July 20, 2005 12:02 PM PDT

Investors see green in clean tech

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optical networking, started a few networking start-ups, and acted as a venture capitalist in the telecommunications arena.

Then two years ago, Tandon co-founded his own company, Aloe Private Equity, to focus on the energy sector. The company's particular niche is choosing established technologies used by European energy utilities, such as catalysts that reduce pollutants, and taking them to the booming economies of Asia, notably China and India.

The transition from the telecommunications field to the energy industry was relatively straightforward, Tandon says. Deregulation of the energy industry over the past decade has prompted European utilities to invest in technology to become more competitive. They are also eyeing the use of telecommunications equipment to break into new areas, such as broadband over power line.

"You have similar problems: using software to prevent power outages versus a telecom going down, or handling a large number of customers," Tandon said. "It made it easy to get into that sector."

Entrepreneurs may not have the technical skills in solar technology, for example. But the process of taking a raw technology, creating products from it and selling to end customers can be applied broadly, experts said. "It's the business skills that are transferable," said Epstein.

Dual motivation
While there may be some signs of crossover of people from one technology field to another, the clean-tech arena is significantly different from IT, according to entrepreneurs and investors.

Customers in the energy industry tend to have much longer sales cycles than the IT industry. Because the adoption rate of clean tech is slower, different segments tend to be less competitive, and the potential returns are lower than IT, said Parker. "There are more base hits and fewer home runs," he said.

Clearly, there isn't likely to be a stampede of investors fleeing software, for example, in favor of clean tech. But interest is growing. Venture investments in clean tech companies surpassed $1 billion for the third straight year in 2004, according to Clean Tech Venture Network. There are already a number of firms specializing in the sector, such as San Francisco-based Nth Power, which focuses on energy.

By comparison, venture investing in software was $5.1 billion last year, which represents about one quarter of the total, according to the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

Indeed, Mitchell Kertzman, a 30-year veteran of the software industry, doesn't see any noticeable brain drain from software into other areas.

"I can't tell you how many young entrepreneurs we see coming up who are still doing software. We're seeing phenomenally talented people starting software companies with real innovation," said Kertzman, a partner at Hummer Winblad Venture Partners, which invests only in software companies.

"But people who have made their mark and made their fortunes, yes, they are looking at new interesting things like environmental tech, biotech or nano," he said.

Still, the lure of promising technologies that can generate both a financial return and improve the environment is a strong draw.

Isaac Berzin eschewed a promising career in biotech to start GreenFuel Technologies, a company that creates algae and converts it to biodiesel. The company, which raised $2.4 million in funding earlier this month, is selling its algae bioreactor to energy utilities using a purely economic argument: as a way to make operations more efficient by cutting down on emissions while making fuel.

At the same time, the desire to apply cutting-edge technology to improve the environment motivated Berzin, now chief technology officer, to launch the company.

"I felt I had the right tools to deal with the problem," said Berzin, who has training in mechanical engineering and biology. "The combination of the environment and renewable energy is worth it. It's very sexy to me."

Tandon, of Aloe Private Equity, said that helping cut down on evident pollution problems in places such as China or India is satisfying, but ultimately he is working in clean technology because he thinks the investments returns will be very attractive over the next 10 to 15 years.

"The demand for clean everything--air, energy products, clean water, recycling of tech, better use of waste material--all of that is very much fundamental to business practices," he said. "It's no longer something industries can ignore."

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don't forget Martin Tobis and Seattle Biodiesel
Venture Capitalist Martin Tobias (www.deepgreencrystals.com) has left Ignition Partners and started Seattle Biodiesel
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