john babcock, cleantech/green venture capital, at opportunity green business conference 2009

Cleantech Venture CapitalOpportunity Green - Los Angeles,

CANovember 7, 2009

Prerequisite Cleantech Slides

• Blue Marble Shot• McKinsey Chart• The CFL• Polar Bear

Cleantech Markets Today

• Environmental issues• Market opportunities• Market challenges• Examples

Rustic Canyon Partners

• Founded in 1999• $800MM under management• Investing out of Rustic Canyon III – closed in Oct

2008• Offices in Santa Monica and Silicon Valley• 49 portfolio companies

Current Investments• Foodlink• Leads360• Pentadyne*• Serious Materials*• Transonic Combustion*

*Cleantech

Prior Investments• SiliconSystems

– Sold to Western Digital

• HomeGain– Sold to Classified Ventures

• Cyrano Sciences– Sold to Smiths PLC

John Babcock

Where Do We Invest?

• Location: – Almost always in California (two-hour rule)

• Amount:– $3 - 10MM first investment– $5 - 25MM over the life of the company

• Engagement:– Always lead or co-lead financing round– Always take a board seat

The Pressing Need

The Tragedy of the Commons

Coal is Really Cheap

U.S. Electricity Production

0

1,000

2,000

3,000

4,000

5,000

1996 1998 2000 2002 2004 2006

Bill

ion

Kw

h

Other

Other Renewables

Hydroelectric

Nuclear

Other Gases

Natural Gas

Petroleum

Coal

Energy Growth > Population Growth

0

1,000

2,000

3,000

4,000

5,000

Bill

ion

Kw

h

Worldwide Electricity Consumption

United States

Europe

China

Japan

South America

Canada

Why Cleantech Now?

Why Cleantech Now?

Cleantech DefinitionCleantech is a term used to describe knowledge-based products or services that improve operational performance, productivity or efficiency while reducing costs, inputs, energy consumption, wasteor pollution. Its origin is the increased consumer, regulatory and industry interest in clean forms of energy generation—perhaps, the rise in awareness of global warming and the impact on the natural environment from the burning of fossil fuels. The term cleantech is often associated with venture capital funds.

Source: Wikipedia.com

Cleantech is Diverse

Source: greentechmedia.com

VC Has Distinct Sectors

• Traditional Software• SaaS• System Hardware• Life Science Devices• Life Science Drugs

Cleantech Doesn’t Fit Old Formula

Gross margins: 60% - 90% 20% - 50%Capital intensive: $5 - $50MM $50 - $250MMMarkets: Creating New Entering

Old

Classic VC

Cleantech VC

Where the Money is Going

$3,300

$904$795$502

$345$166

$148

$2,240

Amount Invested ($MM)

SolarBiofuelsTransportationWindSmart GridAgricultureWaterOther

Where the Money Should Go

TRANSONIC

FULCRUM BIOENERGY

SERIOUS MATERIALS

51%27%27%

U.S. Energy Demand

Built EnvironmentTransport Industry

A supreme union of form and function, there is no other window that saves more heating and cooling dollars. Beautiful for your home, your wallet . . . and the planet.

After 100 years, there’s finally a better alternative to gypsum drywall. Contractors love it. Termites and mold hate it. Made from 80% recycled materials using dramatically less energy and no mercury, EcoRock helps build a cleaner, cooler future, one home at a time.

What if a transformational approach to fuel injection yielded a dramatic improvement in fuel economy and radical reduction in engine emissions? That’s how Transonic Combustion drives change forward.

A bold step forward in “recycle/reuse,” Fulcrum Bioenergy unlocks the energy trapped in trash to create clean-burning ethanol – while reducing solid waste blight and harmful landfill methane emissions.

Market Conditions

• Fuel prices low (used to be high)• Capital is very expensive (used to be cheap)• Political support very strong (used to be strong)

Are We in a Bubble?

Yes.

Just Like the Last Bubble?

Yes.

Venture Capital101

Don’t do it if you can grow organically• Expensive money• Limits early exit and autonomy• Works when growth = 40% year/year and

viable, quick path to $100M in revenue

Questions?