Technology risks assessed/accepted
    • Modest upside (20% equity IRR max?)
    • Minimal downside (assuming technology risks nil or hedged)
    8 Asset-based projects
    • Green energy retailing
    • Mass-market retailing of energy technologies
    • Networking of distributed generation
    • Hydrogen sales
    • Solid general management team, with marketing/sales expertise
    • Clear evidence of customer willingness (ability) to pay to solve a clear need
    • Barriers to competitor mimicry
    • Minimal technology risk
    • Possibly attractive upside…
    • But significant market and execution risk
    Service businesses Technology VC
    • Nanotech for PV
    • New wind turbine concepts
    • Stirling engines
    • “ Exotics”
    • Acceptable technology development risks
    • Modest market adoption challenges
    • Time to exit/ liquidity acceptable
    • Strong patent position
    • Big potential upside (3-10x)…
    • But significant possibility of total loss
  • 10. IMPLICATIONS FOR VC INVESTORS IN ENERGY TECHNOLOGY PLAYS
    • Typically make inroads in niches (rather than address the overall market)
    • Often rely in some degree on government subsidies
    • Often entail higher upfront costs in exchange for lower annual costs
    • Often require a long time to fully develop technologies
    • Face high customer inertia and obstacles from incumbents
    • Attract relatively few investors (because of these issues)
    • Understand customer needs/ economics in those exact niches
    • Assess future “firmness” of government supports
    • Research customer acceptance of “paybacks”
    • Be willing to accept longer time horizon to exit/liquidity
    • Evaluate these obstacles accurately (conservatively?)
    • Consider risks associated with subsequent financing requirements
    Because new energy tech’s...: … VC investors must: 9
  • 11. RECENT ENERGY DEVELOPMENTS AFFECTING VC INTEREST
    • California debacle  deregulation?
    • Enron debacle  trading? generation?
    • Premature hype (microturbines, fuel cells, hydrogen?)
    • Lack of consistent transmission policy
    “ Negatives” “ Positives”
    • High oil/gas prices
    • Energy security post-9/11
    • Increased recognition of grid vulnerability (Aug. 03 blackout)
    10
  • 12. TOPICAL AREAS
    • Overview of venture capital
    • VC in overall energy finance spectrum
    • Facts about energy VC marketplace
    11
  • 13. Source: Nth Power, U.S. Dept. of Commerce, U.S. Energy Information Administration, NextWave Energy analysis SMALL SHARE OF VC TO ENERGY Percent 7.1% 100% = $9.8 trillion (2000) 2.3% 92.9% 100% = $18.2 billion (2003) 97.7% U.S. VC investments U.S. GDP 12
  • 14. U.S. ENERGY VC INVESTMENTS $ millions Source: Nth Power 13
  • 15. WORLDWIDE ENERGY TECH VC $ millions Source: Nth Power 14 -10% $526.2 $583.6 Total -34% $32.5 $49.5 Other +42% $17.0 $12.0 Grid optimization -10% $46.5 $51.7 Power quality -51% $23.7 $48.4 Services +191% $94.2 $24.1 Customer energy management +27% $87.6 $68.9 Power IT -32% $224.7 $329.0 DG & storage Change 2003 2002 Sector
  • 16. PROFILE OF GLOBAL ENERGY VC DEALS $ millions Source: Nth Power More, smaller deals (risk diversification) 15 $526 $6.26 84 2003 $584 $10.61 55 2002 Total investment Avg. deal size No. of deals
  • 17. LEADING ENERGY TECH VC INVESTORS
    • Altira
    • Arete
    • EnerTech
    • Alliant
    • Avista
    • Chevron
    • Cinergy
    • DQE
    • Enron
    • FA Tech Ventures
    • Kinetic
    • Nth Power
    • Perseus
    • Exelon
    • Hydro-Quebec
    • OPG
    • PG&E
    • Reliant
    • Shell
    • Advent
    • Altira
    • Braemar
    • ChevronTexaco
    • Cinergy
    • ConocoPhillips
    • Eastman
    • EnerTech
    • Nth Power
    • RockPort
    • Hunt
    • OPG
    • Shell
    • Alta
    • Benchmark
    • DFJ
    • JP Morgan
    • Mayfield
    • Mohr Davidow
    • RBC
    • Sevin Rosen
    • Technology Partners
    • USVP
    • JP Morgan (Beacon)
    • RBC
    • Sevin Rosen
    • Technology Partners
    Strategic investors Energy VC’s General VC’s “ Then” (2000/2001) “ Now” (2004) Source: NextWave Energy assessment 16
  • 18. CONTACT INFORMATION
    • Richard T. Stuebi
    • President
    • NextWave Energy, Inc.
    • 1600 Broadway, Suite 2400
    • Denver, CO 80202
    • (303) 352-0377
    • (303) 573-1830 fax
    • [email_address]
    • www.nextwave-energy.com
    17