Many VCs invest in companies with technologies -- solar panels, turbines, etc. -- that seek to replace fossil fuels.
Dirk McDermott, the founder of the Altira Group, targets technologies that will help the fossil fuel industry.
Take Novinda, one of the company’s latest investments. Novinda has created a chemical absorbent that captures the mercury contained in the flue gases emanating from traditional coal power plants and puts it into the solid ash waste.
In most situations, that would be the end of it. Typically, fly ash containing high amounts of mercury cannot be used as an additive in cement. Novinda’s chemicals, however, bind the mercury in a way that allows the ash to be incorporated into building materials.
“It’s mercury sequestration,” he said.
Then there is Accelergy, a company that has come up with a way to make an economical, relatively clean aviation fuel from…liquefied coal. ExxonMobil pioneered the research in the '70s and '80s.
He’s now looking at a company that could process heavy oil, like shale oil, into a version of light crude while it’s still underground. By processing the material in this manner, industrial emissions would be captured before they could enter the atmosphere. (Laurus Energy is trying to accomplish a similar task with subterranean coal gasification plants.)
“Most of the light oil is in decline,” he said. “This is an in situ methodology so that it is lighter before you take it out of the ground.”
Whether these technologies are green or brown is a matter of opinion. To be honest, it’s a debate that doesn’t interest McDermott that much. Founded in 1997, the firm’s purpose in life is to find and invest in novel energy technologies. The first two funds largely concentrated on oil and gas.
With its third fund, Altira broadened into renewables. Still, the expansion didn’t change Altira’s overall strategy, which is to invest in companies that can flourish within the world’s existing energy infrastructure. Call it cleaner by default: as market economics and regulation push the energy industry to get cleaner by degrees, so goes Altira.
Natural gas will likely become a tremendous area of concentration for the firm. MicroSeismic, incubated at Altira, exploits natural earthquakes, instead of seismic charges, to map the subsurface geology in a given region. Natural gas companies use the software to map out where to plan their next wells in fracking operations.
“We have an unbelievable amount of gas,” he said. “There has only been a little in the way of government subsidies or focus on natural gas, yet we have 100 years' worth more production capacity than we did five years ago.”
Altira is also looking at companies that can perform water recycling at fossil fuel production sites. Some startups in this area, such as 212 Resources and Altela, already exist.
“Anything that reduces the drilling costs” piques the firm's interest, he said, adding that generation ago, the federal government artificially capped the market natural gas. Jimmy Carter issued an order preventing gas from being exploited to generate electricity. The fear was that it would create shortages in the home heating market. Deregulated, and with technological enhancements, gas has flourished.
“I’m not necessarily a believer in peak oil and I’m not a believer in peak gas.”
(Editor’s note: Carter also phased out burning oil to generate electricity, which accounted for 20 percent of U.S. power at the time. Imagine the price at the pump today but for Carter's action there. So you can argue that James Earl batted at least .500.)
Other interesting portfolio plays:
--RigNet, which went public in December, has come up with a hard-wired communication protocol for offshore rigs. “They control about half of the world’s rigs,” he said. The key to that company is that it sells the equipment as a service, rather than capital equipment.
(Traditional smart grid companies: are you listening? Here’s that “as-a-service” magic incantation used to great effect.)
--Hyperion Power Generation. The small nuclear reactor being created by Hyperion isn’t modular. The company does not plan to string together several of its 20-megawatt reactors to make the equivalent of a power plant. Instead, these are mini-reactors for off-grid, high-energy consumers like military bases or shale drilling centers.
“The U.S. still has a little bit of a lead in nuclear technology,” McDermott said.
But don't expect a quick payoff. Before the Japanese incident, officials at the NRC told Greentech Media that Hyperion has yet to submit its reactor for review.
--Syntax, which performs risk analysis and predictive failure services for oil drillers. “You take data from all over the operation and determine what will break,” he said. BP probably could have used this.
--Ethanol? No. “Corn ethanol was a scam from day one,” he said. The firm, however, has an investment in OPX Biotechnologies, which has produced a genetically modified microbe that produces a synthetic gas for making acetic acrylic acid. At scale, it will cost less than current petrochemical processes.
--Solar? Not a huge fan. “A lot of people think we will get to grid parity shortly. I am very skeptical,” he said. Nonetheless, the firm put money into SunEdison, which successfully sold itself for $200 million to MEMC in 2009.
--Smart grid? It depends on the angle. Altira invested in Energy and Power Solutions, which has invented demand response/efficiency solutions for industrial customers. (I’ve always like EPS.) Along the same lines, it put money into Varidigm, which makes variable speed equipment for HVAC systems. Commercial property owners and ESCOs are the ultimate end-users.
On the other hand, companies that sell to utilities face a tremendous challenge because of the regulated, conservative nature of the business, he said.
He has the scars to prove it, too: Altira invested in GridPoint, which raised over $200 million, changed personalities a few times, and is now trying to rebuild itself. Then again, it has Tantalus, a notable grid communication play.
--Legal compliance? It looks like a growing market, so Altira has money in NxtGen Emissions Controls (cleaner diesel), Business Compliance (regulatory affairs) and EcoPower Solutions (a scrubber for SOx, NOx, and some carbon dioxide).
What’s the next big thing, other than gas, in his mind? A lot of smart people spend a lot of time predicting the future, he noted, and they are often wrong.
He recalled his days back at Stanford Business School in the early '90s. Everyone back then was talking about multimedia and CDs.
“Two to three years later, it was all the internet,” he said.