venture investing in cleantech

Presentation to the California Commission for Economic Development

“Venture Investing in Cleantech”

Andrew G.W. ChungPrincipal, Lightspeed Venture Partners

September 15, 2008

Our mission: We partner with exceptional entrepreneurs to build

high-growth, market-leading companies globally

Lightspeed Confidential/Trade Secret - Not to be copied, distributed or referred to without the prior written consent of Lightspeed Venture Partners

Lightspeed: At a glance

$2.1B of committed capitalCurrently investing Fund VIII: $800M

22 investment professionals

Lead investor orientation

Global platformU.S.China

Top-quartile performance across all funds

Selected Managing Director Investments

Cleantech & Energy-Related Investments

IndiaIsrael


3

Global energy needs continue to rise along with dependence on carbon…

Source: IOGA, Bureau of Labor Statistics, US National Ocean and Atmospheric Administration (NOAA) / UK Climate Research Institute

Electricity Generation CO2 Levels vs. Temperature Change

1000s Years Ago

6

4

0

-2

2

-4

-6

-8

-10

350

300

200

150

250

400 350 300 250 200 150 100 50 0

400ppm 10°C

8

3

2

0

1

4TWh

1980 1985 1990 1995 2000 2005

China

Japan

IndiaCanada

Russia

U.S.


4

…and the price of oil has reachedlevels unseen since early ’80’s

Source: IOGA, Bureau of Labor Statistics

Nominal Prices Inflation-Adjusted Prices (December 2007 $)

Mon

thly

Ave

rage

Oil

Pric

e pe

r Ba

rrel


5

Renewables expected to supply only20% of energy by 2020…

Source: Scientific Advisory Committee, German Government

2000 2010 2020 2030 2040 20500

200

400

600

800

1000

1200

1400

1600

GeothermalOther RenewablesSolarthermal

Solar Electricity

WindBiomass (Modern)Biomass (Traditional)HydroNuclear

Gas

CoalOil

Renewables

Ann

ual E

nerg

y O

utpu

t (1

018 Jo

ules

)

Global Sources of Energy


6Source: BP Statistical Review of World Energy 2008, Brazilian Automakers Association, U.S. Bureau of Transit Statistics, U.S. Energy Information Administration

0

20

40

60

80

100%

U.S. Brazil0

20

40

60

80

100%

Worldaverage

U.S.

Sweden

Switzer

land

NewZea

land

Austria

Canad

aVen

ezuela

Icela

ndColo

mbia

Brazil

Norway

% Share of Hydroelectricity % Share of Biofuel Vehicles

…and the U.S. continues to lag in renewables adoption

0

10

20

30%

Worldaverage

U.S.

U.KMex

icoBra

zilIta

lySwede

nGer

man

ySpainFin

land

Philip

pines

Denm

ark

% Share of Other Renewables


7

Solar Fuels

Storage

Polysilicon/wafer

Cell/modules

Balance of systems

Financing

Batteries

Ultracapacitors

Grid storage services

Fuel cells

Horizontal-axis turbines

Vertical-axis turbines

Small form factor

Off-coast

Petroleum substitutes

Coal-to-liquids

Gas-to-liquids

Ethanol production

Biodiesel production

Other Generation

Energy Efficiency

Coal gasi-/purification

Solar thermal

Transportation tech

Oil & gas solutions

Hydropower

Wave kinetics

Building materials

Waste management

Recycling

Demand response

Lighting/HVAC control

Distributed generation management

Automated metering

Water purification

Air purification

Cleantech: a portfolio solution that comprises a broad set of sectors…

Wind

Water/Air Other


8

…each providing a depth of entrepreneurial opportunities

Trad

itio

nal

Sam

ple

area

s of

inno

vati

on

Module packaging

Balance of systemsInvertersMPP trackingSystems monitoring

Solar financingResidentialCommercial

C-Si cellsBack-contact cellsSliver cells

Thin-filma-Si/CdTe/CIGS/CISDye, organicsNew materials

Concentrated PV

PolysiliconMetallurgical-grade

WaferingContinuous CZ methodRibbon technology

Capital equipmentCombined heat & power (CHP)Solarthermal

Example: SOLAR


9

Solar Fuels

Storage

Other Generation

Energy Efficiency

Lightspeed’s cleantech/energy investments

Wind

Water/Air Other

High-efficiency thin-film modules

Next-generation lithium-ion batteries Power management for

LED lighting

Algae-based biofuels/chemicals

Renewable petroleum biofuels

Oil & gas exploration equipment

Coal pre-treatment systems

Cleantech media & research


10

Why cleantech now?

EntrepreneursBusinessesInvestors

Shift ineconomics

Corporate &social imperatives

Governmentimperatives

Massiveend-markets

Technologyheadroom


11

Sampling of corporate and social initiatives


12

$4.1

$2.8

$1.6$1.2$1.2$1.1

13.1%

10.1%

7.6%

5.9%6.9%

5.1%

$0

$1

$2

$3

$4

2002 2003 2004 2005 2006 2007

$ Bi

llion

s

0%

3%

6%

9%

12%

15% % of Total VC Investm

ent

VC Investment in Cleantech % of Total VC Investment

Cleantech venture investment up significantly since 2002…

Note: Includes only North American deals; Source: Cleantech Venture Monitor


13

…with the bulk of capital going into generation during 2007

278 $4.1B

GenerationGeneration

StorageStorageTransportation

TransportationEfficiencyEfficiencyRecyclingRecyclingInfrastructure

InfrastructureAgricultureAgriculture

OtherOther

0%

20%

40%

60%

80%

100%

# of Rounds Total $ Raised

Note: Includes only North American dealsSource: Cleantech Venture Monitor


14

Cleantech-specific deal evaluation criteria

Massive addressable market opportunity

Strong technology, process defensibility

Convincing fundamental economics

Viable distribution, infrastructure compatibility

Capital efficiency, milestones tiered for risk reduction

Time-to-market consistent with investment horizon

Macroeconomic, regulatory, and public policy tailwinds

Team with start/scale-up experience and domain expertise


15

Solar: Cost economics

$0

$1

$2

$3

$4

$5

$6

$7

$8

Mono Multi CIGS CdTe a-Si New Tech

Tota

l Ins

talle

d Co

st p

er P

eak

Wat

t Crystalline Silicon Thin Film (Projected Costs)

18% 14% 13% 10% 8% 15%++Target Efficiency

Module

Systems and Installation

Source: Lightspeed analysis

ESTIMATES


16

Biofuels: Cost economics

Tax Credit

Tax Credit

Tax Credit

$0

$2

$4

$6

$8

$50/BarrelOil

Wholesale

Soy-basedBiodiesel

Corn-basedEthanol

CellulosicEthanol

New Tech Algae-basedBiocrude

Prod

ucti

on C

ost

Per

Gal

lon

(Gas

olin

e Eq

uiva

lent

)

$25+

Feedstock-constrained

Source: USDA, DOE, ILSA, Lightspeed analysis

Synthetic biology

Metabolic engineering

Coal liquefaction

Photosynthetic (algae)

Infrastructure compatibility issues

ESTIMATES


17

Storage: Battery technologies

Source: Merriman, Curhan, Ford; IEA; Lightspeed analysis

Smaller/LighterEnergy Density (Wh/Kg)

150 200100500

Safe

ty

Safer

Lead-acid

Ni-MH

Ni-Cd

Li-Ion

New Tech


18

Coal: primary source of SO2 emissions

Source: National Coal Council, Deutsche Bank, US Department of Energy

25%

9%8%

6%4%

0%

5%

10%

15%

20%

25%

30%

Coal NG Hydro Oil Nuclear% c

hang

e in

glo

bal c

oal u

se (

2001

-04)

US Electricity vs. SO2Growth in Global Energy Sources

Coal

Coal

Gas

Nuclear

HydroOther

0%

20%

40%

60%

80%

100%

Electricity Generation SO emission

Renewables

2


19

Price Spread for Low-BTU vs. High-BTU Coal

~5-10X

High-efficiency coal carriessignificant market premium

Source: US Department of Energy


20

Government & public policy support has had strong “greening” impact

Source: Art Rosenfield, California Energy Commission

Per Capita Electricity Sales

Per Capita Electricity Sales (not including self-generation)(kWh/person) (2006 to 2008 are forecast data)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

United States

California

Per Capita Income in Constant 2000 $1975 2005 % change

US GDP/capita 16,241 31,442 94%Cal GSP/capita 18,760 33,536 79%

2005 Differences = 5,300kWh/yr = $165/capita

Key regulatory changes

New United States Refrigerator Use v. Time and Retail Prices

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002

Ave

rage

Ene

rgy

Use

or P

rice

0

5

10

15

20

25

Ref

riger

ator

vol

ume

(cub

ic fe

et)

Energy Use per Unit(kWh/Year)

Refrigerator Size (cubic ft)

Refrigerator Price in 1983 $

$ 1,270

$ 462

U.S. Refrigerator Energy Use

Key regulatory changes


21

Sample Policy Mechanisms

Solar: investment tax credit, residential/ commercial/utility-based PPA incentives

Biofuel: blending/production credit, fuel distribution and performance requirements

Wind: production tax credit

Energy efficiency: demand response, HVAC, lighting, heating & green building incentives

Smart grid: grid storage, net metering

Transportation: incentives for fleet emissions/GHG reduction, ZEV credits

Carbon reduction: cap & trade, carbon capture/sequestration, coal retrofitting

How can policy support contributeto cleantech innovation today?

Providing funding aid for cleantech startups and R&D efforts (grant monies, loan guarantees, tax breaks)

Support creation of cleantech clusters and facilitate ecosystem communication

Connecting startups to key export markets

Setting example in adopting clean, energy efficient products for government use

Reduce uncertainty by making multiyear commitments to environmental policy

Expanding consumer and commercial incentives for cleantech adoption

Support Initiatives


22

Greenhouse gas abatementnecessitates a portfolio approach

Source: McKinsey


23

Cleantech companies could havestrong impact on the economy

REPP: each MW of installed solar generates 35.5 new jobs

CVN: 2007-10 cleantechVC-backed companies

~$14-19B investment

400-500K new jobs

$70-100B new revenue

Stern Review: cost of notaddressing climate change: 5-20% of global GDP/yr

Source: UC Berkeley, Cleantech Venture Network, Renewable Energy Policy Project

10.6

2.8 2.8

1.0 1.0

0

2

4

6

8

10

12

Solar Biomass Wind Coal Gas

Jobs

/MW

ope

rati

ng c

apac

ity

Average Employment for Energy Facilities


24

Solar Fuels

Storage

Other Generation

Energy Efficiency

Cleantech:A multitude of opportunities

Wind

Water/Air Other

High-efficiency thin-film modules

Next-generation lithium-ion batteries Power management for

LED lighting

Algae-based biofuels/chemicals

Renewable petroleum biofuels

Oil & gas exploration equipment

Coal pre-treatment systems

Cleantech media & research

Questions?Andrew G.W. Chung

Principal, Lightspeed Venture Partners

[email protected](650) 234-8300

Our mission: We partner with exceptional entrepreneurs to build

high-growth, market-leading companies globally

venture investing in cleantech

Economy & Finance

global energy needs

price of oil

bureau of labor statistics

bureau of transit statistics

em sw s wm source

s years

share of hydroelectricity

w d pin g edaco ela