investing in solutions to serious problems

Investing in solutions to serious problems1

CleanTech Market :VC Opportunities for Taiwan

Hank HabichtManaging Partner, SAIL Ventures

Taipei ForumJanuary 14, 2009

Investing in solutions to serious problems

Objectives for Today

1. Describe global and U.S. trends in Clean Technology (“CleanTech”) development and investment, including projections for 2009

2. Outline the role venture capital and public-private partnerships play in bringing new technology to market

3. Discuss opportunities for Taiwan and ideas for accelerating investments and market growth for Taiwan CleanTech firms and products

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A key to success is teaming with the right partners


Taiwan Can Help Change the World

Thesis: Clean Technology can change how we produce and consume. Success depends on:

• Entrepreneurs funded by VCs and public• Government support for new ideas/ventures• Customers willing to try new ideas• Strong partnerships (businesses & government)

Taiwan has excellent combination of innovation, entrepreneurial business culture and partnerships to succeed in Cleantech


Current Perspective

• SAIL Venture Partners: CleanTech focus, based in California and Washington, D.C; 5 Partners; 10 current portfolio companies (www.sailvc.com)

• GETF: developing clean energy and water projects globally (www.getf.org)

• Commissioner, National Commission on Energy Policy (www.energycommission.org)

• Steering Committee, Energy Future Coalition (www.energyfuturecoalition.org), ACORE,and 25x25


SAIL Team Synergy

Hank HabichtCleanTech

Markets/Policy

COO of EPA

US Attorney General –Energy & Environment

Senior VP Safety-Kleen

Head of M&A and Corp Acct sales

Principal in Environmental Venture Fund (3x)

Founder ACORE

Advisor to Secretary of Energy and NREL

Princeton BA

Virginia JD

David JonesBusiness &

Financial Models

25-Year Venture Capitalist as Managing Partner

60 Investments

Northwest Pipe

Co-invested with 100 other VC’s

Chairman NASBIC

4 Early-Stage Funds

Chairman or Director of 12 Public/Private Companies

Dartmouth BA

USC JD & MBA

Walter Schindler

Deal Structure/Exits Managing Partner Gibson

Dunn and Crutcher

Alternative Energy Expert at GDC

60 M&A / IPO’s (Ultrasystems, PIMCO and RemedyTemp)

US Bank Advisory Board

CEO Roundtable—UC Irvine

20 years strategic advisor on value creation

Harvard JD

Yale BA, MA, PhD

Alan SellersManagement

Systems/People

Partner Westar Capital

Executive Pacific Holding Company

EVP Dole Foods

VP Ultrasystems

General Counsel Pacific Holdings

25-year Boards

Wilmington Trust Advisory Board

Wharton MBA

Columbia JD/CPA

Yale BA

Founded and grew start-up to $100M and 2,000 employees

Serial Entrepreneur in IT and Energy

Led DAI, Frontstep, Interact, Starco, and Evans

Led 2 NASDAQ Turnarounds

Chairman or Director of 15 Companies

YPO Exec Ed @ MIT & Harvard Business School

Thomas CainOperations/Engineering


Strategy and Execution• Deploy networks of experts to find optimal

combination of technology, team and scalable business model

• Deep understanding of domain trends: Identify biggest problems whose solutions can be profitable in a VC timeframe

• Sophisticated and documented process

• Engage all partners to deliver victories, add value and build deep relationships with portfolio companies


What is CleanTech?

Clean Technology

Clean Technology

Large, Growing, Profitable Markets

Large, Growing, Profitable Markets

Enormous Growth

Potential

Enormous Growth

Potential

• Technology innovation in the more efficient use of energy, water, food and other scarce and valuable global resources:

- Optimize use of natural resources

- Reduce ecological impact and

- Add economic value by lowering costs and improving profits

• “May be the largest wealth creation opportunity of the 21st century”

• Multiple waves of technological innovation

• CleanTech is the world’s fastest growing investment category

• The 3rd largest venture capital investment category: over 14% market share in North America, 18% in Europe

• CleanTech markets are large multibillion dollar global markets


The Market: Why 2009 is a Big Year

• Impact of credit crisis and volatile energy prices• Competition for scarce energy and water resources• Political transitioning: Obama’s Agenda (proposed

$150Billion to invest in cleantech)• Climate change has become a top priority• The power of emerging economies as buyers and

users of clean technology

Strong drivers of change in energy and water markets


Many Ways to Finance Innovation

• Entrepreneur Personal Funds

• Personal credit card & other borrowings

• Venture capital

• Venture leasing

• Merger and Acquisition

• Secondary/Follow-on Public Offering

• Buyout/Acquisition Financing

• Corporate Debt

• “Friends and Family”

• Angel investors

• Corporate direct investment

• Mezzanine Financing

• Initial Public Offering

• Private Placements – Debt & Equity

• Corporate R&D

Source: “Green Technology and Venture Capital Investment” presentation, The National Venture Capital Association, March 2008.


Analysis of Investment Styles – Risk and Return Profiles, Financing

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Source: Sustainable Development Investments presentation by Citi Alternative Investments

Venture Capital: New Clean/Environmental Technologies Clean Energy Infrastructure Existing and New Technologies

Buyout/Expansion/

PIPESAngel / A B / C D / IPO

Technology Identification &

Business Formation

Pilot Plant

DemoPlant

First Commercial Scale Plant

Project Development

Project Finance

(Infrastructure)

Portfolio of Assets

Medium

•Financial risks•Performance guarantees

•Site and permits•Engineering & design•Additional scale up:

•Construction cost•O&M•Performance

•Site selection•Permitting•Securing equipment•Contractors’ cost estimates•Organizational structure and management•Financing

High

•Technology Selection•Business Formation •Initial management selection•Execution Strategy

•Technology scale up risk from “bench scale” to integrated demonstration scale•Engineering, design•Management

Low to Medium

•Off-take agreements (i.e. Power Purchase Agreements or “PPA”s)•Engineering, Procurement and Construction (“EPC”) contracts•Supply agreements & logistics•Project debt & equity financing

•Hedging•Valuations•Growth potential/ incremental development•Capital structure

•40% + IRRs•New “disruptive technologies, such as: - Solar thin film, other non crystalline technologies - 2nd generation biofuels, including cellulosic ethanol - Coal gasification; carbon capture & sequestration - Battery technology (auto)

•25%-30% + IRRs•Development promote: -Repayment of costs at financial close - Equity promote to developer•Growth: wind, solar thermal, geothermal, biofuels, waste-to-energy, hydro

•12% - 20% IRRs, depending on cash flow volatility – i.e. low (landfill gas); high (biofuels)

•25% + IRR•Growth•Equipment/services•Generation/develop.•$100bn total market cap all clean energy

70 – 80% Debt100% Equity 70 -100% Equity Varies


US Venture Capital Investment in Perspective

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• US GDP (national income) $12.5 trillion annually

• Hedge fund intake $1.5 trillion over last 3 years (estimated)

• Mutual fund intake $158 billion in 2006• Buyout intake $103 billion in 2006• Venture capital intake $28.6 billion in 2006

– Venture capital fundraising & investment Is 0.2% of total GDP

Source: BLS website, Investment Company Institute, Thomson Financial, NVCA


Global Insight Study• In 2006, venture backed companies:

– Provided 10.4 million US jobs

– Had sales of $2.3 trillion• Represents 17.6% of GDP

– Still dominated venture-created sectors• 56% of biotech revenue• 78% of computer and peripherals revenue• 94% of computer and peripherals jobs• 88% of software sector jobs

– Outgrew the economy 2003-2006 in every sector

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Source: Venture Impact 2006 by Global Insight


Venture-Backed Employment

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8.7

9.4

10.4

7.5

8

8.5

9

9.5

10

10.5

2000 2003 2005

3.6%

1.7%

0.0%

1.0%

2.0%

3.0%

4.0%

VC-Backed Growth Pvt Sector Growth

As a % of total US Pvt Jobs in 2006

Outpaces 2003 - 2006 Total US Job Growth

VC-Backed US Jobs (millions)



Venture Capital Investment is Productive ...

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• For VC every dollar invested in 1970-2001, there was $7.90 in US revenue during 2006

• For every $28,463 of venture capital invested in 1970-2001, there was one job in the year 2006

• Note these ratios are based on investment through 2001 ($296B) because investment after that time has likely had little effect on 2006 jobs and revenues. If investment through 2006 ($421B) is used, the ratios would be $5.55 and $40,364 respectively



CleanTech VC Scales RelativelyTop 6 U.S. Venture Capital Industries, Percent Change Q3 2001 to Q3 2007

Source: CleanTech Venture Network


CleanTech VC Scales Absolutely Annual North American CleanTech Venture Capital Deals and Investment Totals

2001 to Q3 2007 (Millions of dollars)



CleanTech Index

45 US Traded Stocks

Combined Market Cap of

approx $280BN

Minimum market float of $150M and 50%+

of sales or operating profits from CleanTech

businesses



Can CleanTech Make Money?

CleanTech IPO’s have yielded returns to pre-IPO investors of 5.5X, while European venture-backed IPO’s have generated returns of over 8X.

Returns on CleanTech M&A transactions have been 4.3X on invested equity

A hypothetical portfolio of CleanTech venture capital investments would have delivered an estimated IRR of approximately 30%.

Based on a 2006 study by the CleanTech Group

CleanTech Venture Capital: Performance


Where Did the CleanTech Money Go in 2008? (A Record $8.4 Billion)

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Source: The Cleantech Group; January 12, 2009 Report (www.cleantech.org )

Top Venture Capital Clean Technology Sectors

Technology Sector Amount Invested and percent of total

Solar $3.3 billion (40%)

Biofuels (including ethanol, biodiesel, synthetic biology, algae)

$904 million (11.0%)

Transportation (including electric vehicles, advanced batteries, fuel cells)

$795 million (9.5%)

Wind $502 million (6.0%)

Electric Grid $345 million (4.1%)

Agriculture $166 million (2.0%)

Water $148 million (1.9%)


What Makes A Market Attractive to

Venture Capital?

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• Capital formation– Prudent man rule – enabled pension investment– Limited Partner laws– Capital gains tax reduction

• Empowered entrepreneurs– Capital gains tax reductions– Stock options/team building tools– Reasonable bankruptcy laws

• Protect companies – Patent and IP laws

• Abundant customers willing to do business with SMEs

• Exit markets – the NASDAQ

• Face-to-face investing/proximity

• Adoption--Cultural acceptance of new ideas

Source: “Green Technology and Venture Capital Investment” presentation, The National Venture Capital Association, March 2008.


Investment Drivers

1. High Energy Prices2. Imported Mideast Oil3. Climate Change


Investment Drivers

4. Electric Grid Capacity Issues5. Successful Cost Reductions/Technology

Innovations


Investment Drivers

6. Public Awareness/Corporate Action


A Venture Capital Perspective

We look for:

• Huge TAM (Total Available Market)

• “White Space” = Unmet Needs and Big Problems

• Team + Technology = Major Market Advantage

• Time Frames

ØNear-term beachheads (market share)

ØExits in 5-7 years


Urban Infrastructure Needs MakeoverThe World’s Urban Infrastructure Needs More Than $40 Trillion


Reducing Carbon – Targets



Examples of CleanTech

Alternative Energy and Renewable Fuels – Solar, wind, and biomass power; waste to energy; biofuels

Electrical Efficiency – New Electric Motor is 50% more efficient, reducing strain on the electric grid

Energy Storage – Batteries that last for the life of the product, or perform large-scale load leveling

Lighting – New light source technology uses 1/10 the electrical power

Energy Efficiency – New Spark Plug causes more complete combustion, greater fuel economy and less pollution


Driver Global Clean Energy Transformation Opportunity

U.S. Benefits

2020 2050 2020 2050

Economic $300-600 billionper year of new REand EE investment

$600-1200 billionper year of newRE and EEinvestment

Up to $30 billionper year of new exports and 750,000 jobs, plus lower prices andbalance of trade benefits

Up to $200 billion per year of new exports and 8 million jobs, plus lower prices and balance of trade benefits

Climate 10-20% reductionsin GHG emissions

50-80% reductionsin GHG emissions

10-20%reductions in global emissions

50-85%reductions in Global emissions

Energy Security 10-20% decline in oil use from 2005

25-40% decline inoil use from 2005

Decreased volatility and 6-9% reductionin global oilprices

Decreased volatility and 15-20%reduction inglobal oil prices

Development Universal energy access

Universal energy access

Globaleconomicgrowth andstability & U.S.leadership

Global economicgrowth andstability & U.S.leadership

Clean Energy Yields Big Benefits

Source: IEA, IPCC, Mckinsey, and other sources with NREL benefits analysis


Innovations in Efficiency

1. Demand Side Management: The resurgence of “Negawatts”

2. Lighting: 30% of the load at 15% efficiency

3. Edison Vs. Tesla: AC Vs. DC

4. Green Buildings: Coming of Age, 20 years later

IEA says 80% of CO2 Reductions from Efficiency


Green Buildings

A platform for multiple technologies• Combined heat and power systems• Nano-insulation• “Smart” windows• Advanced lighting applications• Renewable power sources• Smart appliances• Load shifting/storage


Connecting Vehicles and Grid

• Electric vehicles to use off-peak power

• Key is advanced batteries with maximum energy and power density

• President Obama goal: 1 million plug-in Hybrid Vehicles

• Major Companies inU.S. Battery Consortium

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Drivers for Global Water Markets• 20th century: Population grew 3x, water use

grew 6x• Shortages: 3 billion people face

water scarcity by 2025• Water market exceeds $500 billion

(GlobalWaterIntelligence)

• Private equity accelerating• India and China

– Water-spending growth >20% annually

• Infrastructure needs ($5 trillion): Big gaps in coverage


Water Technologies

• Information/analytics/monitoring

• Demand-side technologies, cost-effective efficiency opportunities– Agriculture: 10-50% (e.g., CIMIS)– Industry: 40-90% (e.g., GEMI)– Cities: 30%

• Supply-side technologies– Adv. purification (e.g., adv. sewage treatment, recycling)– Source augmentation (e.g., rainwater harvesting)– Water security – Desalination

• Next big thing: Energy-water interface

(Both hardware and practices)


Selected Investments of SAIL I


Problems Solved: Globally Affordable pathogen free drinking water conveniently accessible.

Product: UV water purification systemsSource: Approached by WHI & Dow

Chemical, co-investorIP Estate: solid patents Management: Tralance Addy, President &

CEO; David Katz, CFOEnvironmental Impact: Major human

quality of life; life expectancy; education; carbon reduction.

Other Investors

Dr. Anji Reddy, Johnson & Johnson, Acumen Fund, International Finance Corporation, Dow Chemical

Examples of SAIL’s value-add

Provided key guidance on international business, strategic relationships and business model. Helping at high levels to source financing for village systems from corporate, International banks and Indian institutions.

AwardsToshiba Green Innovation Award 2007

Discover magazine’s Award for Technical Innovation & “Best of the Decade” invention

US News & World Report cites as one of “20 Ways to Save the World”


Other Investors

Goldman Sachs, Good Energies, Joe Gorman, Pete Higgins, Energy Capital Partners


Focused company on reducing costs through off-shore sourcing. Assisted in market development with regulators and business introductions.

Awards2005 Innovation Quotient Award

2005 Top 10 Green Building product

2003, 2004 & 2005 “Most Promising Company,” Energy Venture Fair

2004 “World’s Best Technology” Gold Award

Problems Solved: Eliminate peak-power requirements due to air-conditioning by shifting consumption to night.

Product: Refrigeration-based air conditioning unit that makes ice at night

Source: Trade showIP Estate: Robust patents Management: Frank Ramirez, CEO; Greg

Tropsa, COO; Brian Parsennet, CTO

Environmental Impact: Reduce 95% of peak-power demand for A/C; lowest-cost LEED/Title 24 building credits; each unit reduces GHG equivalent of 2 cars.


Other Investors

Altira Ventures


Introduction to advanced direct selling technology; Genalytics. Tim Ford, ex-CEO of JC Whitney. Secured commitment from Nissan engineers to test.

Test ResultsVehicle Economy Torque 0-60Marquis 10.5% 11% 5%Corolla 2.2% 5% 10%Avalanche 8.4% 11.2% 7.8%BMW 740i 8.4% 6.9% 8.0%

Problems Solved: Incomplete burning of gasoline or 2-cycle fuel.

Product: Replacement intelligent plug (ultracapacitor) that generates several thousand times the spark of current plugs.

Source: Trade showIP Estate: Robust IP Management: Dan Parker, CEO; Lou

Camilli, President; Jim Scott, CMO; Brian Templeton, CFOEnvironmental Impact: Reduction of gasoline consumption in US by 30 million gallons/day (11B/yr) and reduction of pollutant generated on remaining 360 million gallons/day.


Other Investors

Korean Angel investors


Recruitment of CEO, CFO, initial sales staff. Identify new rapid adoption market. Define initial marketing strategy and initiate IP estate development.

AwardsSilver Medal – 18th, 20th, 26th Salon International Inventions, Switzerland

IFIA Cup Prize, Germany

Gold Prize IENA

Problems Solved: 400M 60% efficient HVAC electric motors in US/yr. Millions more in Washer/Dryers, pools, dishwashers, refrigerators

Product: Low-cost, brushless DC motor with Electronic Communication (ECM) at 90% efficiency.

Source: Firm Advisor

IP Estate: Robust IP

Management: James Jeung, CTO

Director: Thomas Cain

Environmental Impact: DOE estimates US electric grid is 60% electric motor. SN Tech motors are 80% more efficient than existing. Result is removing pressure on grid and eliminating peak-power issues.


Other Investors

Paladin Homeland Security Fund, Ridgewood Ventures


Led company to obtain 1st certification, Texas LED. Sourced major strategic customer, protected IP. Led development of 1st manufacturing facility. Raised $27M in Series C financing.

AwardsRed Herring’s “100 Most Innovative Companies”

EPA Scientific and Technology Achievement Award

Problems Solved: Reduce pollutants from burning fossil fuels through simple-to-apply additives.

Product: Proven products for diesel, biodiesel and 2-cycle. Products in final commercialization for residual & gasoline. Product in development for coal.

Source: Referral

IP Estate: Patents of biotechnology (beta-carotene)

Management: Jim Cleary, CEO; Fred Jordan, CTO; Kevin McGlensey, President; Jerome Kaiser, CFO

Environmental Impact: Reduction of millions of tons of NOx and particulates; removes significant conventional pollutants from each gallon of fossil fuel.


Problems Solved: Catalyze the CleanTech Sector through building networks of conferences, indexes, advisory services and recruiting.

Product: CleanTech Venture Network (US, Europe, China); CleanTech Advisory Service; CleanTech Executive Search; CleanTech Forum, CleanTech Indices

Source: Strategic target

IP Estate: CleanTech trademark

Management: Nick Parker, Chairman; Keith Raab, CEO

Environmental Impact: Leading enabler of CleanTech investments and purchases of sustainable technology. Leader in investment partners in US, China and Europe.

Other Investors

Credit Suisse, Bob Epstein (closing with a top-tier investment bank)


Advised company on internal operational matters, expansion and strategic relationships; developed high-level government contacts, private partners and sponsors.

EnablersErnst & Young, Global Environment Fund, Jefferies, Wilson Sonsini, Masdar, HellerEhrman, Canaccord Adams, 3i, Rockport Capital, Expansion Capital, John Deere


Problems Solved: Efficient, safe, economical storage of massive amounts of electricity to buffer wind/solar farms, replace peak power plants, load shift buildings from peak.

Product: Solid lead acid 1kw battery and power management system designed to place in low cost massive array configuration.

Source: Personal Contact with Angel Investor

IP Estate: Robust IP & Trade Secret

Management: Carlos Coe, CEO; Aeron Hurst, Technologist; Michael Breen, CFO

Environmental Impact: Reduction of fossil fuel consumption for electrical generation, enable renewable fuel usage, relieve current grid stress points.

Other Institutional Investors None

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Initial Customers Home Depot, Grainger, Freescale, TEES

Examples of SAIL’s value-add:

Secure IP of batteries and power management. Resolve market exclusivities. Create strategy for trade secret protection. Facilitation of major new customer acquisition. Creation of business plan.

Test Results•Imperceptible resistance under load•Less than 7% round trip energy loss•$200K /MW hr of storage•10-20 Year Battery Life•5000 100/5 deep discharge cycles•250,000 90/20 charge/discharge cycles•Full charge in 5 minutes•100MW/hr array configurations

Large scale Storage


Finding the Best Deals

• SAIL Team focuses on strategic priorities, contacts network of sources weekly

• Dedicated networks of science and business advisors

• All 5 partners have extensive deal networks

• Partners review more than 10 possible deals per week – deeper review of 1/10


Directions in CleanTech• CleanTech sectors and potential portfolio allocations

include:

– Renewable Energy

– Energy Efficiency

– Water Quality and Supply

– “Smart” Electricity Grid

– Electric (PHEV) Vehicles

– Enabling Technologies

– Alternative Materials

– Pollution/Waste Reduction and Conversion

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CleanTech Top 10 Regions

• US : West Coast ($1.3B)• US : Northeast ($526M)• Western Europe ($394M)• US : Southwest ($299M)• US : Northwest ($283M)• Southern Europe ($212M)• US : Southeast ($107M)• Western Canada ($104M)• Eastern China ($100M)• US : Midwest ($85M)

The Top 10 CleanTech Regions in Q1 – Q3 2007

The top ten regions accounted for

3.40B out of 3.65B for Q1 – Q3 2007, or 93%.



Issues Affecting CleanTech Investments

• U.S. Climate Policy/Global Carbon Prices

• Linkages among entire financial value chain (Debt/Project Finance-VC-Later Equity- Emission Credits)

• Fiscal Incentives/Tax and Pollution Credits

• Emerging economies – especially India & China

• Research, Development and Customer Adoption –”Culture Change”


Critical Success Factors for Venture Investing

• Ability to grow value and achieve exit in a strategic acquisition or IPO – requires technology packaged in business model with real customers

• Investing at stage of growth that balances risk and value

• Team with value-added partners• Work with government but do not

rely on government46


Partnerships that Help Companies Succeed

• Successful CleanTech firms must partner with government, NGOs and other private firms

• Partners must enhance ability to grow market share and conserve cash

• A country’s economic and policy environment must create right incentives to take risks (capital gain taxes, investment and R&D tax credits, stock options, IP laws, incentives for customer adoption of new technologies, exits)

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Areas of Potential Collaboration between Taiwan and Other Investors

• Electricity – grid management; efficient delivery and storage of power (Island strategy)

• Renewable power and waste to energy• Transportation – new electric vehicles and

cost-effective, long-life storage technologies• Green buildings – effective building

management• Water management and monitoring• Chemical alternatives & new materials

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SAIL into the future

• Build sector-leading returns• Fully deploy Partners’ collective skill sets and

global relationships• Add value across spectrum of business needs

• Deliver economic value and measurable environmental improvement

• Create the leading CleanTech venture platform combining domain mastery with passion for results

• Partner with great companies and governments … like Taiwan


Questions?

Thank [email protected]

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