Inside the Silicon Valley cleantech investor brain

Entrepreneurs looking for money, self-proclaimed IT refugees looking for work, and even the odd recruiter and creative agency turned out yesterday in abundance to hear Silicon Valley investors talk about what's hot and what's not in cleantech.

Investor panelists speaking at a lunch event at a large law firm began by addressing their favorite sectors for investment.

While most investors' worldwide sector du jour is solar, there was no consensus on the panel as to whether solar was still hot or not as a category.

Citing her firm's experience backing Tesla Motors, Laurie Yoler of GrowthPoint Technology Partners said she sees a lot of promising advanced battery plans, and called energy storage a huge opportunity because most battery cells are made in China and Japan.

"Being in California, we just naturally see a lot of solar business plans, since we have such a great source of the commodity for that."

By contrast, Carol Sands of the Angels' Forum, an affiliation of individual angel investors that also represents an associated "Halo Fund" of others' money, said she's currently staying away from solar companies.

"I'm so tired of solar! Some of that is where I stand in the economic food chain. I'm down at the bottom. The minute I see the major firms doing solar deals, I'm too late. I'm trying to be 12-18 months ahead of the venture community in terms of economic cycles."

Other panelists, including JP Morgan managing director Mike Dorsey, opined that the rising tide of worldwide solar demand would easily float many, many boats, even those whose technologies were perhaps only incrementally better.

Investors on the panel identified criteria they use when selecting deals to invest in.

Panelist were uniformly shying away from large initiatives requiring capital buildouts in the hundred million dollar or more range. They expressed no interest in project financing. Nor did many express interest in funding companies' research.

"If you're still in the conceptual stage, where you're still not sure if you can 'make this work,' there are grant programs available in cleantech. The former California Commissioner of Energy Joe Desmond and I were having dinner last week, and one of his major disappointments was that they didn't give out their full grant allocation the last two years. Not enough companies came forward to ask for the money," said the Angels' Forum's Sands.

Justin Label of Bessemer Venture Partners said his investment criteria specified deals with a low capital-intensive business plan, a low science risk, a proven business model and a team he could believe in.

Most speakers prioritized the importance of the right leadership in companies they invest in, especially given that a company's technology focus was subject to evolve over time.

"I don't have the luxury of falling in love with technology. I can only fall in love with management teams," said Sands.

By contrast, Bessemer's Label made it clear he focused on companies with genuinely game-changing technology.

"Teams are critical and what make the whole venture work. But I personally like to invest in companies where there is something you can hang your hat on over time, a real technical or business model innovation at the kernel," he said.

"What I'd like to see less of are Series As that come in already figuring out what the price and the terms of the Series Bs and Series Cs are going to be. A bit of a land rush mentality has developed, and I think that's really dangerous for all of us."

Local wags make much ado about Silicon Valley as the seat of American innovation and its emerging role as a nexus of the cleantech industry. But local investors on the panel encouraged the audience to think beyond Santa Clara County, far beyond.

Sands said she learned an important lesson in moving a portfolio company called Light Engineering—developing small, high powered electric motors—to Indianapolis, because of a lack of qualified engineers in the valley.

"In Indianapolis, you can stand on any street corner or any Starbucks and ask 'does anyone know anything about electric motors,' and someone will hold their hand up. Moving them to Indianapolis was by far one of the smartest things we did. As much as we believe Silicon Valley is the home of innovation, we don't have an exclusive."

Panelists also made a number of clear admissions that their involvement in cleantech wasn't at all about greening the planet.

"Saving the world is not a substitute for being financially successful," said JP Morgan's Dorsey, to an audience that batted few eyes at the comment.

"It's, quite frankly, not about you in any way, shape or form. It's all about us," said Sands.

"If you can't figure out a way for us as investors to make money, you could have a great concept, but we're not going to be your funding source. You need to come up with a methodology that makes us rich. And frankly, this panel, we're a little on the greedy side. We want to be really rich!"

The event was organized by Linda Holroyd of FountainBlue, a local events, coaching and consulting company.

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