Richard T Stuebi

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
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• 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”
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• 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
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• 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)
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• 12. TOPICAL AREAS
  • Overview of venture capital
  • VC in overall energy finance spectrum
  • Facts about energy VC marketplace
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• 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
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