Quarterly Review of Series A Financings and Series B and Later Round Financings

Contents

  • Views on Clean Tech and Renewable Energy - Adam Wade
  • The Numbers: Been Down So Long It Looks Like Up To Me - Dave Broadwin
  • Selected New England Series A Round Transactions: Third Quarter 2009
  • Selected New England Series B and Later Round Transactions: Third Quarter 2009
  • Terms of Selected New England Series A Rounds 2009
  • Terms of Selected New England Series B and Later Rounds 2009
  • The Activity Level Summary
    • New England Series A Transactions by Industry
    • New England Series B and Later Round Transactions by Industry
    • National Series A Transactions by Industry
    • National Series B and Later Round Transactions by Industry
  • Size of New England 2009 Series A Transactions by Industry
  • Size of New England 2009 Series B and Later Round Transactions by Industry

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Views on Clean Tech and Renewable Energy

It was not that long ago that the ice pack in the Northeast Passage across the Arctic Ocean was impassible to shipping traffic even in the Arctic summer. Two ordinary German shipping vessels completed the voyage this September.

It was also not long ago that the price of crude oil was nearly $150 and natural gas was nearly $15. Recent closing prices have kept oil under $80 and natural gas below $5. Together, oil and gas are our most important transportation and electric generation fuels. (Though coal provides much of our power, gas sets the price in the most populous markets).

Now, even after the cost of these vital energy inputs has plummeted, making new technologies appear relatively more expensive, entrepreneurs, investors and policy-makers are hard at work developing new processes, devices, systems and business plans to take advantage of the economic realities of climate change and energy price volatility. Momentum is building towards an enormous shift in powering our country and world.

Despite the global recession – or perhaps because of it – private investment in and attention to the clean technology and renewable energy sector has remained substantial. More importantly, we have seen unprecedented financial and policy support from federal and state governments. This government support – both in terms of money and policy change – should quickly create platforms on which to build new business models.

Private Investment

Private capital has been allocated to clean technologies and renewable energy in increasing amounts in the past two quarters. Recent VentureSource data analyzed and reported by Ernst & Young point to $965 million invested in cleantech companies, an increase of 46% in Q3 2009 over Q2 2009 and a 182% increase over Q1 2009. A third of the Q3 investments, $316 million, went to renewable energy and electricity generation companies. The growth in aggressive risk capital suggests that private funding will continue to be available for new ventures.

Government Financial Support

In addition to the past quarter's increasing momentum in the private sector, the federal government has delivered significant grants, subsidies and tax credits for research, development, financing, installation and construction of energy infrastructure. All of this spending is intended to enable new means of producing power and coordinating the sundry pieces of our energy infrastructure and the economic network that underpins it. What is built and purchased with this money should not only boost opportunities for the direct beneficiaries of these programs but should also provide opportunities for follow-on innovation and investment to make use of that new infrastructure. Here are some examples:

  • Loan Guarantees. The Department of Energy ("DOE") has begun making loan guarantees under the loan guarantee authority it first gained in 2005. The first guarantee of a loan was for over $500 million for California based solar equipment maker Solyndra. In Massachusetts, A123 secured its own guaranty for over $200 million. These loan guarantees arguably provide young venture backed companies the ability to rapidly develop manufacturing capacity, drive sales volume, gain better valuations and get to an exit event faster.
  • $3.4B for Smart Grid. In late October, the DOE announced awards of $3.4 billion to 100 recipients under its smart-grid grant program. These grants will be matched by another $4.7 billion in private money to jump start modernization of the electric distribution and transmission infrastructure in the U.S. The grants will enable putting smart meters into about an eighth of U.S. households. Once deployed, these meters will enable time-specific pricing for power and incentivize efficient use of power and better coordination of intermittent and distributed generation. Ultimately, the smart grid promises growth in smart appliances, small solar, wind and other distributed power resources and plug-in electric vehicles. Greater integration of the power grid with battery-powered cars will enable renewable electricity to compete directly with oil and other fuels for transportation.
  • $3.1B in State Block Grants. The DOE has made available $3.1 billion in block grants and formula grants to cities, towns and state energy offices across the U.S. The money is intended for use in making public buildings energy efficient and purchasing renewable energy generation equipment. Established and startup energy service companies alike should see increased sales from customers receiving these funds.
  • $4B to $8B of Guaranteed Loans Under FIPP. In early October, the DOE opened its first solicitation in its new Financial Institution Partnership Program ("FIPP"), which provides partial loan guarantees to lenders that finance certain renewable energy projects. This temporary program promises to spur lending in the near term for projects stalled for lack of available debt financing.
  • $151M under ARPA-E. The DOE recently awarded $151 million of an allotted $400 million to 37 recipients under its Advanced Research Projects Agency-Energy ("ARPA-E") to fund breakthrough technologies and the development of new processes and technologies, providing research and development risk capital to technologies being developed by small companies thinking big. As DARPANet provided the infrastructure and technology foundation for much of the internet, the federal government intends ARAPA-E to provide the same support to the energy technology and renewables infrastructure.

Government Policy Support

In addition to direct financial grants, loan guarantees and other financial support, policymakers are pushing a raft of important regulatory changes.

For example, Massachusetts is currently at different stages in the implementation of three important reforms. The first reform would require utilities to enter into long term power purchase agreements with renewable energy generators, likely for as long as 15 years. Such an arrangement will be an important shift in policy. Massachusetts had previously restructured its electricity markets to encourage utilities to shed such long term obligations and is now seeking to renew long term obligations to support growth in renewables. This shift in policy should enable good projects to attract nonrecourse project financing based on the strength of the utility offtaker's balance sheet and credit rating. The second reform would increase the individual cap on distributed generation assets interconnected to the distribution grid 'behind-the-meter' from 60 kilowatts to 2 megawatts or more in some cases. This change is expected to promote installation of more onsite distributed generation in small scale, community-based and municipal projects. Finally, the third reform will 'decouple' utilities' earnings from the volume of power they deliver and allow utilities to recoup some of the revenue lost when customers self-generate, engage in net metering or reduce demand through energy efficiency. This change will incentivize utilities to work with energy entrepreneurs. Changes like these will unlock value in utilities' networks, not just for third parties at the utilities' direct expense, but for the benefit of utilities, their customers and stockholders and energy entrepreneurs alike.

Conclusion

Given these substantial changes, it's become clear that cleantech, energy technology and renewables are not fads or bubbles that will burst on the next drop in natural gas or crude oil prices. Even at today's prices, entrepreneurs, investors and policymakers are seeing an inverse coordination between the amount of ice in the Arctic and the opportunities for change, innovation and investment. These changes are important and real and will provide a foundation for continued investment and innovation.

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