Originally created 05/02/04

Clean technology firms attracting venture dollar



PALO ALTO, Calif. - Martin Roscheisen, the CEO of Nanosolar Inc., holds up a plastic vial filled with dark, purple liquid - the secret ingredient behind a new kind of technology startup that's turning heads in Silicon Valley.

In a private laboratory, Nanosolar scientists are designing low-cost solar electricity cells that Mr. Roscheisen contends will make solar power competitive with conventional energy sources.

The purple liquid is a nano-engineered material that "self-assembles" into tiny solar cells that convert sunlight into electricity.

"We're at the threshold of making solar electricity profitable," says Mr. Roscheisen, whose firm raised $6.5 million last year from U.S. Venture Partners, Benchmark Capital and other investors. "We're seeing a lot of interest. We're being contacted all the time by investors."

Across the country, venture capitalists are opening their wallets to upstarts that, like Nanosolar, develop "clean" technologies in anticipation of a growing market for products that generate revenue without harming the environment.

In 2003, investment in clean technology ventures rose 8 percent to $1.2 billion while overall venture capital investment fell 14 percent to $18.2 billion, according to the Cleantech Investor Network. The Howell, Mich.-based group defines clean technologies as technologies that allow for more efficient use of natural resources and greatly reduce ecological impact.

Venture capital firms are pouring money into clean technologies related to water purification, agriculture, transportation, manufacturing, recycling, air quality and alternative energy such as solar, wind and hydrogen.

"We're getting a bigger and bigger piece of the pie year after year," said Keith Raab, Cleantech's president and chief executive.

Among the startups that pulled in the most money last year were Evergreen Solar Inc., a Marlboro, Mass.-based developer of solar electricity systems that raised $29.5 million, and Powerspan Corp., a New Durham, N.C.-based maker of pollution-control technology for the energy industry that secured $20 million.

Still, some venture capitalists remain wary about investing in environmentally friendly companies after getting burned in the 1980s, when solar and wind energy startups raked in venture dollars, and in the 1990s, when hydrogen fuel cells were hot.

Nanosolar was the first green venture investment for Menlo Park-based Benchmark Capital, but general partner Bill Gurley said the decision was motivated more by its belief in the startup's management team than the sector itself.

"There haven't been a lot of success stories in the cleantech space," Mr. Gurley said. "There's no Microsoft, eBay or Cisco that says this is a fertile ground for venture investment."

Others believe the latest funding boom is different - that a variety of technological, political and economic forces have converged to make clean technologies ripe for investment.

"The fundamental economics suggest there's a good payout for a whole fleet of alternative, renewable technologies," said Kyle Datta, the managing director of the Rocky Mountain Institute, a Snowmass, Colo.-based nonprofit that promotes eco-friendly capitalism.

The sector has gotten a boost from a new California plan to invest $1.5 billion of the state's pension funds in environmental technologies. State Treasurer Phil Angelides said the "Green Wave" initiative is aimed at helping the state improve financial returns, generate jobs and clean up the environment.

"I want to see California in the best position to reap the benefits of this growing sector of the global economy," Mr. Angelides said in an interview.

The California Public Employees' Retirement System, the nation's largest pension fund, voted in March to invest $200 million in clean technology startups, and agreed this month to pump $500 million into environmentally responsible stocks and mutual funds.

The market for alternative energy is sure to grow as global oil prices rise, fossil fuels become more scarce, states look for more reliable energy supplies and the United States reduces its dependence on foreign oil, investors say.

"There are other people at the table that are changing the supply and demand curve on a global scale," said Erik Straser, the general partner at Mohr Davidow Ventures in Menlo Park. "The Chinese and Indian governments are seeking a better way of life for their citizens. To do that they need access to energy."