Small is beautiful for green-tech newbies
Les Fritzemeier heads up a tiny solar-energy start-up that most people have never heard of, Wakonda Technologies. But rather than worry about being steamrolled by the sliding economy, he feels like he's in a great spot.
"In a lot of respects, the best time to start a company is in the middle of a recession, assuming you've got money," he said. "Our target is to go to market when most people expect the economy to turn around."
Without a doubt, the recession and lower oil prices are hurting many companies in clean tech, a situation likely to slow what has been a frenzied pace of innovation.
But investors and entrepreneurs say that so far, smaller green-tech firms appear to weathering the storm the best, allowing them to continue developing new energy technologies.
To a large degree, that's simply because younger firms, in general, demand less capital to operate. Those green ventures most vulnerable are the ones that need late-stage funding--the tens or hundreds of millions of dollars to build a biofuel plant or solar-manufacturing line, they said.
Across the board, though, investors and entrepreneurs report that the valuations of green-tech start-ups--once considered in bubble territory--are going down, and there is a growing emphasis on having cash.
"What's out there is a level of nervousness in every business," said Mitch Tyson, CEO of Advanced Electron Beams, which makes equipment to make industrial processes more energy- and water-efficient. "People still don't have a good sense of where the bottom is."
Seeking new sources
As a result, green-tech entrepreneurs--after being lavished with money and attention for the last three years--need to get creative with how they fund their ideas.
Consider Qteros, a young firm with a potential breakthrough process for making ethanol from agricultural waste, such as corn stover. One of its initial investors, ethanol maker VeraSun Energy, declared bankruptcy, shutting it out of any follow-on round.
Other sources of money, including BP and George Soros' fund, filled the void. But the added work--compounded by cautious lenders--strung the process out from six months to nine.
"This Wall Street meltdown is having effects on early-stage green-tech companies getting the money they need to grow," said Jonathan Gorman, the manager of business development at Qteros. "There was a huge due diligence process, with outside scientists, as we looked for money, which they probably wouldn't have done before."
In another case of Wall Street colliding with green-tech garage start-ups, one newly formed firm nearly lost an investor when he lost half a million dollars on the stock market.
Late last month, SunRun, which installs and finances consumer solar-panel purchases, secured a $105 million commitment from U.S. Bank, but it wasn't as easy as it would have been a few months ago: one investor said getting a bank to sign on to a tax equity fund was like getting on "the last helicopter leaving Saigon."
Fritzemeier of Wakonda Technologies seems have gotten the timing right too: he was fortunate enough to raise money in July, before the financial markets' meltdown.
He's optimistic about the future because demand for technology that reduces the cost of solar electricity will remain strong, even in a down economy. The company is trying to develop disruptive solar-cell technology by combining low-cost, thin-film manufacturing techniques with very efficient cells.
Like most people in clean tech, he's eager to see the shape of the Obama administration's energy and green-job initiatives.
"The continued emphasis on renewable energy and economic development from the incoming (Bush) administration may put additional support in place to accelerate our efforts," Fritzemeier said.
Flight to quality
Certainly, being in the right industry helps a small company's chances. While biofuels are closely tied to falling commodity and gasoline prices, products that save energy can appeal to cost-cutting businesses or utilities looking to make the electricity grid more efficient.
Advanced Electron Beams CEO Mitch Tyson said his early-stage clean-tech firm has not had to scale back.
(Credit: Advanced Electron Beams)"We feel better that we're in the efficiency business selling to businesses," said Robert LeFort, the CEO of Ember, a wireless-networking firm that has shifted its focus to smart-grid products. "That's better than putting something on the shelf at Wal-Mart, and hoping the consumer picks it up...It's the lesser of two evils."
As more bad economic news comes out seemingly every day, many predict that the best companies--with paying customers--are the ones that have the best chance of thriving. A number of successful companies, including Google and Cisco Systems, were founded during an economic downturn.
Nicholas Parker, executive chairman of the Cleantech Group research firm, said the difficulty in getting financing in the coming year will thin the ranks of clean-tech start-ups and, from an investment point of view, result in a "flight to quality."
Advanced Electron Beams' Tyson is out, trying to raise another $20 million to $25 million Series C round, and he's gotten a commitment from existing investors and a good reception from others. The interest could well stem from the fact that the company already has customers using its product.
"I say to potential investors, 'We have a product in the field now and look at the customer base--the market risk is low,'" he said. "Knock on wood...So far, my experience, has been typical of normal times."
Martin LaMonica is a senior writer for CNET's Green Tech blog. He started at CNET News in 2002, covering IT and Web development. Before that, he was executive editor at IT publication InfoWorld. E-mail Martin. 
If there is a way to make these products expandable so that someone with $200 $500 $1000 can get started with panel they pick up at a wal-mart and install in a few hours... and then add to the system in same increments whenever he can it would definitely jump start this market.
I would buy 5 Christmas gifts of that $200 product every year till those people's energy bills were $0. And invest in my own for sure at more money. I cant spent $10K-40K right off the bat.
With the electric car coming should help this market see some more buyers. Just think about how life would be like if you did not have to spend any more for heating or electricity or transportation fuel. All that would be left is food, clothing, taxes, home, initial car investment rest is luxuries. Businesses(my local wal-mart keeps their lights on 24/7) would have lower operating costs so lower prices.
While most places in the US make it worthwhile, some (e.g. Seattle) do not... but it works just fine in most regions of the US.
That said, and unlike the windows or new furnace/aircon unit, it is at least one setup that starts paying itself off as soon as the switch is thrown, and keeps doing so every time the sun is out. The payments start when you get massive tax credits just for having a setup installed. Second, when you're out of the house and not using electricity that much, any extra power you generate gets pumped into the local electrical grid, where the power company has to literally pay you for it - and at the same rates they charge residential customers, during the times they use it (which is usually during peak hours).
Even if you use all that power and demand more, your power bill savings are still literal, not figurative.
The things are good for 20-30 years at full conversion rating, which is long enough to pay for itself multiple times over.
- by razartech June 15, 2009 2:30 PM PDT
- I agree completely about Martin's comment about those companies that need late stage funding or say, a second round to keep things afloat for a while. I own my own green tech software business and consult on the side for a water and wastewater treatement company and the treatment company is in that spot. They have a tremendous solution that turns waste into fertilizer faster than anyone else and make it odor-free. However, if they don't get a second round of funding they could run out of dough. That would be horrible for a company with a proven technology and business model - but it is a sign of the times. I dont think that will happen for them but I will say this:
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(6 Comments)If they do make it through this awful economy, I think they could be one of the greenest and most innovative companies on the planet. We'll wait and see. Potential investors in any business, no matter how green or innovative, are watching their pennies closer than ever.