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Print Edition StoriesFriday, October 30, 2009
Cleantech tries on corporate funding and expertise in lieu of venture capital
By Jackie Noblett
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When A123Systems Inc. was languishing in anticipation for the initial public offering market to open — yet was still in need of new cash to fund development efforts — an unexpected investor led the charge to fill the company’s coffers. It wasn’t a venture capital firm. It was General Electric Co.
In April, GE provided $15 million in what was a $69 million investment round for A123 (Nasdaq: AONE), and it has invested a total of $70 million in the company since its inception. GE (NYSE: GE) is now the second largest holder of the battery-maker’s stock after Waltham’s North Bridge Venture Partners, according to regulatory filings.
A123 is one of a growing number of local clean-technology startups taking investment dollars from large industrial, energy and technology firms. Those investments often have plugged funding gaps left unfilled by traditional venture capital firms.
The trend illustrates the diversity of strategies the cleantech industry, in its infant stage, is exploring to fund development and commercialization efforts. And money is only one of the factors driving this activity.
While corporate investors often have deeper pockets than their venture capital counterparts, they also tend to have expertise in technology and project development as well as marketing and distribution strategies. But unlike the biotechnology industry — another industry reliant on early-stage investment by corporations — it remains unclear whether these cleantech relationships will result in acquisitions.
“The problem is there’s not a well blazed path for these (cleantech companies) ” said Mick Bain, partner in WilmerHale LLP’s venture practice.
“Unlike biotech, which has the pharmaceutical companies, I’m not necessarily sure who the buyers would be — oil and gas companies are not quick to acquire companies. Or do these companies have to be stand-alone successes? It is just such a diverse industry and I think in some cases it will depend on the technology.”
As traditional debt financing for cleantech projects dried up in the wake of the financial meltdown, cleantech firms have found joint ventures and other investments to be critical in funding commercial operations.
Verenium Corp., a Cambridge cellulosic ethanol developer, announced in August 2008 its $90 million investment from BP PLC. The 18-month deal will support a joint venture to build ethanol production facilities in the United States, according to a press release issued at the time.
But the funding does not come cheap. In return, BP (NYSE: BP) gains access to Verenium’s technology and intellectual property, production facilities and employee know-how.
Corporations also have stepped up to the plate to provide cash to area cleantech companies when other investors have fallen through. Hess Corp., an oil and gas company, bought a substantial stake in Billerica’s Nuvera Fuel Cells Inc. after shareholder Arthur D. Little went bankrupt. Hess acquired the company’s shares in 2008 when a planned IPO did not come to fruition, said Nuvera CEO Roberto Cordaro.
Many cleantech executives say they are drawn to these deals to access the research and development teams, technology processes and marketing resources of their corporate partners.
Advanced Electron Beams, a Wilmington maker of electron-beam emitters used in high-efficiency industrial processes, works closely with GE, an investor since 2008. Those efforts include product development as well as the crafting of co-selling strategies.
For example, Advanced Electron Beams announced its Blu bottle sterilization product line at a GE media forum on cleantech investing earlier this month.
Another draw is the credibility that comes with having an industrial giant stand behind a startup’s products.
“GE does a lot of business with these big beverage companies,” said AEB marketing director Josh Epstein. “We can do a good job of getting in at the technical level, but the financial stability built with GE certainly brings it up to the executive level.”
And what do the corporate investors want in return? That depends on what industry the investor is in and the extent of its internal involvement in cleantech.
Applied Ventures, the investment arm of Santa Clara, Calif., semiconductor and solar technology firm Applied Materials Inc. (Nasdaq: AMAT), participated in Woburn solar company Wakonda Technologies Inc.’s $9.5 million Series A financing in July 2008.
Christopher Moran, general manager of Applied Ventures, said the company took an interest in Wakonda’s technology and its reliance on thin-film substrates for energy production. Applied Materials recently purchased a company that makes deposition equipment used in the production of such cells.
“As they get their technology more mature, we may look at providing specialized technology to them,” Moran said.
So far, many of the traditional strategic investors have invested in multiple companies in multiple industries. That’s made it challenging to predict how these investments will be managed going forward.
Nonetheless, WilmerHale’s Bain said he believes there will be more strategic investor deals in the cleantech industry in the months and years ahead.
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