Venture firms have invested $3 billion in greentech startups in the first four months of 2011. That's a record pace if the investment community keeps up the momentum.
That said, the biggest deals this year were in solar, automotive and fuel cells. Kleiner and TCV did make a $135 million investment into OSIsoft, a developer of data management solutions for industrial energy efficiency applications, but that deal was arguably venture capital and arguably smart grid. I'm not including it in our totals.
In parsing these numbers, it seems that VCs talk a lot about the smart grid but don't pull the trigger on too many deals -- especially when it comes to pure smart grid deals in metering, distribution automation, transmission technology, transformers and the like.
There's certainly a lot of energy efficiency investment (see below). And sure, there was the great HAN (home area network) scare of 2008 and 2009 -- but as far as this smart grid, the next and last big network, in John Doerr's words -- VCs seem long on words and short on cash.
Except for Gridpoint. VCs still keep giving money to Gridpoint.
There's also the issue of categorization -- does a lighting control company like Adura or Redwood Systems or Digital Lumens count as a smart grid investment? Yes, those firms are certainly building automation or smart building or energy efficiency companies -- but calling them smart grid firms seems a bit of a stretch. Does Bloom Energy or a megawatt-sale energy storage technology fit into the smart grid basket, or does it make sense to just call it "energy storage"?
I welcome our reader's comments on how to categorize those types of firms.
So, out of the $3 billion invested in 140 deals in 2011 so far, I count seven smart grid deals totaling more than $53 million. Which works out to less than two percent of total greentech VC dollars this year going into pure smart grid plays. Yikes.
Are VCs unsure of the exit path for smart grid firms? Were EnerNOC and Comverge the last smart grid firms to ever make it through the IPO window? It certainly seems that ABB and Siemens and GE have an M&A appetite for this type of firm. Is it too capital intensive? (See Silver Spring Networks.) Are the firms overvalued and is it too difficult to make the exit math work?
Mike Dauber of Battery Ventures had this to say:
"I think a lot of this has to do with definitions as you pointed out. If we use a strict definition of Smart Grid to mean only assets that sit in or in front of the meter (meaning back towards the utility) then, from my perspective, this isn’t really a surprising finding (btw, in that definition Control4 wouldn’t be a Smart Grid company either, so you’re down to six companies). I think a lot of VCs see selling to utilities as similar to selling to telcos, except each utility has a PUC that they need to answer to (Duke Energy has to answer to five separate PUCs!). That creates dramatic unpredictability with customers/revenue, not to mention very long sales cycles. Very few Smart Grid companies have been successful selling with a frontal approach directly to large utilities. SilverSpring, Opower and eMeter are the three that come to my mind (though eMeter has mostly succeeded in selling outside the US utilities from what I understand). Many of the true Smart Grid companies also took a tremendous amount of capital. Anyone who is in the metering or communications infrastructure needed to raise a lot of money both to build-out products and create a sales force.
I would argue that investing in the Smart Grid is still alive and well, but it’s just one step removed from the grid – many times selling to commercial or industrial customers rather than relying on utilities. In some cases the sales aren’t exclusive (an energy efficiency company can improve its value proposition through rebates provided through the utilities). One could argue that EnerNOC and Comverge could fit in this grouping as well. At Battery we’ve chosen to spend our time focused on investing in businesses with shorter, more capital efficient sales models that we still believe have tremendous upside (I wrote about this late last year in my predictions blog). Redwood Systems, mentioned in your article, is one example from our current portfolio, but we hope to have more examples in the very near future.
In short, don’t get hung up on the semantics. I think this is still a great market. Like any market, however, investors are going to find some areas that are ideal for developing new companies, and leave other portions of the market to the large, existing installed base. I think that’s all that’s happening here."
Rodrigo Prudencio of Nth Power suggested a definition for the Smart Grid:
SmartGrid” is any technology or service that focuses its value on the infrastructure side of the meter (could be electric utility, could be gas utility, could be water utility). The key is that it allows a massive fixed asset to be better monitored and utilized, improving the returns on that fixed asset investment. Smart Meters are a perfect example of this.
Efficiency and Controls is any technology or service that focuses its value on the customer / user side of the meter. Per this definition, MANY “smart grid” companies are actually efficiency / control companies. HAN companies and building efficiency / controls plays are perfect examples of these.
The lines blur on companies like Comverge / Enernoc and others that deploy a solution on the customer’s side of the meter but get value from the energy market (that is managed on grids). Similarly with companies that use controls to save their customers energy, but can participate in Demand Response, thus doubling their value proposition. But the reality is that there are few that are effective at doing this and the regulatory structure to reward this kind of interaction “through” the meter is just developing.
Here's a comment from an anonymous VC:
"I worry that for many 'smart grid' opportunities, the replacement cycle is too long to support the exit valuations that VCs expect."
"By contrast, servers and PCs need to be replaced every three to five years -- because there is something better, cheaper and faster every generation. New software, chips, servers, routers, etc., are always needed to support this endless pursuit of more computing power. Even games and new social media platforms need to be upgraded to take advantage of this increase computer power -- whether in a server, desktop PC, or mobile device. In fact, one may argue that Apple's market cap is so (justifiably) high because they provide new product upgrades -- that people want/need to buy -- at a ferocious rate."
"Many smart grid products are designed to last 25+ years. I love my new PG&E smart meter -- but I hope they don't have to upgrade it during my lifetime."
"I think giant markets that turn over every three to five years may be better than giant markets that turn over ever 25 to 50 years. [...T]here may be some interesting exceptions for software and services in smart grid -- or really unique technologies. And I bet the companies that obtain the highest valuations will have a high component of software and/or services -- and I'm still looking for new ones with shorter upgrade cycles."
Here's the list:
VC Investments in Smart Grid
Powerit Solutions (Seattle, Wash.), focused on automated demand management for the enterprise, raised $5 million led by Black Coral Capital.
Grid2Home (San Diego, Calif.), a provider of smart grid connectivity communications software, raised a $2.6 million Round B from Granite Ventures. Viridity Energy raised a $14 million round B led by Braemar Energy, Intel Capital -- an energy resource management firm building a real-time dynamic demand management platform.
Utilicase (Montreal, Quebec) won a $5 million investment deal from Cycle Capital for optimization in real time of electrical production management.
Cuculus (Germany), a developer of smart metering and home control products, received a strategic financing round from T Venture.
SmartSynch, using cellular networks for utilities’ smart grid projects, raised $25.7 million of a planned $33.4 million round. The firm has raised more than $80 million in total.
Entelios (Munich) raised an undisclosed Round A from Yellow & Blue Investment Management and High-Tech Gründerfonds for demand response for commercial and industrial customers.
Control4, a home automation firm, closed $15 million of a $25 million round from Frazier Technology Ventures, vSpring Capital, and Thomas Weisel Venture Partners, bringing the firm's current VC total to $65 million.
VC Investment in Grid-Scale Energy Storage
Silent Power (Baxter, Minn.), a distributed energy storage systems firm, won $2M in a Round A from Hunt Technologies’ founder Paul Hunt, Wright-Hennepin Holding Company, et al. The firm looks to provide turnkey storage products by integrating renewable energy and EV charging systems.
Bloom Energy raised $100M from Kleiner Perkins, NEA, and Morgan Stanley for their solid oxide fuel cell.
SustainX (West Lebanon, New Hampshire), a developer of utility-scale energy storage using above-ground compressed air in vessels, raised $14.4 million from GE Energy Financial Services, Cadent Energy Partners, Polaris Ventures, and Rockport Capital -- bringing its VC total to about $25 million.
Unipower Battery (China) received $15 million from Origo Partners for large polymer batteries for electric vehicles and high-capacity storage.
VC Investments in Energy Efficiency
Raritan (Somerset, New Jersey), a power management business that helps firms improve energy efficiency and operations in data centers, raised an undisclosed amount from NewSpring Growth Capital.
Phononic Devices (Raleigh, NC), a maker of heat-to-energy conversion products, won a $10 million Round B from Venrock and Oak Investment Partners.
CLEAResult (Austin, Texas) received an investment from General Catalyst for designing energy efficiency and renewable energy programs for utilities.
Earth Aid (Washington, D.C.), a provider of an online energy tracking system and social network raised a $4 million Round A from Point Judith Capital.
Recyclebank (New York, NY), a provider of an environmental social platform that rewards green behavior, closed a $14 million Round C from Physic Ventures, Generation Investment Management, Kleiner Perkins Caulfield and Byers, Paul Capital Investments, RRE Ventures, Sigma Partners, and The Westly Group.
OnChip Power (Cambridge, MA), a developer of efficient transformer technology for electronic devices closed a $1.8 million Round A led by Venrock.
Transphorm (Goleta, California) raised $38 million from Kleiner Perkins, Google Ventures, Foundation Capital, and Lux Capital to build an energy efficient GaN power conversion module.
Retroficiency (Boston, Mass.), a developer of energy auditing software for commercial buildings, raised $800,000 from World Energy Solutions.
Groom Energy (Salem, Mass.) a provider of energy assessments and renewable energy projects received $2.6 million in funding from a group of angel investors.
GMZ Energy (Waltham, Mass.) won $7 million as part of a first funding round from Mass High Tech and with seed capital from Kleiner, Perkins Caulfield & Byers for its nanothermoelectric materials for cooling and waste heat harvest.
Hybrid Energy Solutions (Kilkenny, Ireland) won $1.2 million for its energy-efficient power generators used to power telecom infrastructures without access to power grids. Kernel Capital led the round.
Next Step Living (Boston, Mass.) won $1.5 million of a $2.8 million equity offering, according to an SEC filing. The firm assists consumers in the process of auditing their homes for energy inefficiencies. Previous investors included Black Coral Capital and the Clean Energy Venture Group.
Energy Savvy (Seattle, Washington) raised $1.1 million from Northwest Energy Angels, et al. The startup builds software systems that integrate with utility and government energy efficiency programs.
Sustainability Roundtable (Cambridge, Mass.) providing shared-cost research and consulting for sustainable facilities, secured $1.2 million in Round A financing led by Navitas Capital with the Massachusetts Green Energy Fund (MGEF).
VC Investment in Smart Buildings
Scientific Conservation (San Francisco, California), a building energy management company, closed its round B with more than $19 million from GE Energy Financial Services, Intel, and Triangle Peak Partners. Scientific Conservation's software-as-a-service approach reduces energy spending by contrasting modeled energy and system efficiencies against real-time operation.
OutSmart Power Systems (Natick, Mass.), a spin-out of Manifold Products building a network of software and hardware for energy management and monitoring in commercial buildings, added $1.8 million to a debt-based funding round that could reach $4.5 million. Previous VC investors included Bainco International Investors, the Clean Energy Venture Group, and Manifold Products.
Panoramic Power (Israel), a real-time, cloud-hosted energy-monitoring company, raised $4.5 million in new funding from Israel Cleantech Ventures, Greylock Parnters, Clal Energy, Qualcomm Ventures, Israel Electric Co., and Alexander Schneider, bringing the company's total funding to $6 million.
Digital Lumens, (Boston, Mass.), a developer of LED lighting systems, raised a $10 million round B. Return backers include Black Coral Capital, Flybridge Capital Partners and Stata Venture Partners. The company also secured a line of credit from Silicon Valley Bank.
Who Knows What Gridpoint Actually Does?
GridPoint (Arlington, Virginia) raised an additional $23.6 million, according to an SEC filing, bringing the firm’s total venture financing to over $240 million. Confusingly, their latest effort describes them as a solar developer.