Investment The Evolution of 'Tech' in Cleantech
Dharmesh Thakker
VP,
Advanced Technology Ventures
Advanced Technology Ventures
Demand Side Management, our other investment theme, includes both energy efficiency and peak load management (like smart grid technologies and demand response). This is where we see tremendous activity lately from Silicon Valley software and networking veterans. After all, if you’ve built your career building large scale networking infrastructure at Cisco, enterprise-class apps at Oracle, or complex analytics at Google, it’s natural to use your expertise in building wide-area and local-area networks for the smart grid and energy apps for utilities, businesses, and consumers. From an investor standpoint, the relative capital efficiency, potential to achieve attractive software-like operating margins, and potential M&A interest from the IT majors as an alternate path to an IPO, align well with the venture model. In this sector, we think the low hanging fruit is in HVAC and lighting controls with a specific focus on commercial and industrial sectors. Lighting and HVAC consume over 50 percent of the $80+ billion in commercial energy usage in the U.S., and energy efficiency via intelligent controls ranks high on the CFO’s list driven by attractive ROI, bottomline savings, and compliance drivers. Additionally, CIOs are increasingly faced with enhancing the transactions per Watt in addition to transactions per dollar from their ever-growing datacenter footprint. Holistic monitoring, modeling, and control software solutions hold great promise in reducing energy usage while regulating heat density and enhancing server performance as well.
Other related areas we dabble in include transportation and engine efficiency (a somewhat contrarian thesis to electric vehicles) and recycling. There is an attractive amount of cash in trash as we have discovered – all the way from recycling the 130 million cell phone and portable electronics that are retired in the U.S. every year and creating a market in developing countries, to taking landfill gas for energy generation. How sustainable the underlying technology is remains to be seen, but these business models and operating margins are interesting enough to consider.
New Areas of Opportunity for Innovation
The wild-card in our mind is the application layer for the smart grid. When core routers and other Internet infrastructure were being rolled out worldwide in the ’90s, who could have guessed that killer apps would revolve around e-commerce, social media, and online gaming? We are in the first cycle of rolling out effectively a two way communications infrastructure on our utility grid, aka smart grid. Data mining applications that leverage granular data from smart meters, planning and decision control systems for utilities, advertising platforms for appliance makers and energy conservation promotional programs for consumers all present sizeable opportunities that an application ecosystem can address.
A classic example in this arena is the residential energy efficiency opportunity. Over $225 billion in energy is consumed every year in the U.S. by homes and small businesses, and over $45 billion of that can be avoided by simple conservation measures. Over two dozen startups, the last time I checked, in the home area energy management space believe that consumers will opt for the ‘right thing to do’. However, conservation has historically been at odds with convenience and comfort. Whether you believe that homeowners will buy $300 fancy displays from Best Buy or expect the local utility to subsidize them, it is still hard to see consumers watch their energy usage constantly and change their behavior to save $20-30/month. I’d argue the mean-time-to-kitchen-drawer is probably in weeks, if not days as the novelty wears off. At the same time, consumers have continued to spend hours a day on gaming and social media sites and are driven by their virtual image or online avatars. Applications that can crack the code of aligning energy efficiency with consumers’ online image or incentivize them perhaps with virtual currency can start to move the needle on residential energy efficiency. I haven’t seen that yet, but feel strongly that this class of smart apps at the intersection of energy efficiency, business, and social media, a cleantech 2.5 cycle if you will, is right around the corner.
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