Each year, a handful of greentech companies become the talk of the town. Some engage in a competitive and oversubscribed fundraising round. Others announce a development partner that makes competitors take notice. Still others grow sales or flop in a make-or-break year.
What follows is a glance into a crystal ball, clouded by uncertainty and qualified by the sources of information -- often interested parties -- with visibility under the hood of 12 buzz-worthy greentech companies across the technology spectrum. (I deliberately left firms that will generate buzz via an IPO -- e.g., Silver Spring Networks and Mascoma -- off the list).
“The reality is that unless a company has opened the kimono and they are actively fundraising and you’ve had time to look at the numbers […], it is hard to really understand what is going on under the hood,” said Evan Lovell of Virgin Green Fund, mixing his metaphors.
Caveats aside, the prevailing view is that the LED market is set to take off in 2012.
“LEDs is one sector that I expect to grow dramatically in 2012 with or without any incentive-type programs by U.S. or foreign governments,” said Bilal Zuberi of General Catalyst Partners. “Technology is advancing rapidly, costs [are] coming down without companies going bankrupt, and the general public doesn’t seem to view it as some treehugger, fantasy-world tech.”
The first two firms to watch are therefore LED companies. The rest are from across the greentech spectrum, but include two rapidly growing companies from, to quote Zuberi, “the perennial favorite in end-of-year lists: water.”
Soraa. The California company recently raised $88.6 million to commercialize LEDs and lasers that use gallium nitride as their substrate (rather than the sapphire used in conventional LEDs).
Backed by Khosla Ventures, NEA and NGEN Partners, Soraa is led by a top-tier team that includes Eric Kim, a former Intel and Samsung executive, along with three UCSB professors: Shuji Nakamura, the inventor of blue, green and white LEDs and the blue laser; Steven DenBaars, a co-founder of the first company to develop gallium nitride LEDs, Nitres (acquired by Cree); and James Speck.
In 2008, the UCSB professors founded Soraa with the belief that if they could crack the gallium nitride code, they could produce LEDs with market-leading performance. In 2012, their vision will become a reality -- if Soraa can keep costs in check.
“Soraa has developed the world's highest-performance LED lighting product, which is 80 percent more energy efficient versus incandescents,” said Andrew Chung of Khosla Ventures. “[Soraa’s LED] has a payback of less than a year -- and the potential to shake up the lighting market in 2012 and beyond.”
ARC Energy. The New Hampshire firm has developed a new process for the production of the sapphire substrate used in conventional LEDs. Backed by General Catalyst, ARC Energy sells equipment that enables LED manufacturers to take advantage of this advanced process.
LED manufacturers currently produce two-inch sapphire disks, though several have shifted to four-inch disks. ARC Energy’s furnaces enable producers to make six-, eight- and ten-inch disks, improving production efficiency and reducing costs downstream.
As a result, sales of ARC Energy’s furnaces have been robust. As Chinese and Taiwanese LED manufacturers seek to compete with Cree and Nichia by lowering their substrate costs, ARC will prosper in 2012. Think of ARC as a beneficiary of the inevitable LED price wars.
Quench. Check your office kitchen. You may already be drinking water filtered by Pennsylvania-based Quench, a fast-growing bottle-less water cooler company. Quench installs and maintains water coolers that eliminate the need for bottled water -- and those five-gallon, 50-pound jugs that always seem to need to be replaced.
In October, Quench raised $30 million from ORIX Venture Finance, Advent-Morro Equity Partners, Potomac Energy Fund and The Pohlad Companies, which joined existing investors Element Partners and Virgin Green Fund.
“The business is growing well in excess of 30 percent a year,” said Virgin Green’s Lovell. “[Quench] is not necessarily the most sexy technological innovation, but … it is replacing something that has been around for a long time [and] doesn’t make sense in an environment where people are looking to be more cost-effective and sustainable. […] People have gotten tired of … trucks driving around with bottles in the back. It doesn’t seem necessary with good filtration technology.”
EcoFactor. You don’t need me to tell you that NEST, the smart thermostat company, is hot -- or that more broadly, adoption of home energy management systems has been slower than expected.
But California’s EcoFactor may soon stand out from the crowd of HEM and HAN firms, or so funders RockPort Capital Partners and Claremont Creek Ventures hope. The company’s cloud-based analytics platform aims to make thermostats smarter and to realize energy efficiency savings. A new CEO is tasked with getting EcoFactor’s promising technology to market.
Alta Devices. The wisdom of stealth mode in greentech is open to debate. But less has certainly been more for California’s Alta Devices, an early-stage developer of high-efficiency gallium arsenide solar cells. To date, Alta has raised $120 million from a who’s-who collection of greentech investors.
This summer, Alta released limited details about its 28.2 percent efficiency cells. After a tough 2011 for solar manufacturers, any additional information Alta releases in 2012 is sure to generate a strong reaction.
Viridity Energy. “The declining costs of solar PV will diversify applications for carbon-free distributed generation in general -- which, in turn, will accelerate the demand for microgrids and virtual power plants, aggregation platforms that help make these largely invisible and decentralized power sources more valuable to utilities and grid operators,” said Peter Asmus of Pike Research.
Founded in 2008 by former executives of the PJM Interconnection, Pennsylvania-based Viridity Energy provides large institutions with software and services that turn institutional loads and distributed generation resources into virtual power plants (VPPs) able to sell power into wholesale electricity markets. Existing customers include hospitals, universities and government entities such as the Department of Defense. Earlier this year, Viridity Energy raised $14 million from Braemer Energy Ventures and Intel Capital.
LanzaTech. “The waste-to-energy area is going to come into its own in 2012,” said Andrew Chung of Khosla Ventures, a LanzaTech backer. “With low- to no-cost feedstock economics coupled with large industrial partners that have major incentives to reduce their waste output -- whether waste gases, MSW, or plastic -- companies in this category like LanzaTech are seeing strong paths to market.”
In 2011, LanzaTech announced significant joint ventures with several Chinese steel producers, including Shougang Steel and Baosteel, the world’s third-largest steel producer. At a demo plant, LanzaTech will convert Baosteel’s mill off-gases into ethanol.
“2012 will also see companies with a clear China value proposition -- like LanzaTech -- generating buzz,” said Chung. “Thanks to often-strong local government funding support coupled with a willingness to experiment with new technologies, a China angle could fast-forward the commercialization of promising cleantech companies like LanzaTech.”
GreenRoad. Headquartered in California with offices in the U.K. and Israel, GreenRoad is a software-as-a-service business that trains commercial fleet drivers to be better and safer drivers. GreenRoad’s technology gives drivers immediate feedback about their driving from a green-yellow-red LED display on a vehicle’s dashboard, prompting slight behavior modifications.
“The net result of being a safe driver under this program is an over 50 percent reduction in accident rates and 10 percent to 15 percent savings in fuel costs,” said Virgin Green’s Lovell, a GreenRoad investor.
GreenRoad counts First Group and Stagecoach (the U.K.’s two largest bus companies), as well as Ryder, as customers. More than 60,000 drivers currently use GreenRoad’s service. Last week, the company announced that it would soon add another 1,000 drivers.
In May, GreenRoad raised another $13 million from Virgin Green Fund, as well as Benchmark Capital, Generation Investment Management, DAG Ventures, and Amadeus Capital Partners.
Project Frog. California-based Project Frog designs and builds modular green buildings. The company has already constructed a high-profile project at San Francisco’s Crissy Field. Other projects include schools in Oahu, Hawaii and Hartford, Connecticut, as well as GE’s John F. Welch Leadership Development Center in Ossining, New York.
Project Frog’s LEED-eligible buildings are built from pre-engineered components. The company’s buildings not only use at least 25 percent less energy than traditional stick-built buildings, they also cost less than their conventional counterparts. Savings are gleaned from two approaches: thoughtful design that maximizes a building’s use of natural light during daylight hours and modular construction through which building components are manufactured off-site before being assembled on-site.
In September, GE, RockPort Capital Partners, Claremont Creek Ventures and Greener Capital Partners invested $22 million to accelerate Project Frog’s growth. In 2012, Project Frog plans to begin constructing multi-story buildings, double its total built square footage and add household names as building occupants.
Xtreme Power. For energy storage in 2013, Aquion Energy, Quantumscape and Liquid Metal Battery are intriguing startups. But 2012 could be an important year for Texas-based Xtreme Power.
Xtreme Power has several deals with big utilities, including Duke Energy and First Wind.
Seven Seas Water. Based in Florida, Seven Seas Water is a desalination company that sells water to industrial and municipal customers in the Caribbean and the Bahamas and recently began operating in Chile and Mexico. The company pursues a build-own-operate model, financing desalination facilities off its own balance sheet and selling water to water utilities under long-term contracts.
“That business has done well in what is otherwise a depressed market for global desalination,” said Evan Lovell of Virgin Green Fund. “Seven Seas does well because they finance the capital equipment. They’ve gotten good traction with industrial customers that do not want to spend the cap-ex. [...] For municipalities that are perennially undercapitalized, it is a nice way for them to not have to pass [costs] through to their rate base.”
Fundamentally a services company whose core strength is its engineers, Seven Seas is technology-agnostic and buys off-the-shelf desalination equipment. The company is backed by Virgin Green Fund and Element Partners, among other investors.
GridGlo. As the grid gets smarter, utilities will need help making the most of newly available data. Plenty of large companies are tackling this problem, but they’re not alone.
Florida-based GridGlo seeks to aggregate, or “fuse,” smart meter data with real estate, weather and demographic data and assist utilities with a range of applications, from forecasting energy consumption to segmenting demand response opportunities and analyzing customer behavior and managing financial risk.
Finally, here are three company-agnostic, sector-specific comments for the New Year.
Next-gen agriculture. According to Andrew Chung, Khosla Ventures has “invested in a couple of stealth companies working on ways to improve the efficiency of food production, reducing the associated emissions footprint, energy consumption, and overall cost, while creating better-tasting products. Interesting technology in this arena could create buzz in 2012.”
Remote power. “[I] see growing interest in remote power systems in the developing world,” said Peter Asmus of Pike Research. “The purchase of Powercorp of Australia by industrial giant ABB of Germany is a clear sign that this untapped market is ripe with opportunity, due to declining costs of solar PV and rising costs of diesel fuel.”
Natural gas. “The big story of 2011 will be an even bigger story in 2012. [Natural gas] is certainly cleaner and affordable, and creates jobs precisely where swing voters live. Look for all kinds of support for the industry in 2012,” said General Catalyst’s Zuberi. “I expect venture creation opportunities all along the value chain, especially in upstream data analytics, ERP systems, gas processing technologies, as well as all the way downstream, as energy-intensive industries adopt this energy source in dramatic ways.”
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Yoni Cohen has worked for greentech venture capital firms in San Francisco and Israel and reported about environmental innovation for numerous publications. He is currently a third-year student at the Yale Law School. Before school, he played a role in the successful campaigns of eight members of Congress. Follow Yoni on twitter @Cohen_Yoni.