20110722 usvc portfolio_english

ⓒ 2011 insprout Corporation.

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An Analysis of US Venture Capital Investment Trends in

Cleantech Startups

July 22, 2011


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Table of Contents

1. What is Smart Grid?

2. Smart Grid Associated Technologies

3. US Venture Capitals

• Investment Trends

• Portfolio Analysis

4. Implications for Japanese Cleantech Startups

5. Conclusion


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Introduction

Purpose

We analyze each portfolio of the selected US venture capitals. In

doing so, we sort those startups into some categories based on

technologies such as Renewable Energy and Energy Management.

We then evaluate opportunities for Japanese cleantech startups.

Conclusion

１. VC investment concentrates on “Energy production”, “Egergy

Management Systems (EMS)”, and “Batteries.”

2. For Japanese cleantech startups, it seems that “Demand Side” of

Smart Grid presents more business opportunities than Supply side

due to the following three reasons: direct contact to consumers,

technological overlaps, and required capital.


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1. Smart Grid’s Concept

Source: Toshiba Home Page


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1. A Defenition of Smart Grid

�A “smart grid” is a set of software and hardware tools that enable

generators to route power more efficiently, reducing the need for

excess capacity and allowing two-way, real time information

exchange with their customers for real time demand side management

(DSM).*SMART 2020: "Enabling the low carbon economy in theinformation age" Global Sustainability Initiative

From a business perspective, we need to divide the composition

elements of smart grid into some meaningful classifications.


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2．Technical Domains of Smart Grid

TransmissionTransmission DistributionDistributionGenerationGeneration ConsumptionConsumption

Renewable EnergiesRenewable Energies

Alternative EnergiesAlternative Energies

Energy Production

Wide Area Monitoring SystemWide Area Monitoring System

Monitoring&Control of System Power Supply

Distribution AutomationDistribution Automation

Superconducting TransmissionSuperconducting Transmission

Effective Operation of System Power Supply

Power Electronics Applied EquipmentPower Electronics Applied Equipment

AMI・Smart MeterAMI・Smart Meter

Advanced Interface Technologies

Power Conditioner TechnologiesPower Conditioner Technologies

EMSEMS

EVEV

Energy Consumption

Energy Storage TechnologiesEnergy Storage Technologies

Energy Storage6

1 2 3

4

5

RecycleRecycleFossil Fuel EfficiencyFossil Fuel Efficiency

Energy SavingEnergy Saving

※Classifications are based on Japan’s New Energy and Industrial Technology Development Organization (NEDO) “Renewable Energy Technology White Paper 2010.”

1）

2）

3）

4） 5） 6）

7）

8）

9）10）

11）

12）

13）

14）


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2. Six Main Technological Domains of Smart Grid（LEV1）

Technological

Domain

Technological

Domain

①Energy Production

②Monitoring&Control

of System Power Supply

③Energy

Consumption

④Effective Operation

of System Power

Supply

⑤Advanced Interface

Technologies

⑥Energy Storage

DescriptionDescription

Includes renewable energies and bio fuels. It also includes fossil fuel

efficiency. Difference in business structures such as manufacturing solar

panels and operating a power plant are not taken into account.

Refers to monitoring & control technology used at central load dispatching

center and local transformer substations.

Refers to various technologies that control energy consumption of consumers.

It includes HEMS, FEMS, BEMS, and Demand Response. It also includes

EVs and affiliated technologies such as V2G.

Refers to technologies that concern effective and flexible operation of system

power supply. It includes such technologies as superconducting transmission,

ultra‐high voltage power transmission, and power electronics.

Refers to advanced interface technologies that connect between distributed

generation and system power supply. It deals with sending & receiging

information and include such things as smart meters power conditioners.

Refers to energy storage technologies such as batteries.

CompaniesCompanies

Sharp, Kyocera

BrightSource Energy

Altarock Energy

Toshiba, GE,

SIEMENS

IBM, EnerNOC、Tendrill, Opower,

Tesla

Sumitomo Electric,

ABB

Siver Spring Networks,

Itron, Landis+Gyr,

Mitsubishi Electric

Panasonic,

NGK Insulators



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2. Fourteen Sub Technological Domains of Smart Grid（LEV2-1)

DescriptionDescriptionTechnological

Domain

Technological

DomainCompaniesCompanies


1) Renewable Energies

Renewable enegies（photovoltaic generation, solar thermal power, wind power, geothermal

power, etc). Business structures such as manufacturing solar panels and operating a

power plant are not taken into account.

Bio Fuels (ie. Ethanol), and their affiliated businesses

Fossil fuel efficiency technologies such as decreasing CO2 emission, and conversion

technologies to natural gas.



4) WASA

Monitor & control of system power supply such as PMU （Pharos Measurement Unit）collectsdata of electric current & voltage and thus monitoring the conditions of system power supply.

It controls system power supply optimally, and deters & prevents the system’s collapse.

Monitos electric current and voltage running through distribution lines and electric

power substations, automatically controls the swich of distribution lines, and therefore

increases the reliability of distribution lines as well as softening maintenance work.

③Energy Consumption

6) EMS Techonologies

Process of managing the consumption of energy, generally to optimize available and

planned generation resources. It includes HEMS, BEMS, FEMS, and Demand Response.

Sharp, Kyocera

BrightSource Energy

Altarock Energy

Amyris Biotechnologies

Mascoma, Gevo, KiOR

GreatPoint Energy

Luca Technologies

Toshiba, GE, Siemens

EnerNOC, Tendrill,

Opower


2) Alternative Energies


3) Fossil Fuel Efficiency

Toshiba, GE, Siemens


7) EVRefers to EVs. It also includes affiliated technologis such as V2G and G2V.

Tesla, Fisker Automotive

Better Place



5) Distribution Automation



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DescriptionDescriptionTenonological

Domain

Tenonological

DomainCompaniesCompanies



10) Superconducting

Transmission

Uses direct current for the bulk transmission of electrical power, in contrast

with the more common alternating current systems. For long-distance

transmission, it may be less expensive and suffer lower electrical losses.

Refers to Electric voltage control by reactive power control and Electric

current control of distribution lines by impedance changes in distribution

lines.

Monitors & measures electricity demand, send the data using IT

technologies periodically. Sometimes equipped with the capability to

control household appliances.


Technologies

13) Power Conditioner

Conversion technologies from DC to AC.

We expect to see the rise of this technology along with the increase in

distributed generation.

⑥Energy Storage

14) Batteries

Used both sides of smart grid: both supply side and demand side need

batteries to even out generation.

Sumitomo Electric, ABB

Sharp, Kyocera



11) Power Electronics


Technologies

12) AMI

Panasonic,

NGK Insulators

Siver Spring Networks,

Itron, Landis+Gyr


8) RecycleVarious recycling technoclogies, including financial services.

Lehigh Technologies,

RecycleBank


9) Energy Saving

Various energy saving devices & services such as LED lighting.

It also includes improving existing automobiles (development of low CO2

emission engines).

Luminus Devices

SeaMicro, Caitin

2. Fourteen Sub Technological Domains of Smart Grid（LEV2-2)


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3. US Venture Capitals’ Investments

Source: National Venture Capital Association

Between 2006 and 2010, Cleantech Investments increased at CAGR 22%

*In Q1 2011, investment equals that of Web companies

$1,647

$2,605

$3,987$3,668

$1,038

$2,122

6.30%

8.59%

13.91%10.95%

17.67%

15.77%

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

$4,000

$4,500

2006 2007 2008 2009 2010 Q1 2011

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Amount Invested (Cleantech) Cleantech % in Overall Invest

(Unit:

Million)


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3. Venture Capitals Active in Cleantech Investment

Source: Cleantech Group

We select these three firms,

plus Nth Power specialized

in cleantech investment for

our research.

Venture Investor # deals

Draper Fisher Partners 16Chrysalix Energy Venture

Capital16

Kleiner Perkins Caufield & Byers 12

Carbon Trust Investment Partners 12

Element Partners 12

Emerald Technology Ventures 10

RockPort Capital Partners 10

Good Energies AG 10

Vantage Point Venture Partners 10

Khosla Ventures 8

SET Venture Partners 8


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60

31

13

3 2 0

1518

40 2 0 0 0

0

10

20

30

40

50

60

70

Energ

y P

rodu

cti

on

Energ

yC

onsu

mpt

ion

Energ

y S

tora

ge

Adv

anced

Inte

rfac

eTechnolo

gy

Eff

ecti

ve O

pera

tion

of

Sys

tem

Pow

er

Supp

ly

Monit

ori

ng&

Contr

ol

of

Sys

tem

Power

Supp

ly

Oth

ers

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3. Investment Analysis Based on Technological Domains of

Smart Grid (LEV1-1)

Source: From VCs’ publicly available portfolios.

�Energy Consumption takes up about 50% of VC investment.

�Almost zero investment in System Power Supply.

(Unit: Deal)

：# of deals

：# of deals over $100M


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�No noticeable differences among VCs and their investment trends at LEV 1.

�Investment deals for energy production tends to be big! About 30% of Energy

Production deals are over $100M deals (cumulative amount of capital raised).


Smart Grid (LEV1-2)

LEV1 KPCB Nth DFJ Khosla KPCB Nth DFJ Khosla # Invest # Over $100M

Energy Production 16 11 14 19 8 0 4 6 60 18

Energy Consumption 8 7 11 5 2 0 2 0 31 4

Energy Storage 3 0 6 4 0 0 0 0 13 0

Advanced Interface Technology 2 0 1 0 1 0 1 0 3 2

Effective Operation of System Power Supply 1 0 0 1 0 0 0 0 2 0

Monitoring&Control of System Power Supply 0 0 0 0 0 0 0 0 0 0

Others 0 5 1 9 0 0 0 0 15 0

Total 30 23 33 38 11 0 7 6 124 24

Number of Investment Number of Investment Over $100M LEV 1 Total



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30

20

10

16

84 3

13

2 1 02

0 0

15

86

41 1 0

20

20 0 0 0 0 0

0

5

10

15

20

25

30

35

Rene

wable

Ene

rgies

Alte

rnat

ive E

nerg

ies

Foss

il Fue

l Effi

cienc

y

EMS

Ener

gy S

aving

Recy

cling EV

Batt

eries

AMI/

Smar

t Met

ers

Powe

r Con

dition

er

Supe

rcon

duct

ing

Tran

smiss

ion

Powe

r Ele

ctro

nics

WAS

A

Dist

ribut

ion A

utom

ation

Other

s

14

VCs’ investment concentrates in Energy Production, EMS, Batteries,

taking up 72% of the overall investment.

(Unit:Deal) ：# of deals

：# of deals over $100M



Smart Grid (LEV2-1)


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�Noticeable differences among VCs and their investment areas.→Khosla clearly focuses on energy production while zero investment in the area of EMS.

�Very few over $100M deals for investments in EMS and batteries. (1 out of 29 deals)


Smart Grid (LEV2-2)

LEV1 LEV2 KPCB Nth DFJ Khosla KPCB Nth DFJ Khosla # Invest # Over $100M

Energy Production Renewable Energies 7 7 8 8 4 0 3 1 30 8

Alternative Energies 5 2 4 9 2 0 0 4 20 6

Fossil Fuel Efficiency 4 2 2 2 2 0 1 1 10 4

Energy Consumption EMS 5 6 5 0 1 0 0 0 16 1

Energy Saving 0 1 2 5 0 0 1 0 8 1

Recycling 2 0 2 0 0 0 0 0 4 0

EV 1 0 2 0 1 0 1 0 3 2

Energy Storage Batteries 3 0 6 4 0 0 0 0 13 0

Advanced Interface Technology AMI/Smart Meters 1 0 1 0 1 0 1 0 2 2

Power Conditioner 1 0 0 0 0 0 0 0 1 0

Effective Operation of System Superconducting Transmission 0 0 0 0 0 0 0 0 0 0

Power Supply Power Electronics 1 0 0 1 0 0 0 0 2 0

Monitoring&Control of System WASA 0 0 0 0 0 0 0 0 0 0

Power Supply Distribution Automation 0 0 0 0 0 0 0 0 0 0

Others Others 0 5 1 9 0 0 0 0 15 0

Total Total 30 23 33 38 11 0 7 6 124 24

Number of Investment Number of Investment Over $100M LEV 1 Total



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3. Summary of US VCs’ Investment Trends

�Investment concentrates in Energy Production, EMS, and Batteries.�Energy Production：Various policies and governmental aids enacted to create demands for such energies.

�EMS： US smart grid was envisioned to avoid huge investment required to replace old

distribution lines, emphasizing demand control.

�Batteries： Batteries are used all phases of smart grid: Generation-Transmission-Consumption.

�On the other hand, almost zero investment was made into such technological domains as

Monitoring&Control of System Power Supply or Superconducting Transmission.�Dominated by large companies such as GE, Siemens and Toshiba with long history of joint development

with electric companies.

�While investments deals in energy production tend to require huge capital (over

$100M), this is not the case for those of EMS and batteries.�30% of investment deals in energy production are over $100M deals.

�Only 1 deal out 29 is an over $100M deals in EMS and batteries.

¹State of California mandates that 33% of electricity must be produced by renewable energies by 2020.


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4. Implications for Japanese Cleantech Startups

Supply Side（（（（Generation-

Transmission-Distribution））））Technological Domains

Supply Side（（（（Generation-

Transmission-Distribution））））Technological Domains

Demand Side（（（（Consumption））））Technological Domains

Demand Side（（（（Consumption））））Technological Domains

�Renewable Energies

�Alternative Energies

�Fossil Fuels Efficiency

�WAMS

�Distribution Automation

�Superconducting Transmission

�Batteries

�Power Electronics

�Power Conditioners

�EMS

�AMI・Smart Meters

�EV

�Recycle

�Energy Saving

�Batteries

<

Hypothesis： Demand side of smart grid (especially red-fonted

domains) may present more business opportunities for

startups than supply side of smart grid.


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4. Analysis of Hypothese ～1～

Smart Grid = Internet of Power Network

Especially technological & service domains of EMS are those

directly contact with consumers.

�Power shift from supply side to demand side would occur, once every consumer in

would produce and consume energy, becoming so-called prosumers of energy.

Nega-watt (savings from energy saving) and Posi-watt (generation from renewable

such as PV) would connect to EMS, enabling electricity trade. This new

environment, so-called “You Energy (everyone can produce & consume energy)”

would create a new paradigm that would foster innovation, growth and

employment, incentivizing businesses¹.

¹Source: Toshiharu Kato, “Smart Grid Revolutuon.”


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Engineering skill sets needed in the Demand Side overlap with those in IT industry.

Most IT companies can enter the Demand side with marketing strategies tailored for

the energy industry.

Backgrounds of Executives in Smart

Grid Companies

IT Hardware30%

IT Software25%

Energy19%

Finance6%

Telecom8%

Others12%

Majority have IT industry backgrounds

Necessary skill sets of

Smart Grid Engineers

Renewable Energies （（（（PV, wind power、、、、Geothermal power））））

Electrical Engineering （（（（circuit, etc））））

Network Technology （（（（WAN, LAN, etc ））））

Control & Communication Technology of Smart Appliance

WEB Application Technology

（（（（e-commerce, power consumption management software)

Skill sets that

IT engineers

already have

Additional

skills

Similar technological skill sets

Source：http://engineer.typemag.jp/slive/2011/05/-se5.phpSource：Greentech Grid “Smart Grid2.0: the Soft Grid”

http://www.greentechmedia.com/articles/read/smart-grid-2.0-

the-soft-grid1/



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�Supply side businesses such as Energy Production tend to require

large amount of capital.

�Average investment size of Japanese VCs is between $1M and $3M, raising the

financial bar for Japanese startups to enter the supply side of smart grid.



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5. Conclusion

�US VCs’ investment concentrates in the three technological

domains: Energy Production (renewable & alternative energies,

fossil fuel efficiency), EMS, Batteries. On the other hand, some

domains receive no investment, a great split.

�About 30% of Energy Production are over $100M deals,

requiring huge amount of money to run business. This is not the

case in the other two domains, EMS and Batteries.

�Demand side of smart grid seem to present more business

opportunities than supply side due to the following three reasons:

“direct connections to consumers,” “technological affinity with IT

technology,” and “required capital.