Venture Investing in Cleantech

Presentation to the
California Commission for Economic Development
“Venture Investing in Cleantech”

Andrew G.W. Chung
Principal, Lightspeed Venture Partners

September 15, 2008

Our mission: We partner with
exceptional entrepreneurs to build
high-growth, market-leading
companies globally

Lightspeed: At a glance
Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

$2.1B of committed capital Selected Managing Director Investments

Currently investing
Fund VIII: $800M
22 investment
professionals
Lead investor orientation
Global platform
U.S. India
Cleantech & Energy-Related Investments
China Israel
Top-quartile performance
across all funds

Global energy needs continue to rise
along with dependence on carbon…

Electricity Generation CO2 Levels vs. Temperature Change

400ppm 10°C
4TWh U.S.
8
350 6
3 4
300 2
China
0
2
250 -2

Japan -4
1 Russia
200 -6
India
Canada -8

0 150 -10
1980 1985 1990 1995 2000 2005 400 350 300 250 200 150 100 50 0
1000s Years Ago
Source: IOGA, Bureau of Labor Statistics, US National Ocean and Atmospheric Administration (NOAA) / UK Climate Research Institute 3

…and the price of oil has reached
levels unseen since early ’80’s
Monthly Average Oil Price per Barrel

Nominal Prices Inflation-Adjusted Prices (December 2007 $)

Source: IOGA, Bureau of Labor Statistics 4

Renewables expected to supply only
20% of energy by 2020…

Global Sources of Energy
1600

1400
Geothermal
Annual Energy Output

1200 Other Renewables

Renewables
Solarthermal
(1018 Joules)

1000 Solar Electricity
800 Wind
Biomass (Modern)
Biomass (Traditional)
600 Hydro
Nuclear
400 Gas

200 Coal
Oil
0
2000 2010 2020 2030 2040 2050

Source: Scientific Advisory Committee, German Government 5

…and the U.S. continues to lag in
renewables adoption

% Share of Hydroelectricity % Share of Other Renewables % Share of Biofuel Vehicles

100% 30% 100%

80 80

20
60 60

40 40
10

20 World 20
average
World
average
0 0 0
U.S. Brazil
S.

or il

S.

I l
e w er n

er en

Ph inl in
al d
Au nd

lo nd

p d

m s
Br o
Ve an a
zu a
I c ela

B r ia

ex K
ay

y

Sp y

k
i

en e
an
ne a d

N az

az
ic

ar
N itz de

C ri

S w tal
Ze lan

ili an
U.
b

F a
U.

U.
w

D pin
G ed
a

Co ela
st

m
e

m
Sw S w

M

Source: BP Statistical Review of World Energy 2008, Brazilian Automakers Association, U.S. Bureau of Transit Statistics, U.S. Energy Information Administration
6

Cleantech: a portfolio solution that
comprises a broad set of sectors…

Solar Wind Fuels Other Generation
Polysilicon/wafer Horizontal-axis Petroleum substitutes Coal gasi-/purification
Cell/modules turbines Coal-to-liquids Solar thermal
Balance of systems Vertical-axis turbines Gas-to-liquids Transportation tech
Financing Small form factor Ethanol production Oil & gas solutions
Off-coast Biodiesel production Hydropower
Wave kinetics

Storage Energy Efficiency Water/Air Other
Batteries Demand response Water purification Building materials
Ultracapacitors Lighting/HVAC control Air purification Waste management
Grid storage services Distributed generation Recycling
Fuel cells management
Automated metering

7

…each providing a depth of
entrepreneurial opportunities

Example: SOLAR
Traditional

Polysilicon C-Si cells Module packaging
Sample areas of innovation

Metallurgical-grade Back-contact cells Balance of systems
Wafering Sliver cells Inverters
Continuous CZ method Thin-film MPP tracking
Ribbon technology a-Si/CdTe/CIGS/CIS Systems monitoring
Dye, organics
Solar financing
New materials
Residential
Concentrated PV Commercial

Solarthermal Combined heat & power (CHP) Capital equipment
8

Lightspeed’s cleantech/energy
investments


Renewable petroleum biofuels Coal pre-treatment systems

High-efficiency thin-film
modules
Oil & gas exploration
Algae-based biofuels/chemicals equipment


Next-generation
lithium-ion batteries Power management for Cleantech media & research
LED lighting

9

Why cleantech now?

Shift in
economics

Massive Technology
end-markets Entrepreneurs headroom
Businesses
Investors

Corporate & Government
social imperatives imperatives
10

Sampling of corporate and
social initiatives

11

Cleantech venture investment
up significantly since 2002…

$4 15%
13.1%

% of Total VC Investment
10.1% 12%
$3
$ Billions

7.6% 9%
$2 6.9%
5.9% $4.1
5.1% 6%
$2.8
$1
$1.6 3%
$1.1 $1.2 $1.2
$0 0%
2002 2003 2004 2005 2006 2007

VC Investment in Cleantech % of Total VC Investment

Note: Includes only North American deals; Source: Cleantech Venture Monitor
12

…with the bulk of capital going into
generation during 2007

278 $4.1B
100%
Other Other
Agriculture
Agriculture Infrastructure
Infrastructure Recycling
80% Recycling Efficiency
Efficiency Transportation
Transportation
60% Storage
Storage

40%
Generation
Generation
20%

0%
# of Rounds Total $ Raised
Note: Includes only North American deals
Source: Cleantech Venture Monitor 13

Cleantech-specific
deal evaluation criteria

Massive addressable market opportunity
Strong technology, process defensibility
Convincing fundamental economics
Viable distribution, infrastructure compatibility
Capital efficiency, milestones tiered for risk reduction
Time-to-market consistent with investment horizon
Macroeconomic, regulatory, and public policy tailwinds
Team with start/scale-up experience and domain expertise
14

Solar: Cost economics

$8 ESTIMATES
Crystalline Silicon Thin Film (Projected Costs)
Total Installed Cost per Peak Watt

$7

$6

$5

$4

$3
Systems and
$2 Installation

$1 Module

$0
Mono Multi CIGS CdTe a-Si New Tech
Target Efficiency 18% 14% 13% 10% 8% 15%++

Source: Lightspeed analysis 15

Biofuels: Cost economics

$25+
ESTIMATES
$8
Infrastructure compatibility issues
Production Cost Per Gallon
(Gasoline Equivalent)

$6 Synthetic
biology
Feedstock-constrained
Metabolic
$4 engineering
Coal
Tax Credit
liquefaction
$2 Tax Credit
Photosynthetic
Tax Credit (algae)

$0
$50/Barrel Soy-based Corn-based Cellulosic New Tech Algae-based
Oil Biodiesel Ethanol Ethanol Biocrude
Wholesale

Source: USDA, DOE, ILSA, Lightspeed analysis 16

Storage: Battery technologies

Ni-Cd
Safer New Tech
Safety

Lead-acid Li-Ion

Ni-MH

0 50 100 150 200

Energy Density (Wh/Kg) Smaller/Lighter
Source: Merriman, Curhan, Ford; IEA; Lightspeed analysis 17

Coal: primary source of SO2 emissions

Growth in Global Energy Sources US Electricity vs. SO2

Renewables
% change in global coal use (2001-04)

30% 100%
25% Hydro
25% Other
80% Nuclear

20%
60% Gas
15%
9% 40% Coal
10% 8%
6% Coal
5% 4% 20%

0% 0%
Coal NG Hydro Oil Nuclear Electricity Generation SO2 emission

Source: National Coal Council, Deutsche Bank, US Department of Energy
18

High-efficiency coal carries
significant market premium

Price Spread for Low-BTU vs. High-BTU Coal

~5-10X

Source: US Department of Energy
19

Government & public policy support
has had strong “greening” impact

Per Capita Electricity Sales U.S. Refrigerator Energy Use

New United States Refrigerator Use v. Time
Per Capita Electricity Sales (not including self-generation)
(kWh/person) (2006 to 2008 are forecast data)
and Retail Prices
14,000 2,000 25

1,800
12,000
1,600 20

Refrigerator volume (cubic feet)
United States

Average Energy Use or Price
2005 Differences
10,000 = 5,300kWh/yr 1,400
= $165/capita $ 1,270
Refrigerator
1,200 Size (cubic ft) 15
8,000
1,000

6,000 California
800 10

600
4,000 Energy Use per Unit
(kWh/Year)
400 Refrigerator Price $ 462 5
Per Capita Income in Constant 2000 $ in 1983 $
2,000 1975 2005 % change 200
US GDP/capita 16,241 31,442 94%
Cal GSP/capita 18,760 33,536 79% 0 0
0
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002
1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Key regulatory changes Key regulatory changes
Source: Art Rosenfield, California Energy Commission
20

How can policy support contribute
to cleantech innovation today?

Support Initiatives Sample Policy Mechanisms

Providing funding aid for cleantech startups Solar: investment tax credit, residential/
and R&D efforts (grant monies, loan commercial/utility-based PPA incentives
guarantees, tax breaks)
Biofuel: blending/production credit, fuel
Support creation of cleantech clusters and distribution and performance requirements
facilitate ecosystem communication
Wind: production tax credit
Connecting startups to key export markets
Energy efficiency: demand response, HVAC,
Setting example in adopting clean, energy lighting, heating & green building incentives
efficient products for government use Smart grid: grid storage, net metering
Reduce uncertainty by making multiyear Transportation: incentives for fleet
commitments to environmental policy emissions/GHG reduction, ZEV credits
Expanding consumer and commercial Carbon reduction: cap & trade, carbon
incentives for cleantech adoption capture/sequestration, coal retrofitting
21

Greenhouse gas abatement
necessitates a portfolio approach

Source: McKinsey
22

Cleantech companies could have
strong impact on the economy

Average Employment for Energy Facilities REPP: each MW of installed
solar generates 35.5 new jobs
12
10.6
CVN: 2007-10 cleantech
Jobs/MW operating capacity

10
VC-backed companies
8
~$14-19B investment
6 400-500K new jobs
4 2.8 2.8 $70-100B new revenue
2 1.0 1.0
Stern Review: cost of not
0 addressing climate change:
Solar Biomass Wind Coal Gas 5-20% of global GDP/yr

Source: UC Berkeley, Cleantech Venture Network, Renewable Energy Policy Project
23

Cleantech:
A multitude of opportunities


Renewable petroleum biofuels Coal pre-treatment systems

High-efficiency thin-film
modules
Oil & gas exploration
Algae-based biofuels/chemicals equipment


Next-generation
lithium-ion batteries Power management for Cleantech media & research
LED lighting

24

Questions?
Andrew G.W. Chung
Principal, Lightspeed Venture Partners

andrew@lightspeedvp.com
(650) 234-8300

Our mission: We partner with
exceptional entrepreneurs to build
high-growth, market-leading
companies globally

Venture Investing in Cleantech

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