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Richard T Stuebi

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    Richard T Stuebi Richard T Stuebi Presentation Transcript

    • AN OVERVIEW OF ENERGY VENTURE CAPITAL Richard T. Stuebi President, NextWave Energy November 18, 2004 Energy Advancement Leadership Conference, Houston
    • TOPICAL AREAS
      • Overview of venture capital
      • VC in overall energy finance spectrum
      • Facts about energy VC marketplace
      1
    • FAILURE RATE OF NEW VENTURES Percent Source: U.S. Department of Commerce, New Jersey Institute of Technology 2
    • 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
    • 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
    • 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
    • TOPICAL AREAS
      • Overview of venture capital
      • VC in overall energy finance spectrum
      • Facts about energy VC marketplace
      6
    • ENERGY SECTOR FINANCE Asset-based energy infrastructure projects Energy technology venture capital Businesses involving energy services Energy sector finance 7 Increasing risk/return
    • 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
    • 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
    • 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
    • TOPICAL AREAS
      • Overview of venture capital
      • VC in overall energy finance spectrum
      • Facts about energy VC marketplace
      11
    • 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
    • U.S. ENERGY VC INVESTMENTS $ millions Source: Nth Power 13
    • 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
    • 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
    • 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
    • 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