Startup Toolbox

Jay Parkhill July 25th, 2007

First came Peak Oil- the idea that we are at, nearly at, or past (depending on whom you ask) the point where more oil has been removed from the ground than there is let to extract. Shortly after came Peak Gas, Peak Coal and Peak Uranium before someone put the pieces together and pointed out that the common factor among all these “peak” theories is that the world produces energy for the most part by using finite resources- and called the whole concept “Peak Energy“.

Follow the idea downstream and you start to wonder about the underpinnings of modern society, and technology in particular. Never mind that a Second Life avatar uses as much electricity as the average citizen of Brazil- check out Data Center Knowledge for a glimpse at how important a consideration energy is to web-centric businesses. Yesterday’s PG&E outage in San Francisco certainly shows how even local disruptions can affect the web in a big way.

Writer James Kunstler posted a recent polemic in which he points out that technology has led us to this point in history, and yet we put our hopes in technology to lead us out again. To paraphrase, the question he asks is “where will we get the energy to build hybrid cars, solar panels and wind farms” when oil costs skyrocket?

Global warming activists have started talking about “stabilization wedges“- numerous varied efforts each designed to reduce or replace a portion of CO2 currently being emitted through fossil fuel use, and using currently available technology.

I think this idea is right on- or at least more realistic than saying we need to return to localized economies- but it’s going to be a close race. If we can’t bring together enough wedges it’s going to be tough to maintain a technology-based society- and then there’s the question of how to rebuild a society where all the readily-available energy resources are tapped out.

I hate to end this on such a glum note. I’m certainly hopeful, but as I said, it’s going to be close.

• Cleantech , Tech

Jay Parkhill April 23rd, 2007

Harvard Business School’s Working Knowledge e-zine is one of my favorite weekly reads. They dig a little deeper than many press outlets into many fascinating issues. Two that seem sure to provoke debate have to do with How Women Can Get More Venture Capital and whether market forces or government regulation will do more to stop global warming.

The latter piece is interesting mostly for the comments.  I will admit that I am surrounded by more like-minded people that otherwise on the subject of global warming, so I find it fascinating to read through the comments on a site that writes for a business-oriented rather than green-specific audience.  It is fascinating to see the range of intelligent viewpoints represented- from “increasing oil costs will drive consumers toward alternative energy sources” to “companies should pollute if it rewards shareholders more, and vice versa”.

The VC money for women entrepreneur article seems certain to fuel extensive debate, and I wish it was open for comments as well.  One of the author’s findings was that VCs worry more that female entrepreneurs will leave the business prematurely or put other (family) needs first, and at the same time the author’s research on women in the VC industry found that women *did* leave the field at a much higher rate than men between 1995-2000.

The conclusion seems to be that women need to work harder than men to convince investors they are committed to the business.  On the other hand, the article cites the case in which two women, one six months pregnant and the other having come back from a family-related year off work successfully raised money for Zipcar.

• Cleantech , Securities

Jay Parkhill March 26th, 2007

NPR this morning reported that PG&E is starting a trial program in Stockton, Calif. they are calling “SmartAC”. In exchange for a $25 discount, homeowners agree to install a “smart switch” on their air conditioning units that will let PG&E cycle the units off during peak demand periods- reportedly for 15 minutes every hour. According to the Central Valley Business Times, the first switches were installed recently, and the hope is to ramp up to 400,000 customers by 2010, which would give the ability to reduce demand by 300 megawatts.

The challenge of the smart grid, I believe, has to do with the “tragedy of the commons”, the idea that if I don’t use shared resources, my neighbors will take them all and I will end up with nothing. The tragedy comes in when resources that could be managed to support use sustainably over the long term get depleted by short-term thinking.

In the energy context, PG&E and all the smart grid operators need to overcome this hurdle. Particularly in the hot Central Valley, it may take some work to convince many consumers that turning off an A/C is actually a good thing for everyone in the long term. If successful, the program’s most immediate benefits will be that the power stays on, rates might not go up, and less CO2 may hit the atmosphere- none of which will be apparent unless PG&E makes an effort to point them out to people.

It sounds like the program has started with people with energy efficiency and carbon footprint ideas already in mind. I question whether they will be able to hit their 400,000 household target without moving out of that demographic. This will be a pilot program to follow closely. I am especially interested to see which marketing ideas sell best to the general public.

• Cleantech

Jay Parkhill March 5th, 2007

It struck me that most of the attention in the cleantech/alternative energy space seems to go to solar and biofuel technologies. A look at 2006 venture investment trends confirmed this impression, so I bugged a friend who knows far more about the space than I. He pointed me toward Demand Response, or “Smart Grid” technology, as an up-and-comer. After a bit of research, I think he is on to something.

Both terms refer to a distribution system for electricity that can detect and manage peak loads more efficiently. The electric grid is designed to handle loads up to a certain amount. Past that and adding capacity becomes much more expensive (esp. if it requires new plants to be built) and/or reliability becomes a concern (witness the East Coast US blackout of 2003 and various “brownouts” in California over the past few years). And then there’s the issue of added pollution and CO2 emissions arising from inefficiencies in the existing system, where the grid has excess capacity for parts of the day and struggles to meet demand at others.

Enter the Smart Grid. There are some really interesting technologies maturing in this field and I believe it is going to start getting more attention in the near future. In particular, two companies in the field have filed for IPOs in 2007. Investors will be watching Comverge and EnerNoc closely as bellwethers for the sector.

Comverge is a fascinating business because it demonstrates the power in aggregating small changes. The company sells equipment that lets utilities reduce demand during peak periods- for example by turning down air conditioners and hot water heaters slightly across a large group of consumers. The net effect can be enough in the short term to keep the lights on, or reduce the need to buy expensive “emergency” power. Long-term, the idea is that the savings can help the grid make do with fewer power plants.

EnerNoc focuses on commercial and industrial electricity customers instead of residential ones, especially customers with their own backup generators. By monitoring demand and capacity, EnerNoc is able to switch on these generators both to reduce overall demand at peak periods, and to put energy back into the system as well. The result for these users is not merely cost savings due to reduced drain from the grid, but potentially money back for the power supplied back into the system.

VentureOne (subscription required) described in a recent article a host of companies that can help monitor and regulate demand, including chipset, broadband-over-powerline and wireless sensing companies such as Current Communications, BPL Global, Intellon, Miartech, DeepStream Technologies and SmartSynch. These companies will be falling in behind the Comverge/EnerNoc vanguard, I am sure.

Coming at the issue from a different part of the spectrum is Fat Spaniel, a provider of online monitoring tools to users of grid-based electricity as well as solar systems. The principle is to let consumers see their energy consumption in better detail and decide when to increase loads and when to conserve. The company doesn’t appear to aggregate customer data right now, or plug into DR management systems, but to me it seems like a natural adjunct to something like Comverge’s technology. I have to think that consumers would be a lot happier about having their ACs turned down if they could see the savings to them personally.

It will be fascinating to see how the Comverge and EnerNoc IPOs play out. If successful, I have to think that the space will start getting a lot more attention. Many of the companies are past the startup phase as well, so we could see some real growth in fairly short order. We will stay tuned to see how things unfold.

• Cleantech

Jay Parkhill February 14th, 2007

The UN’s Intergovernmental Panel on Climate Change released a major report at the beginning of February concluding that increasing average global temperatures are at least 90% likely to be the result of human activity. The group’s last report was released in 2001 and found human causation between 66-90% likely, so the finding is significant.

Major changes are in store (whether the threat is addressed or avoided) in energy production, renewable and non-renewable resource use, agriculture and water consumption, among other areas. Such changes entail great risk, and also great opportunity for business- those that can figure out how to work under and profit from the new rules are likely to do very well.

The “venture ecosystem” consisting of startup companies and the venture capitalists and others who help build them is well suited to address this growing area. In addition to capital and a strong pool of management talent, the ecosystem allows individuals and companies to fail and try again. A thousand flowers may sprout, and a few will bloom.

In this vein, Richard Branson’s announcement of a $25M prize for the first person to develop technology to remove 1 billion pounds of CO2 from the atmosphere is a wonderful carrot to hold out for innovators everywhere. Just as Elon Musk’s X Prize (now expanded well beyond his original offer) spurred competition to develop a launch-and-return space vehicle, we can hope that Branson’s prize will bring attention and resources to the problem of increasing CO2 accumulation.

At the same time, it is important keep an eye on the whole picture- technology can’t and won’t solve all problems.  Technology-based solutions are immensely attractive because they promise to increase efficiency and reduce waste without really changing our behavior. I call this the “Prius Principle”- we don’t drive less, we just do it in a less-polluting vehicle.

I don’t mean to disparage this approach. Every bit certainly helps. I like the phrase, though, because it makes it easy to see the drawbacks. Imagine if all 6 billion people on the planet- or even half of them- all drove Priuses 14,000 miles per year like the average American. The net impact of so many people doing such activities would not be positive.

I strongly believe that innovation in energy production and storage, water management and food production will ease the burden of transitioning away from CO2 dependence. At the same time, as Jared Diamond observes in his great book Collapse, new technologies solve many problems, but almost always cause new ones in the process (he cites CFCs and automobiles as examples; I would add the printing press, which expanded literacy and knowledge in previously unthinkable way, but has also caused the demise of countless forests for paper).

This post is already far too long, so I will conclude with two points:

*Hooray for Branson. It is incredibly important for people with his stature to take such a proactive stance. I hope the competition is unbearably intense and picking a winner near-impossible (in a good way). At the same time,

*Technology is only part of the answer; conservation is also hugely important. Let’s not let our Priuses and solar panels distract us from that. This essay on the Theory of [what I would be doing] Anyway makes that point better than I, so I will sign off with that.

• Cleantech , Startups

Jay Parkhill January 5th, 2007

I recently found a couple of articles talking about the AIM and its place in the scheme of things for cash-hungry businesses. My earlier point about the AIM was that it is not a very good “out” for companies hoping to escape the US environment. Most companies merge eventually, and if a suitor is subject to Sarbanes-Oxley and the rest of the SEC’s requirements, the prospective selling company had better comply as well or risk a drop in its purchase valuation.

AIM as a Step on the Road to Liquidity
Cleantech Investing summarizes the benefits and pitfalls of the AIM pretty well. It is easier and cheaper to go public, but harder for big shareholders to get liquidity given the thin trading in most stocks on the market. The AIM therefore serves more as an alternative to mezzanine financing for certain kinds of companies- it is not a good source of liquidity and at present doesn’t appear to be a great place to remain long term.

This may all change over time, of course. The number of US-based companies on the AIM (36 by my count) is very small. Still, the data definitely supports my thinking that companies need to maintain a plan for Sarbanes compliance.

AIM as Market of Choice for Clean Energy Companies
The other interesting point Cleantech notes is that a survey lists the AIM as the go-to market of choice for clean energy companies, and predicts it will remain that way for the next three years. The survey summary is frustratingly short on detail as to why this should be so. It cites the “arduous US regulatory environment” as the principal driver behind the trend, but doesn’t explain why this makes the AIM more compelling for clean energy businesses than for those in any other sector.

The danger I see in this thinking is companies financing themselves into a corner by going public too quickly with too little planning for how to keep M&A valuations high in the long term.

• Cleantech , M&A , Markets , Sarbanes-Oxley , Securities

Jay Parkhill December 12th, 2006

I have met a number of people in my career who I would consider extraordinarily bright inventors and visionaries. Many of these people had the even more-admirable quality of working toward social good by developing “clean” technologies, from alternative energy to waste-processing techniques. What always seemed to be lacking was the knowhow to build a company, and a product that others could and would buy.

I have seen a number of indicators that may be changing- “professional” managers seem to be taking notice of the sector and deciding to get involved, e.g. Martin Tobias, former CEO of tech company Loudeye, now at the helm of a nascent biodiesel company. More generally, one cleantech VC fund describes the step-up in managerial chops as a criterion leading to greater investor interest.

Of course, this reasoning is circular. What draws the Martin Tobias’s of the world, people experienced in building VC-backed businesses, to clean technology? Presumably it is the availability of VC investment dollars. More experienced company builders in the space make it easier for investors to get on board, which attracts more entrepreneurs, and it becomes a virtuous circle.

That’s the hope, at least, but what set the ball in motion? My guess is one part desire to do social good and four parts recognition that (a) society is approaching a crisis (how near or far away is anyone’s guess), and (b) that the people who can lead the rest of us toward the solution stand to make enormous fortunes.

I don’t mean for this to sound cynical. The technology ecosystem has been built on the ideas that new and better technology will benefit us all, and that investor and entrepreneurial risk-takers are sometimes handsomely rewarded for their efforts. The clean investing movement simply lets the technology ecosystem do what it does best, but for the ultimate benefit of real ecosystems everywhere.

Dissenters would argue- and I agree with this position in principle- that the *really* simple answer is just to consume less. Simple in theory and simple in practice are worlds apart, though. Humans seem to be an innately consumerist lot. Reduce/reuse/recycle is a terrific mantra, but not a complete solution.

Getting back to the point of the post, the influx of capital and entrepreneurial talent are fascinating to witness. I believe that the sector has only just germinated and has a huge amount of growth ahead before it comes into full flower. Look to this space to cover relevant trends and issues in the future as we see what kinds of flowers bloom.

• Cleantech