GTM spoke with Francois Badoual, CEO of Total Energy Ventures, about corporate investing in cleantech and the riddle of Silicon Valley venture capital.
Ask a traditional VC investor, or perhaps an entrepreneur, about corporate investors, and you might get a tirade on the challenges of working with the venture arm of a large conglomerate. Corporate venture investors tend to have a bad reputation.
Some of the reputation might be deserved. It's just not always a great fit when it comes to timescales, cultures, leadership and growth strategies among VCs, corporate investors and entrepreneurs.
And it's not just the VCs that are unhappy. The corporates have expressed their own dissatisfaction with the Sand Hill Road mentality.
When not being pilloried, the corporates are periodically hailed as saviors -- especially when the greentech VC ranks thin out and the M&A or IPO climate chills. And also periodically, some group or fund is formed to act as a catalyst for cooperation between these disparate parties. One recent example is Broadscale Group, which looks to act as a clearinghouse to link growth-stage cleantech firms with a network of corporates.
"A spearhead for innovations within Total"
So, how does Total Energy Ventures, the VC arm of Total, a French energy giant with a $120 billion market cap, navigate this snake pit?
Well, here are some words you don't hear very often in this context -- Total's Badoual says he set out to start "humbly and modestly" when the effort began in 2008.
"We started off at the time of the cleantech boom. It was also in France what we called "the peak of 21 climate," where companies were trying to see how to prepare for the future," he said.
"We didn't hire a diva or a particular professional or well-known VC. We started with the men and women of Total. The idea from the start was to say, 'Let's have a group of people from Total that would learn about startup M&A, working with startups, dealing with startups, and being able to do so from an investment perspective, i.e., to be able to scout, observe an ecosystem, and select the most promising startups."
Badoual points out that Total Energy Ventures had been a limited partner in Chrysalix Energy Venture Capital, the Vancouver-based venture firm, and was able get acquainted with how to analyze startup deal flow. "We had the opportunity to make good investments and [behave] as a youngster to learn the job and get acquainted with the particular details of this process. We had that in North America with Chrysalix, and we did the same with Demeter Partners in Paris, Berlin and Madrid."
"We're based in Paris. We've made more than 20 investments since 2009, and we've invested $150 million so far," he said.
"We observe. We scout. We select, then we invest, and it gives us a chance to have those innovations percolate within Total. The idea is to become a spearhead for innovations within the company -- transforming the company and preparing for what could be our new businesses."
"We are trying to really focus on what could be the next reality of energy for the company. We're really looking for the future of energy, the new world. We are here to make investments for the benefit of all branches of Total, but today, my main focus is on what could be the new rebels, the new way of using energy."
So how does a corporate fit into Silicon Valley VC culture?
Badoual said that his firm aimed to "not be intrusive" with its startup investments.
"We're not trying to catch the innovation or to twist the arm of the management. On the contrary, we are there to assist -- with only the interest of the startup in mind. Look at what is described in some of the cases in the Harvard Business Review -- all of those mistakes that corporates make are very well documented. If you interfere, if you try to gain excessive rights, if you play the monster -- you will lose the game."
"So it's a question of reputation as well. We have been building a reputation of consistency and being an engaged investor -- which is affording us opportunities. We try to act like a VC, but a VC which has a different way of seeing, perhaps a deeper and a larger view. That is because we are not constrained by the investment period" or other pressures exerted on conventional venture capital, Badoual explained.
"We know what the game is in Silicon Valley, and we play the game. We see, perhaps, from a broader, more global and international perspective, but we like the energy and passion that you can find here. In many other countries in the world, you will find good ideas. But you will not have the chance or the opportunity to grow the Silicon Valley way. So it's a fantastic nursery for innovation."
The CEO noted that in most cases, Total is a board observer but not formally on the board.
Badoual stressed that Total provides something no other VC does: "We are in 130 countries. We work with 100,000 employees who are all experts in their domain." In Africa, for example, he noted the company's ability to leverage Total's 5,000-fuel-station-strong retail network.
"That's why one of our key metrics is not just financial. We are a strategic investor. This helps us to refine our strategy, to understand the new world, to be able to foresee the future."
Corporate investments at the edge of the grid
As GTM Research has reported, in the first half of 2015, corporate investors were involved in 40 percent of grid-edge venture capital deals -- and in 60 percent of deals worth more than $3 million. The big corporates include ABB, Alstom, GE, Schneider Electric and Siemens. GE invested in PingThings, for its transmission grid data analytics, and Enbala, for its distributed energy resource (DER) management software. Fellow conglomerate Mitsui joined GE as an investor in Viridity and SCIenergy (both of which GE has since exited), and recently became an investor in Stem as well.
European utilities E.ON and EDF participated in a funding round for C&I customer data analytics provider FirstFuel. GDF SUEZ similarly invested $7.2 million in Tendril, a provider of residential customer data analytics and engagement. Meanwhile, RWE has invested in Conergy, joining a long list of utilities (E.ON, GDF SUEZ, Exelon, Edison International, Duke Energy) that have invested in solar companies. AES, Duke and NRG acquired Main Street Power, REC Solar and the Northeast sales and operations business of Verengo Solar, respectively.
Pulling in a corporate investor can be critical for companies seeking new sales channels, validation of their technology or trying to get a better sense of what's happening in the market.
"Large corporates need to innovate to survive," said Andrew Shapiro of Broadscale, "They need to find new ways to develop products, solutions, business models. And they are increasingly recognizing that simply relying on their own R&D, their own business units isn't going to get them there. They are too big, too insular, too slow, and they need to look outside at open innovation...and partnerships and startups to do that."
Shapiro cited an article in the Harvard Business Review that finds that "startups that went public after being funded by at least one corporate venture capital investor outperformed those funded exclusively by independent financial VCs."
The Total Energy Ventures portfolio
Here's a rundown of some of TEV's investments.
- Aquion Energy: Aquion Energy is an early-stage energy storage startup that still must prove its technology, cost structure and time-to-market. The battery developer has raised more than $150 million in VC, debt and grants from Bill Gates, Yung’s Enterprise, Nick and Joby Pritzker, Bright Capital, Gentry Venture Partners, KPCB, Foundation, ATV, Total Energy Ventures, et al. Aquion claims its sodium-ion battery technology can deliver round-trip energy efficiency of 85 percent and a 10-year, 5,000+-cycle lifespan, with an energy storage capacity optimized to charge and discharge for multi-hour applications. The firm has a price target of $250 per kilowatt-hour. Aquion’s battery chemistry uses an activated carbon anode, a sodium and magnesium oxide cathode, and a water-based (i.e., aqueous) electrolyte.
- Sunfire: Sunfire is a developer of high-temperature and reversible solid oxide fuel cells and electrolyzers.
- Sunverge: As Jeff St. John reported, Sunverge Energy is designing management systems for distributed battery storage. The startup recently closed a Series C round worth $36.5 million. AGL Energy joined the round with current investors, including the Australian Renewable Energy Agency (ARENA), the Chinese venture capital firm SBCVC, Siemens Venture Capital and Total Energy Ventures. Sunverge calls itself a "utility-centric" storage integrator that wants to aggregate behind-the-meter batteries for demand response, frequency regulation, and smoothing intermittent renewables. It has big plans to become a virtual power plant provider with distributed batteries as the backbone. The company says it currently has 1,000 systems shipped and between 700 to 800 systems in operation around the world. The battery systems (not including the controls software) cost between $8,000 and $15,000 and range from 6 kilowatt-hours to 23 kilowatt-hours in size.
- MTPV: MTPV has technology capable of harvesting waste heat with its thermophotovoltaic (as opposed to thermoelectric) technology. The company has claimed that compared to the typically low efficiencies of semiconductor thermoelectric materials (in the very low single-digit-percentage range) with those of thermophotovoltaic materials, which have efficiencies in the 30 percent to 60 percent range, using a "micron gap" technology to better isolate the hot side from the cold side and provide a larger temperature difference. When GTM last spoke with the startup, it claimed to be in beta-testing of the devices with "several commercial partners." The first application will be in industrial waste heat harvesting in capacities greater than 10 kilowatts. The CEO told GTM that the emitting device is basically made of silicon and the receiver is a III-V semiconductor compound built with standard processing. The company has raised $11.2 million from investors including Northwater Capital Management’s Intellectual Property Fund, Total Energy Ventures, SABIC, Spinnaker Capital, Ensys Capital, and the Clean Energy Venture Group.
- Gevo: Gevo aimed to make isobutanol from agricultural waste. The company had an IPO price of $15 per share and currently trades at $0.24 per share. Investors included Total, Virgin Green Fund and Khosla Ventures.
- LightSail Energy: LightSail has raised more than $42 million from French Energy giant Total, Peter Thiel, Bill Gates, Khosla Ventures, and Innovacorp, in pursuit of a compressed-air energy storage (CAES) system that doesn’t rely on underground caverns as a storage medium. LightSail says its use of spun carbon-fiber tanks has allowed it to solve the cost problems faced by SustainX, which was using traditional steel tanks. It also claims that it has come up with a way to capture and store both the mechanical energy and the thermal energy used in compressing air by injecting a cool water mist into the compression chamber as the air is compressed, reducing the heat that is generated during this step. When the captured pressurized air is released back through the system, the heated water is re-infused into it, allowing that heated air to return more energy.
- Stem: Behind-the-meter battery startup Stem has raised a total of about $75 million from RWE Supply & Trading, the energy trading arm of Germany-based RWE Group, Japan's Mitsui, Angeleno Group, Iberdrola (Inversiones Financieras Perseo), GE Ventures, Constellation New Energy, and Total Energy Ventures.
- Off-Grid Electric: Off-Grid Electric, a micro-solar leasing platform geared toward residents of Africa, raised $45 million in debt financing for solar power and battery storage. The Packard Foundation, Ceniarth, Calvert Foundation and other family offices will lend up to $40 million to the fund. That brings Off-Grid's investment total to $70 million this year, including a $25 million Series C in October led by DBL Partners along with Western Technology Investment, SolarCity, Omidyar Network, Serious Change LP, Vulcan Capital, Total Energy Ventures and the private investment firm of Microsoft co-founder Paul Allen. DBL's Nancy Pfund joined Off-Grid Electric as board chair at the time of the investment. SolarCity CEO Lyndon Rive is also on the board.
- Powerhive: Powerhive, a microgrid developer and financier for emerging markets, closed a $20 million series A financing round led by Prelude Ventures along with Caterpillar Ventures, Total Energy Ventures, Tao Capital Partners and Pi Investments. Recently, Powerhive received a $12 million equity investment in its flagship project, which is seeking to develop microgrids that will serve 90,000 people in western Kenya. The Berkeley, Calif.-based company has offices in Nairobi and Manila, and received early backing from First Solar.
- EnerVault, now defunct, had gained more than $24.5 million in funding from investors including 3M, Total, Mitsui Global Investment, Oceanshore Ventures, and TEL Venture Capital for its flow battery using iron-chromium electrolytes.
- Konarka, defunct as of 2012, won more than $150 million from Chevron, Good Energies, Draper Fisher Jurvetson, Konica Minolta, Total, NEA, The Massachusetts Green Energy Fund, Vanguard Ventures, Mackenzie Financial and Partech for its organic solar cells.
- NanoH2O, a maker of reverse osmosis membranes for desalination, raised $85 million from Total, Khosla Ventures, Oak, BASF and CalPERS, and sold to Korea's LG Chem for $200 million.
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Recent "Letter From Sand Hill Road" columns reported on Vinod Khosla, DBL's Nancy Pfund, Foundation Capital's Steve Vassallo, and Lux Capital's Josh Wolfe.
GTM Research’s Corporate Activity Database tracks venture capital, private equity, mergers and acquisitions within grid-edge markets. The Database is available to Grid Edge Executive Council members. Learn more here.
