Private Investments in New Environmental Technologies Presentation to the Triple Bottom Line Investing Conference Bangkok, Thailand May 24, 2007 Jay Shepherd, Shibley Righton LLP

Presentation Roadmap Investing Issues Philosophies Startup Investing Environmental Technologies Case Studies Frozen Sun Inc. Iogen Inc. Group IV Semiconductor Inc.

Investing Issues

Philosophies

Startup Investing

Environmental Technologies

Case Studies

Frozen Sun Inc.

Iogen Inc.

Group IV Semiconductor Inc.

Investing Issues

The Philosophical Debate Profit vs. SRI Goals SRI as charitable donations SRI for indirect benefits SRI as sound long term fundamentals Is there a free ride for TBLI? Investing in “SRI” Startups Some investors – profit maximization Other investors – non-profit motives Trick is integrating the two

Profit vs. SRI Goals

SRI as charitable donations

SRI for indirect benefits

SRI as sound long term fundamentals

Is there a free ride for TBLI?

Investing in “SRI” Startups

Some investors – profit maximization

Other investors – non-profit motives

Trick is integrating the two

Investing in Technology Startups Technology Does it Work? Is it Unique? Can it be Replicated? Barriers to Entry? Ownership and Protection Can it be Scaled Up? People Management Team Entrepreneur CEO, CFO Scientific Team Inventor Development group Recruitment

Technology

Does it Work?

Is it Unique?

Can it be Replicated?

Barriers to Entry?

Ownership and Protection

Can it be Scaled Up?

People

Management Team

Entrepreneur

CEO, CFO

Scientific Team

Inventor

Development group

Recruitment

Risk Minimization Technology Standard Due Diligence Patents Literature Review Demo Startup Specials Peer Review Critical Path Analysis “ Showstoppers” List Scenario Analysis Alternate Revenue Streams

Standard Due Diligence

Patents

Literature Review

Demo

Startup Specials

Peer Review

Critical Path Analysis

“ Showstoppers” List

Scenario Analysis

Alternate Revenue Streams

Risk Minimization People Existing Personnel “ Founderitis” Earnbacks and other Vesting Tests Investor controls Management vs. Technical Strengths Stock Options/Performance Compensation Recruitment Detailed Needs Analysis Investor Assisted Additions Attractiveness of technology and team

Existing Personnel

“ Founderitis”

Earnbacks and other Vesting Tests

Investor controls

Management vs. Technical Strengths

Stock Options/Performance Compensation

Recruitment

Detailed Needs Analysis

Investor Assisted Additions

Attractiveness of technology and team

Environmental Technologies What’s Different? Investor Motivations Government Funding Entrepreneur’s Attitude Recruitment

Investor Motivations

Government Funding

Entrepreneur’s Attitude

Recruitment

Environmental Technologies Investor Motivations Good Deeds Altruistic Cocktail party advantage Public Relations Hedging Technology/product Regulatory

Good Deeds

Altruistic

Cocktail party advantage

Public Relations

Hedging

Technology/product

Regulatory

Environmental Technologies Government Funding Expanded List of Sources eg. Climate Change, Air Quality Funding Life Cycle Relationship to Technology Window Corporate Culture (Patience) Strings Attached Intellectual Property Rights Location/Hiring, etc.

Expanded List of Sources

eg. Climate Change, Air Quality

Funding Life Cycle

Relationship to Technology Window

Corporate Culture (Patience)

Strings Attached

Intellectual Property Rights

Location/Hiring, etc.

Environmental Technologies Entrepreneur’s Attitude Business Management Management as “bloodsport” Dedication to profit motive The Righteous Executive Can she/he make the hard decisions? How clear are the corporate goals? A special kind of “founderitis”

Business Management

Management as “bloodsport”

Dedication to profit motive

The Righteous Executive

Can she/he make the hard decisions?

How clear are the corporate goals?

A special kind of “founderitis”

Environmental Technologies Recruitment Who Can You Attract? “ First round draft choices” Mid to late career success stories What about the Money? Personal goals of “young stars” Importance of stock options for true believers

Who Can You Attract?

“ First round draft choices”

Mid to late career success stories

What about the Money?

Personal goals of “young stars”

Importance of stock options for true believers

Case Studies

Frozen Sun Inc. Result Ran out of money Investors lost 100% Entrepreneur moved on to new ventures Technology never finished Patents never filed Never commercialized Technology Solar cooling rooms Food storage for rural villages No moving parts Potential customers Development agencies NGOs and foundations Private corporations

Result

Ran out of money

Investors lost 100%

Entrepreneur moved on to new ventures

Technology never finished

Patents never filed

Never commercialized

Technology

Solar cooling rooms

Food storage for rural villages

No moving parts

Potential customers

Development agencies

NGOs and foundations

Private corporations

Frozen Sun Inc. What Did They Do Wrong? Wrong Board of Directors Good CVs, lack of business experience Politicians, true believers, etc. Scientist CEO Inexperienced in business No “hardass” to create urgency in R&D program Underfunded Needed more focus on financial plan A strong CFO or CEO would have seen need for more funding earlier

Wrong Board of Directors

Good CVs, lack of business experience

Politicians, true believers, etc.

Scientist CEO

Inexperienced in business

No “hardass” to create urgency in R&D program

Underfunded

Needed more focus on financial plan

A strong CFO or CEO would have seen need for more funding earlier

Iogen Inc. Result Pilot Plant Fully operational Commercial facilities In planning stages $80 million DOE grant Prospects Will be multi-billion company in 5 years Technology Cellulose ethanol Enzymes Proprietary process Large Market Superior to corn ethanol Even if competition, market large enough

Result

Pilot Plant

Fully operational

Commercial facilities

In planning stages

$80 million DOE grant

Prospects

Will be multi-billion company in 5 years

Technology

Cellulose ethanol

Enzymes

Proprietary process

Large Market

Superior to corn ethanol

Even if competition, market large enough

Iogen Inc. What Did They Do Right? Technology Decisions Seek a near-term revenue stream from core technology early, but Focus development team on long-term goal Entrepreneur scientist steps back Personnel Decisions Build a top development team and let them run it Recruit top executives early Use advantage of environmentally positive business model

Technology Decisions

Seek a near-term revenue stream from core technology early, but

Focus development team on long-term goal

Entrepreneur scientist steps back

Personnel Decisions

Build a top development team and let them run it

Recruit top executives early

Use advantage of environmentally positive business model

Iogen Inc. What Did They Do Right? Financial Decisions Strategic relationships with oil companies seeking Public relations advantages Hedging an environmentally negative portfolio Aggressive use of government funding Location in Canada’s national capital Early hire of experienced government relations exec. Patience and understanding of government agenda High risk approach paid off - $80 million US DOE Independent Revenue Stream Spinoff applications of core technology Allowed corporation to skip VC funding

Financial Decisions

Strategic relationships with oil companies seeking

Public relations advantages

Hedging an environmentally negative portfolio

Aggressive use of government funding

Location in Canada’s national capital

Early hire of experienced government relations exec.

Patience and understanding of government agenda

High risk approach paid off - $80 million US DOE

Independent Revenue Stream

Spinoff applications of core technology

Allowed corporation to skip VC funding

Group IV Semiconductor Inc. Result Well financed Angels and VCs High quality investors Prototypes performing better than LEDs Multiple technology platforms Main products by 2008/9 Niche products earlier Technology Solid state lighting Uses inexpensive materials, e.g silicon Incandescent costs, but 10-15% energy use Massive markets General illumination LCD backlighting Many niche apps

Result

Well financed

Angels and VCs

High quality investors

Prototypes performing better than LEDs

Multiple technology platforms

Main products by 2008/9

Niche products earlier

Technology

Solid state lighting

Uses inexpensive materials, e.g silicon

Incandescent costs, but 10-15% energy use

Massive markets

General illumination

LCD backlighting

Many niche apps

Group IV Semiconductor Inc. What Did They Do Right? Inventor/Businessman Partnership Inventor sought experienced businessman as CEO CEO runs company, inventor has specialized role Recruitment Sold on business, not environmental benefits Emphasis on product development experience Board of Directors Business acumen the selection criterion Three successful technology CEOs included World class Chairman of the Board

Inventor/Businessman Partnership

Inventor sought experienced businessman as CEO

CEO runs company, inventor has specialized role

Recruitment

Sold on business, not environmental benefits

Emphasis on product development experience

Board of Directors

Business acumen the selection criterion

Three successful technology CEOs included

World class Chairman of the Board

Group IV Semiconductor Inc. What Did They Do Right? Solid conventional financing plan Early angel funding and solid seed round investors Top calibre A Round financing – attracts others Relentless program, plus reliance on great board Paid strong attention to Cleantech, etc. Alternative financing program Government sources Tie-in to universities – problems, but worth it Heavy use of milestone-driven financing Conventional energy sector Mainly public relations driven

Solid conventional financing plan

Early angel funding and solid seed round investors

Top calibre A Round financing – attracts others

Relentless program, plus reliance on great board

Paid strong attention to Cleantech, etc.

Alternative financing program

Government sources

Tie-in to universities – problems, but worth it

Heavy use of milestone-driven financing

Conventional energy sector

Mainly public relations driven

Private Investments in New Environmental Technologies Presentation to the Triple Bottom Line Investing Conference Bangkok, Thailand May 24, 2007 Jay Shepherd, Shibley Righton LLP