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Friday, May 15, 2009
Q&A with Steve McBee on alternative energy stimulus funding
By Mass High Tech staff
MHT's Efrain Viscarolasaga: Preparing the smart grid for more power
MHT reporter Efrain Viscarolasaga on NECN: Green tech brings jobs back to Mass.
How is the economic crisis affecting tech companies?
Since the American Recovery and Reinvestment Act — better known as the federal stimulus package — was passed in February, Washington D.C.-based public policy consultant Steve McBee, CEO of McBee Strategic LLC, has been busy. One of his firm’s specialties, clean energy policy, is a focal point of the stimulus package, with more than $61.3 billion allocated to increasing energy efficiency and generating clean power, and as a result, McBee’s clients have been calling for advice on how to get in on the bonanza.
Recently, McBee spent a week in the Boston area, talking to local venture capitalists about the opportunities in federal funding for clean energy technologies. Mass High Tech staff writer Efrain Viscarolasaga talked with McBee about some highlights of what he has seen in Washington and in the industrywide positioning for clean tech stimulus dollars.
Q: Is the venture capital community chasing federal dollars for themselves or for their portfolio companies, and if so, what advice are you giving them?
A: I think the venture capital community is very focused on the fact that political and regulatory risk is becoming a highly important variable in how they think about forward allocation strategies and their broader investment positions and how they think about the advice and support they provide their portfolio companies. Certainly the VCs we talk to are looking very hard at the green stimulus money and at the loan guarantee program, but are also looking very hard at the regulatory and policy change that is accompanying the public sector investment that’s coming out of Washington for clean energy companies.
I think, while the investment is material and the investment community is interested in steering their portfolio companies to pools of capital that are non-dilutive and non-equity, if you look at the really material change that is likely to shape the market it is the major policy overhaul in the energy space, specifically the price signal that will likely be established for carbon in the next 8 to 18 months. That is going to fundamentally reshape the market and reshape their investment strategy.
After having not paid attention to Washington at all in recent history, the VC community is highly focused on it now, both on the capital raising side and the policy side.
Q: Are there some technologies in the clean tech area that are more attractive to federal dollars than others?
A: I don’t see as much of that segmentation. I think what’s happening at a meta level is Washington is making a policy bet on this industry. There is a tremendous amount of political will on a bipartisan basis to restructure energy regulation in a way that de-risks clean energy markets for investors and attempts to seed technology development and take it to scale in order to get a full portfolio of technologies that are fully deployed that can meet the policy goals relating to emissions reduction, energy security and energy independency. I think there are vertical markets that are getting a lot of attention, but I don’t know if it is an issue of picking the winners and losers so much as it is an issue of getting the policy done correctly to maximize the amount of commercial capital flowing into the industry and maximize the amount of entrepreneurial action in the industry.
Q: Do large companies or companies with experience with the government through other programs, such as SBIR, have an advantage in this process?
A: A bit of an advantage. Public sector markets are very different from commercial markets. It’s a different culture and a different rhythm and a different cycle. I think companies that are more accustomed to dealing with any public sector, be it defense or security or transportation, are going to have a bit of a leg up in dealing with energy markets. Having said that, I think there is a very strong sense on Capital Hill, at the (Department of Energy) and in the White House that they want to maximize the amount of capital that flows into the innovation community and that they want to get innovation moving. There is a recognition that Fortune 500 companies and established infrastructure players aren’t always the place where you get the most innovative technology development. So there is a strong desire to bring in that community and make them part of the process and pushing capital out to them. But I think this is something the clean tech industry and the investment community that supports them is going to have to become great at. They are going to have to understand how to compete in Washington, how to engage Washington and how to be able to meet policy makers on their own terms. We are seeing the very, very earliest early stages in that in the innovation community, and I think you are going to see more.
Q: On a macro scale, where are we in the clean stimulus funding?
A: (There) is a $2 billion solicitation for advanced battery manufacturing and a $400 million vehicle electrification solicitation. They were announced about three weeks ago with a 60-day deadline, so participants have 60 days to pull together an application. The Secretary (of Energy) has made a commitment to start awarding money for those solicitations by September. I don’t know if it will happen that quickly or not, but we believe we will see money flowing out of those solicitations in Q4.
There is also a draft solicitation on the street for smart grid demonstration projects — a $4.5 billion program — as well, and I think we are about halfway through that draft deadline process (for public response). They’ll issue formal guidance shortly after that window closes and we expect there will be a 60-day clock on that. We anticipate behind that will be a solicitation for $3.5 billion for carbon capture and sequestration, which will be for early stage development technology demonstration, as well as for large scale industrial capture.
Q: If you are a small or midsize company looking to be involved in one of the programs, where do you keep an eye on, where do you look?
A: The funding is being distributed very broadly and I think the challenge for companies that are not familiar with how Washington works, is you don’t really know where to start and you can spend a lot of time pursuing opportunities and programs that don’t really fit your technology or for where the company is in their development cycle. There is a need to be sophisticated about understanding not just the criteria of a solicitation but the intent of the program and the political drivers associated with the decision making going on and the policy drivers that a governing the decision making, and ensure that you put your best foot forward around a program that is appropriate for where you are as a company. Once you have correctly done that, the challenge is developing a politically sophisticated, compliant, well-produced application that will allow you to be competitive for funds.
The point is, this is not a grant writing process. This is a very complex, very laborious, very sophisticated capital raising venture. It feels a lot more like an S-1 filing than a grant writing drill, so companies need to go into that process with their eyes open and make sure they are not only complying with the letter of the criteria, but the political and the polity spirit behind the solicitation, and that’s a complicated exercise.
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