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Venture Investing in Cleantech

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A presentation to Lt. Governor John Garamendi and the California Commission for Economic Development

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Venture Investing in Cleantech

  1. 1. 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
  2. 2. 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
  3. 3. Global energy needs continue to rise along with dependence on carbon… Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  4. 4. …and the price of oil has reached levels unseen since early ’80’s Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners Monthly Average Oil Price per Barrel Nominal Prices Inflation-Adjusted Prices (December 2007 $) Source: IOGA, Bureau of Labor Statistics 4
  5. 5. Renewables expected to supply only 20% of energy by 2020… Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  6. 6. …and the U.S. continues to lag in renewables adoption Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners % 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
  7. 7. Cleantech: a portfolio solution that comprises a broad set of sectors… Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  8. 8. …each providing a depth of entrepreneurial opportunities Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  9. 9. Lightspeed’s cleantech/energy investments Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners Solar Wind Fuels Other Generation Renewable petroleum biofuels Coal pre-treatment systems High-efficiency thin-film modules Oil & gas exploration Algae-based biofuels/chemicals equipment Storage Energy Efficiency Water/Air Other Next-generation lithium-ion batteries Power management for Cleantech media & research LED lighting 9
  10. 10. Why cleantech now? Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners Shift in economics Massive Technology end-markets Entrepreneurs headroom Businesses Investors Corporate & Government social imperatives imperatives 10
  11. 11. Sampling of corporate and social initiatives Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 11
  12. 12. Cleantech venture investment up significantly since 2002… Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners $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
  13. 13. …with the bulk of capital going into generation during 2007 Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  14. 14. Cleantech-specific deal evaluation criteria Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  15. 15. Solar: Cost economics Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners $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
  16. 16. Biofuels: Cost economics Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners $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
  17. 17. Storage: Battery technologies Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  18. 18. Coal: primary source of SO2 emissions Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  19. 19. High-efficiency coal carries significant market premium Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners Price Spread for Low-BTU vs. High-BTU Coal ~5-10X Source: US Department of Energy 19
  20. 20. Government & public policy support has had strong “greening” impact Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  21. 21. How can policy support contribute to cleantech innovation today? Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  22. 22. Greenhouse gas abatement necessitates a portfolio approach Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners Source: McKinsey 22
  23. 23. Cleantech companies could have strong impact on the economy Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners 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
  24. 24. Cleantech: A multitude of opportunities Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners Solar Wind Fuels Other Generation Renewable petroleum biofuels Coal pre-treatment systems High-efficiency thin-film modules Oil & gas exploration Algae-based biofuels/chemicals equipment Storage Energy Efficiency Water/Air Other Next-generation lithium-ion batteries Power management for Cleantech media & research LED lighting 24
  25. 25. 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

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