EPA and the
Venture Capital
Community:
Building Bridges
to Commercializ
Technology
SUBCOMMITTEE ON
ENVIRONMENTAL
TECHNOLOGY
National Advisory
Council for Environmental
Policy and Technology (NACEPT)
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The National Advisory Council for Environmental Policy and Technology (NACEPT) is an
independent federal advisory committee that provides recommendations to the Administrator
of the U.S. Environmental Protection Agency (EPA) on a broad range of environmental
issues. This report has not been reviewed for approval by the Agency, and hence, the con-
tents of this report do not necessarily represent the views and policies of the EPA, nor of
other agencies in the Executive Branch of the Federal Government, nor does mention of
trade names or commercial products constitute a recommendation for use. Reports of
NACEPT are posted on the EPA Web Site at http://www.epa.gov/ocem/nacept.
EPA/600/R-08/043
U.S. Environmental Protection Agency
Office of Cooperative Environmental Management
http://www.epa.gov/ocem
April 2008
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EPA and the Venture Capital
Community: Building Bridges^
to Commercialize Technology
April 2008
National Advisory Council for Environmental
Policy and Technology (NACEPT)
SUBCOMMITTEE ON ENVIRONMENTAL
TECHNOLOGY
Subcommittee Members
Philip Helgerson (Chair) - Computer Sciences Corporation
Dan Watts (Liaison to the NACEPT Council) - New Jersey Institute of Technology
Linda Benevides - Massachusetts Department of Environmental Protection
David Dzombak - Carnegie Mellon University
Kenneth Geiser - University of Massachusetts at Lowell
John Hornback - Metro 4, Inc. and Southeastern States Air Resource Managers, Inc.
Kristine Krause - Wisconsin Energy Corporation
JoAnn Slama Lighty - University of Utah
Raymond Lizotte - American Power Conversion Corporation
Oliver Murphy - Lynntech, Inc.
Robin Newmark - Lawrence Livermore National Laboratory
Patrick O'Hara - Cummings/Riter Consultants
Christine Owen - Tampa Bay Water
Katherine Reed - 3M Environmental Health and Safety Operations
Norman Richards - First People's Environmental, LLC
Karen Riggs - Battelle Memorial Institute
Howard Roitman - Colorado Department of Public Health and Environment
Kent Udell - University of Utah
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Chairman's Prologue
In this third report of the Subcommittee on Environmental Technology, we offer
our most challenging—but most promising—recommendations.
In our second report, we recommended that the U.S. Environmental Protection
Agency (EPA) work with the private sector to find ways to increase investment in the
commercialization of environmental technologies. For this study, we went to the
investment community to discover what they think EPA should do to stimulate the
development and commercialization of technologies essential for addressing today's
environmental challenges. In this third report, we offer recommendations for both
EPA and the investment community.
Stimulating private-sector investment in new technologies is among the most
important initiatives EPA can undertake particularly with ongoing budget constraints.
The global need for solutions exceeds the fiscal capacity of any government, and the
commercial market may be able to mobilize and invest immense resources of private
capital to develop and diffuse technologies rapidly.
Not long ago, the United States unquestionably dominated the marketplace of new
environmental ideas and technology solutions as our nation recognized and addressed
threats to health and the environment and vowed to address them through regulations
and new technology. EPA embarked on impressive research and development
programs—opening laboratories, funding university research, and conducting pilot
programs and demonstration programs. Responding to the immediacy of EPA's
vision of a cleaner, safer, healthier world, students flocked to universities to study
environmental science and to participate in EPA-funded research. As we observed in
our previous reports, that era has passed. Since then, EPA has been forced to reduce
or discontinue many successful programs that produced significant environmental
improvements, and as a result, our nation has lost some of its technical excellence and
environmental leadership.
It is time for EPA to restore its powerful vision of a clean and healthy world, by
declaring an even more energetic and visionary commitment to technology discovery
and verification, and the commercialization of innovative approaches to address
threats to health and the environment. Such a commitment is essential to solve the
enormous environmental challenges posed by climate change, releases of carbon
dioxide and greenhouse gases, the impacts of diminishing resources, nanotechnology
and new products, and other issues.
On the positive side, there has never been a better time to act! The global
community is increasingly aware of environmental risks and the interconnectedness
of our world. Global commerce places companies in many locations around the
world and people experience the world more than ever through the media and
extensive personal travel. Science is providing explanations of the risks that threaten
natural resources, sources of energy and food, human health, economics, and our
quality of life.
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These challenges call for technological solutions on a scale that requires
enormous capital investment. The capital must come from private businesses,
individuals, and public institutions with the vision and confidence that technology
solutions can succeed. We learned from the investment community that there is a
large amount of capital to be invested in environmental technologies, but the returns
on these investments must be comparable to other investment options. To unleash the
power of their capital, EPA must ensure predictability and certainty with regard to
regulations and enforcement, and dedicate the Agency and its state partners to
streamlined permitting. The investment community is impeded not only by EPA
regulations, but also by EPA inaction. Indeed, the investors interviewed in this study
voiced agreement that uncertainty and the lack of a predictable regulatory framework
for carbon dioxide emissions, for example, is retarding investment in these
technologies.
It is important to note that the investors do not seek relaxation of regulations, but
rather a predictable and consistent regulatory framework that helps define the market
and reduce risks of uncertainty. Investors are looking to EPA to consistently enforce
regulations to ensure a "level playing field" for all participating companies. After a
technology is demonstrated, investors seek a streamlined permitting process that
allows prompt market entry. EPA can work collaboratively with states and regional
offices to streamline the permitting process for these new technologies. The Agency
also can help reduce risks by providing objective technology verifications. All of
these actions by EPA will help stimulate new investment by reducing risks.
Investment in the clean energy sector is strong because future market demand is
apparent. Energy and environmental technologies often are related, so many new
technologies in the clean energy market sector have significant environmental
components. For example, technologies that bridge energy and environmental sectors
often address challenges related to climate change and diminishing natural resources
that threaten human health and the environment. It is logical for EPA to partner with
other agencies such as the Department of Energy and seek ways to collaboratively
support investment in mutually beneficial technologies.
EPA should initiate better communications with the investment community to
promote understanding and mutually beneficial relationships. This is not a simple
task. Maintaining a dialogue with the investment community will require
fundamental cultural changes at all levels within the Agency, and a clear vision for
EPA's role in encouraging environmental technology investments. Our study found
that EPA has not been perceived by the venture capital community as open to or
interested in such a dialogue. The investment community believes that a constructive
dialogue will change that misperception, if it is accompanied by the actions we
recommend to EPA.
Investors indicated their willingness to pursue an ongoing dialogue with EPA, and
emphasized the need to act now. EPA's interest in initiating such a dialogue conveys
an encouraging message. The Agency already has taken important initial steps
toward establishing this useful dialogue by appointing a Senior Environmental
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Technology Officer and establishing Environmental Technology Advocates in each
EPA regional office to serve as Agency points of contact, but the vision must be
defined and embraced by the EPA Administrator.
We urge EPA to build on this new foundation and capitalize on its scientific and
technical credibility by acting promptly on the recommendations in our report. A
visionary goal to preserve human health and the environment for the planet in which
we live warrants a sustained commitment to stimulate investment in new technology
that rivals the race to space! Acting now is essential to create a new legacy of
effective environmental technology solutions.
Philip Helgerson, Chairman
Subcommittee on Environmental Technology
National Advisory Council for Environmental Policy and Technology
in
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Table of Contents
I. Executive Summary 1
II. Introduction - Work Group and Study Approach 4
A. Origin and Purpose of the Study 4
B. The Study Work Group 5
C. Study Approach 6
D. Venture Capital Community Interviewees 6
E. Interview Process 7
III. Venture Capital Setting 10
A. Definitions 10
B. Trends in Venture Capital Funding 12
C. Environmental Technology Investment Market 12
D. Opportunities for Increasing Investments in Environmental and
Clean Technologies 13
E. Stages of Investment 16
IV. Findings from the Interviews with the Venture Capital Community 18
A. Drivers of Environmental Technology Investment 18
B. Regulatory Context 23
C. EPA Role in Technology Development and Commercialization 26
D. Future EPA Interactions with the Investment Community 33
E. Actions of Venture Capital Firms to Help EPA Encourage Environmental
Technology Development and Demonstration 37
V. Next Steps -Work Group Recommendations 41
A. Key Recommendations for EPA 41
B. Key Recommendations for the Venture Capital Community 42
Appendices 47
Appendix A: Venture Capital Work Group Members 47
Appendix B: Charge to the Work Group 49
Appendix C: Venture Capital Community Interviewees 51
Appendix D: Pre-Interview Instrument 56
Appendix E: Open-Ended Questions and Sub-Questions 62
Appendix F: Summary of Pre-Interview Question Responses 65
Appendix G: Examples of Successful Investments from the
Venture Capital Community 70
Appendix H: Understanding the Environmental Impact of Clean Energy and
Other Technology Investments: Environmental Capital Group's Environmental
Due Diligence Process 79
Appendix I: List of Acronyms 84
Appendix!: References 86
IV
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Table and Figure
Table 1. Environmental Industry Sector Growth 1990-2000 and 2000-2010 14
Figure 1. Plot of Market Size vs. Market Growth of Environmental Market Segments 15
Text Boxes
Venture Capital Study Work Group Members 6
Venture Capital Study Interviewees 7
The Ten Open-Ended Questions Used in the Interviews with Venture Capitalists 9
Clean Energy Trends 2008 Report 15
Projects for Venture Capitalists and EPA to Emulate
"Funding New Environmental Technology That Holds Promise for a
Cleaner Environment" 16
"Environmental Due Diligence Process Used by CalPERS" 19
"Pension Fund Investing in Environmental Technology" 28
"Technology Verification Validates Innovative Environmental Technology Claims" 29
"Using Government Grants to Augment Venture Capital Investment in
Clean Technology" 30
"Government Outreach to Venture Capital Community" 31
"Technology 'Spinouts' from Government Laboratories" 32
"Regional Mechanism for Bringing Together Venture Capitalists, Industry, Academia,
and Government to Accelerate the Region's Clean Energy Economy" 33
"National Mechanism for Bringing Business, Capital Markets, and Environmentalists
Together to Help Corporate Governance Address Climate Change" 34
"Utilizing CRADAs to Demonstrate and Commercialize Innovative Technologies" 37
"Government Partnering with Venture Capitalists to Commercialize Technology from
Federal Laboratories" 38
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I. Executive Summary
Venture capital investors report that there is a growing interest in environmental
technologies, spurred by awareness of global issues such as climate change, as well as the
diminishing sources, high costs, and environmental consequences of carbon-based energy, and
the increasing costs and decreasing availability of other essential resources such as clean water.
Significant investments are being made by the venture capital community in clean energy-
related technologies, including "cross-over" technologies that yield both energy and
environmental benefits. Although the growth potential for most environmental sectors is
expected to continue to rise through 2010, the most substantial growth is expected in the clean
energy sector. Investors have indicated that there is a vast amount of capital available for
investing in promising environmental technologies and many individual and institutional
investors are seeking opportunities to invest in the growing environmental technology sector.
Returns on these investments, however, still must compete with other investment options.
Therefore, it is critical to investors that areas of investment risk—often based on regulatory
uncertainty and unpredictability—be identified and reduced.
Horizons for investment contemplate long-term potential for the technology, and a
predictable forecast of the regulatory environment is essential to reduce uncertainty. Moreover,
the new challenges that will be solved by emerging technologies often require a new regulatory
framework. Delays in establishing that regulatory framework impede investment in new
technology by perpetuating the risk of an uncertain, unpredictable market.
For these reasons, effective stimulation and adoption of new technology requires timely
regulatory action. EPA must act promptly to accelerate its engagement with new technology
developers and investors, and commit to a credible, long-term advocacy of new technology.
This includes not just clear, timely regulations and predictable, consistent enforcement, but also
an institutional culture that advocates new technology and stimulates constructive interaction and
communication among EPA, technology investors, technology developers, and users.
Findings and Recommendations
Major Findings
Based on the nine interviews conducted and the experiences of the Work Group members,
the major findings of the study follow:
1. The existence of regulations many times stimulates technology investment and the lack of
regulations can sometimes retard technology investment. Therefore, regulation of carbon
and climate change-related pollutants is needed to advance investment in new
technologies to address climate change issues.
2. The early-stage venture capital community is interested in having direct, routine
communications with EPA managers and staff (e.g., the Senior Environmental
Technology Officer [SETO] and Regional Technology Advocates [RTAs]) and
technology developers on environmental technology issues of mutual interest.
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3. As became evident when EPA's programs were organized along the continuum
developed in the first Subcommittee report, EPA has few programs that focus on the
commercialization stage. This stage is critical because many technologies are not
commercialized when they cannot bridge the "Valley of Death" (i.e., the particularly
challenging period from prototype and proof of concept to the critical later stages of
development and profitable revenues).
4. The role of the regulatory community is important in clean technology development and
commercialization. Early-stage investors are looking for a minimum of 3 to 5 years of
certainty regarding investments contingent on governmental influences. Next-stage
investors provide capitalization for taking these new clean technologies to commercial
scale. During this commercialization phase, streamlined permitting and consistent
enforcement become increasingly important.
5. Investors expect that regulatory requirements will be aggressively enforced so that a
"level playing field" for all participating companies will exist.
6. Although venture capitalists have invested in clean technology companies, investors are
concerned that there currently is no system or metrics to monitor these technologies to
determine if they are "cleaner" than existing alternatives.
7. EPA credibility is high in the investment community. EPA certifications are recognized
internationally and can influence a technology's commercialization potential.
Key Recommendations for EPA
The Subcommittee urges EPA to consider the following six recommendations:
1. Recognize carbon dioxide, greenhouse gases, and climate change-related pollutants
as pollutants that are addressed in Goal 1 of EPA's Strategic Plan (Clean Air and
Global Climate Change*) and take priority measures within EPA's authority to
establish standards and long-term regulations for these pollutants.
2. Forge and sustain communications with the early-stage investment community.
3. Strengthen financial support (e.g., loan guarantees, grants, revolving loan funds)
and reduce regulatory risks for new technology development during the
commercialization period.
4. Take steps to streamline permitting for commercial scale-up of new, innovative
environmental technologies.
* "Protect and improve the air so it is healthy to breathe and risks to human health and the environment are reduced. Reduce
greenhouse gas intensity by enhancing partnerships with business and other sectors." Goal 1. Clean Air and Global Climate
Change. U.S. Environmental Protection Agency. 2006-2011 Strategic Plan: Charting Our Course. EPA-190-R-06-001.
2006. Washington, DC. Available: http://www.epa.gov/ocfo/plan/plan.htm
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5. Enforce environmental regulations consistently to clarify needs and avoid
uncertainty.
6. Support metrics and monitoring of new technologies.
Key Recommendations for the Venture Capital Community
The venture capital community also should take actions to promote EPA's involvement in
the environmental technology sector. The Subcommittee encourages early-stage environmental
technology investors to consider the following four recommendations:
1. Collaborate with EPA to establish metrics and monitoring strategies for new
technologies to measure and document demonstrated actual performance of these
technologies.
2. Participate in environmental technology verification programs and EPA- supported
metrics and monitoring programs.
3. Encourage communication and interaction among technology developers, investors,
and EPA.
4. Provide opportunities for EPA to financially support promising new environmental
technologies through existing and new financial support programs.
More detail on these recommendations is presented in Chapter V: Next Steps—Workgroup
Recommendations, which also includes additional recommendations to further EPA's objectives
of stimulating development and commercialization of environmental technologies to protect
human health and the environment.
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II. Introduction - Work Group and Study Approach
This report is the third report in a series of reports prepared since May 2006 by the
Subcommittee on Environmental Technology of the National Advisory Council for
Environmental Policy and Technology (NACEPT). The purpose of these reports is to improve
the effectiveness of the U.S. Environmental Protection Agency (EPA) at stimulating the
development of environmental technologies to achieve the objectives of protecting human health
and the environment.
In its first report, EPA Technology Programs and Intra-Agency Coordination (May 2006),
the Subcommittee presented the "EPA Environmental Research and Development Continuum"
as a perspective from which the Agency could view its role in the creation and diffusion of new
technologies. In a second report, EPA Technology Programs: Engaging the Marketplace (May
2007), the Subcommittee described a recommended external focus for EPA initiatives to be
addressed by the Senior Environmental Technology Officer (SETO) and Regional Technology
Advocates, and identified the need for EPA to strategically partner with other organizations to
develop and commercialize environmental technologies.
This report, EPA and the Venture Capital Community: Building Bridges to Commercialize
Technology, summarizes the assessments and recommendations of nine leading representatives
from the investment community who routinely review and engage in investment opportunities
targeting early-stage environmental technologies. Together, they represent a valuable perspective
on some key trends that dominate this investment market.
Without exception, the investors share confidence about the current and future business
opportunities in the environmental technology market. They have shared their candid
assessments about ways EPA influences those opportunities. They also have offered suggestions
about steps the Agency can undertake to remove barriers, stimulate technology development, and
increase the introduction of new technologies to address persistent and emerging environmental
challenges.
A. Origin and Purpose of the Study
In October 2004, U.S. Environmental Protection Agency (EPA) Administrator Michael
Leavitt asked the National Advisory Council for Environmental Policy and Technology
(NACEPT) to investigate two questions:
-Y- How can EPA better optimize its environmental technology programs to make them more
effective?
-Y- What other programs should the Agency undertake to achieve this goal?
NACEPT formed the Subcommittee on Environmental Technology to address this charge
and the Subcommittee held its first meeting in November 2004. Since then, NACEPT has
endorsed and forwarded to the EPA Administrator two reports by the Subcommittee on
Environmental Technology, which are both available on the Web at http://www.epa.gov/etop.
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In the first report, EPA Technology Programs and Intra-Agency Coordination, the
Subcommittee presented the "EPA Environmental Research and Development Continuum" as a
perspective from which the Agency could view its role in the creation and diffusion of new
technologies. Placing EPA technology development programs on the continuum illustrates that
EPA has offered limited programs to support the development of technology during the
challenging commercialization phase. As a result, environmental technologies developed by
EPA and by others with and without EPA support have largely relied on funding from the private
sector to be commercialized and used to protect public health and the environment. The report
challenged EPA to adopt a more significant role in technology development as a fundamental
part of its activities, and to seek a balance approach that fulfills the need for participation at all
stages in the development continuum, with particular emphasis on the gaps in the
commercialization phase.
In its second report, EPA Technology Programs: Engaging the Marketplace, the
Subcommittee described a recommended external focus for EPA initiatives to be addressed by
the Senior Environmental Technology Officer (SETO) and Regional Technology Advocates, and
identified the need for EPA to strategically partner with other organizations to develop and
commercialize environmental technologies. Recommended strategic partnerships would provide
opportunities for EPA to stimulate and support increased investment in the commercialization of
environmental technologies and build upon the Agency's internationally recognized scientific
and technical expertise.
While actively implementing recommendations in the first two reports, EPA's Office of
Research and Development requested that NACEPT direct the Subcommittee to extend its efforts
by engaging with the investment community and seeking advice on actions that EPA and the
investment community could take, and partnerships that the Agency and the investment
community could create, to stimulate greater private sector investment for commercialization of
environmental technologies over the long-term.
A fitting sequel to its first and second reports, this third effort explores critical components of
the early stage investment process, including current investment practices and trends; discusses
positive and negative influences of EPA in investment opportunities and decisions from the
perspective of those in the investment business; and offers suggestions to remove or overcome
barriers and critical gaps and create productive relationships leading to increased investment and
commercialization of environmental technology.
B. The Study Work Group
To address this charge, the Subcommittee formed a focused Venture Capital Work Group.
The members of the Work Group are listed in Appendix A and the Charge to the Work Group is
provided in Appendix B. The Work Group was asked to conduct a study and prepare a report to
be reviewed and approved by the Subcommittee for submission to the NACEPT Council and
subsequent transmission to the EPA Administrator.
To design an approach to engage with the investment community, the Subcommittee invited
five highly regarded professionals familiar with early-stage technology investment to join with
an equal number of members of the Subcommittee on Environmental Technology to form the
Venture Capital Work Group. The Work Group members, listed in the text box on page 6,
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Venture Capital Study Work Group Members
Phil Helgerson*, Work Group Chair, Computer Sciences Corporation
John Hornback*, Executive Director-Metro 4, Inc. and Southeastern States Air Resource Managers, Inc.
Robin Newmark*, Director-External Relations Global Security Principal Directorate, Lawrence Livermore National
Laboratory
Karen Riggs*, Battelle Memorial Institute
Daniel Watts*, Liaison to NACEPT, Executive Director Otto H. York Center for Environmental Engineering & Science-New
Jersey Institute of Technology
Andrew dePass, Managing Director and Head of Sustainable Development Investments for Citi Alternative Investments
Bryan Martel, Managing Partner-Environmental Capital Group LLC
Frank McGrew, Managing Director-Morgan Joseph & Company, Inc.
John Preston, Senior Lecturer-Massachusetts Institute of Technology Entrepreneurship Center
John Wise, Liaison from the EPA Environmental Financial Advisory Board (EFAB)
NACEPT Subcommittee on Environmental Technology Member
identified and recruited potential interviewees from the venture capital community, participated
in the interviews, formulated the findings and recommendations in this report, and offered
insights from their own experiences with the environmental technology investment community.
C. Study Approach
The overall approach for the Venture Capital Study was to compile and review reports and
other information about venture capital investment in environmental technology and to conduct
interviews of nine members of the venture capital community whose investments include a clear
focus on early-stage environmental technologies.
The Work Group members considered EPA's draft Venture Capital Support for
Environmental Technology: A Resource Guide (this document was prepared to provide EPA staff
an overview of venture capital investment in environmental technology) and other sources of
information on investment in environmental technology to develop contextual and background
information for this report (see the reference list in Appendix J). The combined financial,
technical, and investment experience of the members enabled the Work Group to identify leaders
in the environmental technology investment community for the interviews. In addition to being
leaders in the venture capital community, a number of the interviewees had substantial
knowledge of and experience with EPA and its technology programs, making them particularly
qualified to participate in this study.
The Work Group designed a comprehensive interview approach, described in more detail in
Section E. Interview Process, which posed meaningful questions to the interviewees that evoked
thoughtful observations, advice, and recommendations for EPA and the venture capital
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community. The Work Group members reviewed the background materials and analyzed the
interview discussions to develop the findings and recommendations presented in this report.
D. Venture Capital Community Interviewees
The Work Group thoughtfully selected nine leading venture capital investors and advisors
whose collective investments make up a substantial portion of the venture capital investment in
environmental technology, particularly early-stage investment. Without exception, these
individuals are recognized, influential leaders in the environmental investment community.
Together, the portfolios of the firms represented by the individuals selected for interviews total
more than $3 billion. The investment community leaders who volunteered to share their
perspectives and suggestions as part of this study are identified in the text box below.
Venture Capital Study Interviewees
Rob Day, Principal-@Ventures
John DeVillars, Founder and Partner-BlueWave Strategies
Hank Habicht, Managing Partner-SAIL Venture Partners
Winston Hickox, Partner-California Strategies
Kef Kasdin, General Partner-Battelle Ventures
Eric McAfee, Managing Director-Cagan McAfee Capital Partners
Chuck McDermott, General Partner-RockPort Capital Partners
William Reilly, Founding Partner-Aqua International Partners/Texas Pacific Group
Rosemary Ripley, Member-NGEN Partners
Not surprisingly, several of the leading environmental technology investors gained their
specialized awareness of the technical and regulatory aspects of environmental technology
opportunities through significant roles in the environmental regulatory community. Some served
in public positions, including a former EPA Administrator, a former EPA Deputy Administrator,
a former EPA Regional Administrator, and a former Secretary of California's Environmental
Protection Agency. As a result, the interviews reflect a strong awareness of EPA's past and
present policies, procedures, and programs. Biographies of the interviewees are provided in
Appendix C.
Chapter IV: Findings from the Interviews with the Venture Capital Community, presents the
ideas, concerns, and suggestions offered by these venture capital community representatives, but
to ensure an open dialogue in the interviews the report does not attribute specific comments to
any of the interviewees.
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E. Interview Process
The Work Group identified a list of potential interviewees and selected nine highly qualified
representatives of the venture capital community based on the following criteria:
-Y- EPA-Related Experience
• Portfolio includes environmental technology investments.
• Evidence of actively seeking environmental technology investments (e.g., attending
and speaking at environmental conferences)
• Portfolio of environmental technologies is not limited to energy-related technologies
(renewables, sustainable).
• Level of sophistication about markets (does not just follow others investing in the
latest "hot topic").
-Y- Investment Experience
• Experience with traditional (or new) environmental technology and not just energy
technology.
• Experience with early stage investment.
• Experience with seed/first round funding.
• Minimum of 5 years of experience as a senior venture capitalist.
• Experience managing funds of $20 million to $200 million.
• Experience managing funds other than hedge funds.
The Work Group decided to focus on early stage investors and not to include institutional or
social investors. In addition, the Work Group agreed to consider angel investors only if they are
bringing opportunities to first-round investors.
Twenty-one venture capitalists were identified and considered by the Work Group. The list
was narrowed to 13 of the most qualified individuals based on the selection criteria. These 13
potential interviewees were contacted to determine their willingness and availability to be
interviewed. Although everyone contacted about participating in the study indicated their
interest in the topic, some were not available for an interview during the short timeframe in
which they were to be conducted. Nine of the individuals contacted confirmed that they were
willing and available to participate in the study interviews and the telephone interviews were
scheduled for the month of February.
The Work Group designed a Pre-Interview Instrument, provided in Appendix D, which was
sent by e-mail to the interviewees 1 to 3 days before the interview. The interviewees were asked
to complete the pre-interview instrument rating questions and submit them to the Work Group
prior to the interview. This allowed the Work Group time to tailor the open-ended questions
posed during the interview and to probe deeper on specific areas of interest.
The Pre-Interview Instrument described the background and purpose of the study as well as
the process for the interview, and provided instructions on completing and returning the
instrument to the Work Group. The Pre-Interview Instrument was divided into four parts:
(1) Current Investment Practices, (2) Future Investment Outlook, (3) EPA Activities, and
(4) Open-Ended Questions. The interviewee was instructed to complete and return the first three
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sections prior to the interview, which involved assigning ratings. The 10 open-ended questions
(see text box on this page) were provided prior to the interview to give the interviewee an idea of
the types of questions that would be posed during the telephone interview.
The Work Group conducted all nine interviews during February 2008. The interviews
consisted of discussion of the rating responses from the Pre-Interview Instrument and the 10
open-ended questions and sub-questions, tailored somewhat to each interviewee. These questions
are provided in Appendix E.
As expected, a range of responses to the pre-interview questionnaire provided a stimulating
background for the open-ended questions which were discussed during interviews. The range of
rating responses to the questions posed in the Pre-Interview Instrument is illustrated in Appendix
F. Interviewees also were asked to provide examples of successful environmental technology
investments during the interviews and these are referred to throughout this report and described
in Appendix G.
The Work Group analyzed the Pre-Interview Instrument responses and interview discussion
summary transcripts as well as other background materials to develop the findings and
recommendations presented in this report. To foster an open and frank discussion, this report
relates the assessments and comments of the interviewees without attribution or individual
quotations. The Work Group has framed the results of the interviews with a set of concrete
findings and achievable recommendations. To ensure that the information and responses
provided by the venture capital community were presented accurately, each interviewee was
asked to review and comment on the draft report. Their comments were incorporated into the
final version of the report.
The Ten Open-Ended Questions Used in the Interviews with Venture Capitalists
1. What are the most important metrics used by your firm in evaluating environmental technology investments?
2. What is driving environmental technology investment—EPA activities or private-sector activities or both?
3. Do you think environmental technologies have a more difficult entry and/or exit investment strategy than other
clean technologies? If so, what can be done to make it easier?
4. Are there characteristics of environmental technologies and markets that need to change to attract venture
investment?
5. Which environmental technology segments (e.g., climate change, water technologies, etc.) have the greatest
potential to generate investments in the next few years?
6. Are there "cross-over" opportunities for certain technologies to support both environmental technology and
energy technologies?
7. What can EPA do to reduce the environmental technology investment risks?
8. What EPA activities present significant barriers to environmental technology investment?
9. Are there some successful technology development and commercialization programs that EPA can learn from?
If so, what are the programs?
10. How can EPA continue a dialogue with the investment community in the future?
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III. Venture Capital Setting
A. Definitions
Venture Capital and Venture Capital Fund
Venture capital is a type of private equity capital typically provided by professional, outside
investors to new, high-growth businesses. Generally made as cash in exchange for shares in the
portfolio company, venture capital investments usually offer the potential for above-average
returns. A venture capital fund is a pooled investment vehicle (often a limited partnership) that
primarily invests the financial capital of third-party investors in enterprises that are too risky for
the standard capital markets or bank loans. Venture capital typically is associated with new, cash
poor, and/or rapidly expanding companies. Venture capital managers often are actively involved
in the management of the expanding companies in which they invest. In return for the capital
invested, venture capitalists receive equity shares and privileges, such as active participation in
the company's management and profit sharing.
Environmental Technology
Traditionally, the environmental technology sector has been viewed as a diverse range of
equipment, services, and resources. There have been a number of definitions for this sector, one
such definition was given in the 1995 report "Bridge to a Sustainable Future: National
Environmental Technology Strategy" (see references in Appendix J), in which it was defined as:
"A technology that reduces human and ecological risks, enhances cost
effectiveness, improves process efficiency, and creates products and processes
that are environmentally beneficial or benign. The word 'technology' is intended
to include hardware, software, systems, and services. Categories of
environmental technologies include those that avoid environmental harm, control
existing problems, remediate or restore past damage, and monitor and assess the
state of the environment." (National Science and Technology Council, 1995)
Over the past 12 years, the definition of environmental technology has changed. In 2007, the
Department of Commerce, International Trade Administration (ITA), defined the environmental
technologies industry as goods and services that advance sustainable development by reducing
risk, enhancing cost effectiveness, improving process efficiency, and creating products and
processes that are environmentally beneficial or benign. The environmental technologies sector
includes: air, water, and soil pollution control; solid and toxic waste management; site
remediation; and environmental monitoring and recycling. ITA found that the environmental
technologies sector is comprised of the four major categories:
-Y- Monitoring and Assessment—Technologies used to establish and monitor the condition
of the environment.
-Y- Pollution Avoidance—Equipment and processes used to prevent or minimize the
generation of pollutants.
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-Y- Pollution Control—Technologies that render hazardous substances harmless before they
enter the environment.
-Y- Remediation and Restoration—Technologies used to render hazardous substances
harmless.
According to the IT A, water equipment and chemicals, and air pollution control represent the
largest percentage of the U.S. environmental technologies equipment market; wastewater
treatment and solid waste management represent the largest percentage of the U.S.
environmental technologies services market; water utilities and resource recovery represent the
largest portion of U.S. environmental technologies resources market (Department of Commerce
International Trade Administration, 2007).
Clean Technology
Many investors believe that clean technology is an investment theme or category. The
definition used by the venture capitalists interviewed in this study is that cleantech is any
knowledge-based product or service that improves operational performance, productivity, or
efficiency, while reducing cost, inputs, energy consumption, waste, or pollution. Cleantech
advocates view the metamorphosis of the environmental technologies industry or sector into the
Cleantech Sector much as many environmentalists view sustainability as the new form of
environmental protection. This new view of environmental technologies has been adopted and
promoted by Environmental Entrepreneurs (E2), an affiliate of the Natural Resources Defense
Council (NRDC), one of the largest environmental advocacy organizations in the nation.
The Cleantech Group (formerly the Cleantech Venture Network), a coalition of nearly
20,000 cleantech investors, companies and professional service organizations, categorizes
cleantech investments into 11 segments:
-Y- Agriculture -Y- Materials
-Y- Air & Environment -Y- Manufacturing & Industrial
-Y- Energy Efficiency -Y- Recycling & Waste
-Y- Energy Generation -Y- Transportation
-Y- Energy Infrastructure -Y- Water & Wastewater
-Y- Energy Storage
The Cleantech Group (http://www.cleantech.com) is a membership organization of cleantech
investors, companies, and professional services organizations with assets exceeding $6 trillion.
(The Cleantech Group includes venture capital firms, investment banks, limited partners,
governments, and major corporations with offices in North America, Europe, China, and India.)
Beyond traditional environmental technologies such as air and environment, recycling and
waste treatment, and water and wastewater, several cleantech segments also include
environmentally related technologies such as agriculture (e.g., farm efficiency technologies,
natural pesticides), materials (e.g., green chemistry, nanomaterials, and environmentally friendly
solvents), and transportation (e.g., hybrid vehicle technology, efficient engines).
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In a May 2007 report, "Cleantech Venture Capital: How Public Policy Has Stimulated
Private Investment," E2 and the Cleantech Group state that cleantech categories encompass a
broad range of products and services, from alternative energy generation to wastewater treatment
to more resource-efficient industrial processes. Although several of these categories are
different, all share a common thread—they use new, innovative technology to create products
and services that compete favorably on price and performance while reducing humankind's
impact on the environment. To be considered cleantech, products and services must: (1) optimize
use of natural resources, offering a cleaner or less wasteful alternative to traditional products and
services; (2) have their genesis in an innovative or novel technology or application; and (3) add
economic value compared to traditional alternatives" (Stack, et al., 2007).
B. Trends In Venture Capital Funding
The United States maintains the oldest and most dominant position worldwide in venture
capital. In 2006, U.S. venture capitalists invested $25.5 billion in 3,416 deals (i.e., companies),
realizing a 10 percent increase in deal volume and a 12 percent increase in dollar value compared
to 2005. In 2005, venture capital investments worldwide reached $31.3 billion (U.S. dollars).
The United States, Canada, Europe, and Israel represent 93 percent of capital invested, while
China and India account for the remainder (Deloitte & Touche, 2007).
Generally, U.S. venture capital investing has recovered from the collapse of the internet
investment bubble in 1999-2001. Venture capital investment peaked in 2000 with over $100
billion placed in deals at various stages. In August 2007, the National Venture Capital
Association reported that 14 of the 17 industry sectors tracked by the association, including the
industrial/energy sector, experienced an increase in the number of deals for the second quarter of
2007 (National Venture Capital Association and PricewaterhouseCoopers, 2007).
C. Environmental Technology Investment Market
Significant investments are being made by the venture capital community in clean energy-
related technologies, including "cross-over" technologies that yield both energy and
environmental benefits. Although the growth potential for most environmental sectors is
expected to continue to rise through 2010, the most substantial growth is expected in the clean
energy sector. Investors have indicated that there is a vast amount of capital available for
investing in promising environmental technologies and many individual and institutional
investors are seeking opportunities to invest in the growing environmental technology sector.
Returns on these investments, however, still must compete with other investment options.
Therefore, it is critical to investors that areas of investment risk—often based on regulatory
uncertainty and unpredictability—be identified and reduced.
In 1995, the Interagency Environmental Technologies Office (IETO), a federal agency group
created to enhance technology collaboration and reduce barriers, found that financial uncertainty
and a high level of risk limit the availability of investment capital for environmental
technologies. Although the environmental technologies industry at that time was larger than
many other sectors of the U.S. economy, the IETO found it attracted very little private capital.
In 1993, the IETO pointed out that approximately $31 million in venture capital was invested in
conventional control and remediation technologies supporting just 12 firms. In 1994, this
amount dropped to $25 million invested in fewer than 10 companies and was projected to
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continue to decline. The IETO concluded that a number of reasons accounted for the
environmental technology industry's tendency to repel capital. Government environmental
policies and regulations were important drivers of the market but the timing and size of current
and future markets often was a function of the specifics of regulation, including the timetable for
new regulations, the stringency of current standards, and their enforcement (National Science
and Technology Council, 1995).
Today, there are more optimistic data about environmental technologies but the investment
levels are small compared to energy technologies. The cleantech category currently offers a
good approximation for venture capital support for environmental technologies. Although the
cleantech category is dominated by four energy segments (i.e., energy generation, energy
infrastructure, energy storage, and energy efficiency) and energy-related investments have led
other segments for the past 2 years, there has been some encouraging growth in some
environmental technologies segments. U.S. and Canada investments in environmental
technologies, such as recycling and waste and transportation (i.e., hybrid vehicles), also showed
gains since 2005. Investments in energy-related technologies totaled $2.14 billion, almost three
times the amount invested in 2005, and 33 percent greater than the investment total for the entire
cleantech industry in 2005 (Stack, et al., 2007).
In 2006, cleantech became the third largest U.S. and Canada venture capital investment
category (11 percent of all venture investments), behind software and biotechnology. In 2006,
total U.S. and Canada venture capital invested in cleantech companies reached $2.9 billion, a 78
percent increase over the $1.6 billion invested in 2005 (Stack, et al., 2007).
Since the economic downturn of 2000-2001, cleantech is one of the few U.S. categories that
has experienced real growth in venture investments. While U.S. venture capital investments as a
whole were down by 33 percent in 2006 compared to 2001, investments in U.S. cleantech
companies were up 243 percent in that time (Stack, et al., 2007).
In the second quarter of 2007, the cleantech sector was the third largest industrial sector
based on venture capital investments, totaled $451 million going into 44 deals. This represented
a 38 percent increase in the number of deals and a 46 percent increase in dollars, attributed to a
$73 million investment in a solar energy company, the largest deal of the quarter (National
Venture Capital Association and PricewaterhouseCoopers, 2007).
D. Opportunities for Increasing Investments in Environmental and Clean
Technologies
The "environmental marketplace" where technologies are deployed consists of several
distinct sectors based on the physical resources addressed (e.g., water, air, land), services
delivered (supply) and structure of consumption (demand). The growth potential for most
environmental sectors is expected to continue to rise through 2010. As depicted in Table 1,
economic activity is categorized in three broad sectors—Services, Equipment, and Resources—
based primarily on the type of firms selling in each sector and what is sold, as well as the
common purchasing patterns within those sectors.
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Table 1. Environmental Industry Sector Growth 1990-2000 and
2000-2010 ($ in billions)
Environmental Industry Sectors
Services
Analytical Services
Wastewater Treatment Works
Solid Waste Management
Hazardous Waste Management
Remediation/Industrial Services
Consulting & Engineering
Equipment
Water Equipment and Chemicals
Instruments & Information Systems
Air Pollution Control Equipment
Waste Management Equipment
Process & Prevention Technology
Resources
Water Utilities
Resource Recovery (recycling)
Environmental Energy Sources*
U.S. Totals:
2000
1990-2000
Grmvth 2010
$1.6
$30.0
$42.0
$8.0
$10.0
$18.0
-26%
34%
45%
-15%
5%
21%
$20.0
$4.0
$18.0
$9.6
$1.2
57%
84%
30%
20%
192%
$33.0
$18.0
$15.0
$228.4
53%
29%
87%
35%
2000-2010
Growth
1.9
44.5
58.8
9.7
13.7
28.8
19%
48%
40%
21%
37%
60%
32.6
6.0
19.1
11.5
2.0
63%
50%
6%
20%
67%
42.3
25.5
38.2
$334.6
28%
42%
155%
46%
* Environmental Energy Sources (biomass, wind power, landfill gas, solar power, geothermal, mini-hydros, fiiel cells) encompasses
both system sales and revenues from electricity production. The rough estimates for growth by Environmental Business Journal
assume current federal and state tax incentives and other measures are renewed or remain in place as legislated.
Several interviewees noted that venture capital firms are investing in new environmental
technologies that hold promise for transforming large industrial process operations. Advanced
Electron Beam is an example of such an investment. It is a venture capital-supported
environmental technology that has "in line" manufacturing process applications (see description
of Advanced Electron Beam on page 16).
These different markets can, in turn, be plotted by size and growth rate to characterize the
nature of opportunities (see Figure 1).
Group A in the figure represents small, but high growth market niches—Process, Prevention,
and Instrumentation, including "clean energy"—where the growth rate and dynamism helps
create larger opportunities for adopting innovative technologies. Venture capitalists express a
clear preference for high growth markets. Trends for the clean energy market were recently
published in a report by Clean Edge, Inc. (see text box on page 15).
Group B represents larger, slower growth markets—Wastewater Treatment, Solid Waste, and
Drinking Water, where growth is tied closely to demographic growth and suburban expansion.
Technology in these markets often is geared to any change in regulatory standards or
enforcement.
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Figure 1. Plot of Market Size vs. Market Growth of Environmental Market Segments
o
'ffi
\
Consulting
Clean
Energy
Resource
Recovery
z
Source: Environmental Business Journal, 2008
Clean Energy Trends 2008 Report
(http://www.cleanedge.com/reports/reports-trends2008.php)
According to Clean Energy Trends 2008, produced by Clean Edge (and co-authored by GreenBiz.com executive editor
Joel Makower), global clean-energy markets are expanding rapidly and just four sectors—biofuels, wind power, solar
photovoltaics, and fuel cells—are projected to more than triple over the next decade, growing to $254.5 billion by 2017.
Revenues in these four benchmark sectors increased 40 percent in 2007, up from $55 billion in 2006 to $77.3 billion in
2007. For the first time, three of these sectors are generating revenue in excess of $20 billion apiece, with wind now
exceeding $30 billion. New global investments in energy technologies—including venture capital, project finance, public
markets, and research and development—have expanded by 60 percent from $92.6 billion in 2006 to $148.4 billion in
2007, according to research firm New Energy Finance.
The report indicates that global production and wholesale pricing of biofuels reached $25.4 billion in 2007 and is projected
to hit $81.1 billion by 2017. The global biofuels market last year consisted of more than 13 billion gallons of ethanol and
more than 2 billion gallons of biodiesel production worldwide. Wind power is expected to expand from $30.1 billion in 2007
to $83.4 billion in 2017. Last year's global wind power installations reached a record 20,000 megawatts (MW), equivalent in
size to 20 conventional fossil-fuel power plants. Clean Edge also found that solar photovoltaics (including modules, system
components, and installation), which totaled $20.3 billion last year, will more than triple to $74 billion by 2017. Annual
installations in 2007 were just below 3,000 MW worldwide.
New global investments in energy technologies—including venture capital, project finance, public markets, and research
and development—have expanded by 60 percent from $92.6 billion in 2006 to $148.4 billion in 2007, according to New
Energy Finance. In the United States, venture capitalists invested $2.7 billion in the clean-energy sector, representing
almost 10 percent of total venture capital activity.
The report copyright is held by Clean Edge, Inc., which offers the report for free on its Web site
(http://www.cleanedge.com).
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Group C represents smaller, "back end" remedial
markets—Remediation, Air Pollution Control, Waste
Management Equipment, Analytical Labs, and Hazard-
ous Waste—which are not growing as fast as the
economy or demographics, and may actually contract in
some years (e.g., with recession). Some aspects of these
markets are shrinking, such as Superfund and cleanup of
underground fuel tanks. Hazardous waste volumes also
contracted in the 1990s as industry cleaned up operations.
Landfills were not expanded much overall.
Other market niches—Consulting Services, Resource
Recovery, and Water Equipment—tend to be driven by the other
sectors and regulatory changes. Water equipment could
represent an opportunity for innovative technologies if
regulatory changes were made, but buyers tend to be risk-averse
and compliance oriented, often content to use conventional
technologies.
E. Stages of Investment
Historically, venture capitalists have invested in the initial
stages of a company's development but the size and number of
investments were cumbersome and the recent trend is to support
companies at a later stage in their development.
In general, there are four stages of company development in
which venture capital can be invested. These stages are:
-Y- Seed/Startup Stage—the company has a concept or
product under development;
-Y- Early Stage—the company has a product or service in
testing or pilot production;
-Y- Expansion Stage—the company product or service is in
production and commercially available; and
-Y- Later Stage—the company product or service is widely
available.
The majority of venture capital investments go to follow-on
funding for companies originally financed by angel investors,
corporate investors, or government programs. This trend
continued in 2007. In early August 2007, it was reported that
venture capitalists invested $7.12 billion in 977 deals in the
second quarter of 2007—the highest level of investment
"Funding New Environmental
Technology That Holds Promise for
a Cleaner Environment"
Advanced Electron Beam
RockPort Capital Partners
(http://www.aeb.com)
Advanced Electron Beam (AEB) in
Wilmington, Massachusetts, has developed a
breakthrough electron beam technology—the
AEB Emitter—that is 10 times less expensive
and 100 times more compact in size than
conventional electron beam units. While
electron beams have historically been used in
industrial applications to replace chemical and
thermal processes, adoption has been limited
because of high equipment and operating
costs, complex implementation, and the huge
size of conventional electron beam
technologies. By contrast, the AEB Emitter
makes it possible to integrate this clean
energy source into a wide array of applications
that was never before technically or
economically feasible. AEB Emitters can be
aligned in multiples to produce a beam of any
desired width and are small enough to be
directed at any angle.
AEB Emitters have an operating voltage of 80-
150 kV and weigh less than 30 pounds. More-
over, the approach requires no active vacuum
pumping equipment, offers a compact, solid-
state power supply, and requires no in-plant
engineering or maintenance expertise.
Specific AEB Emitter applications include: the
destruction of airborne viruses and bacteria;
the extension of shelf life of foods; generation
of hydrogen for fuel-cell vehicles; the
modification of recycled tires into high-quality
engineered plastics; and the removal of
hazardous gases, such as sulfur and nitrous
oxides (SOx/NOx), from fossil-fuel burning
power plants.
In March 2007, AEB announced it had
received $17.5 million in a Series B funding
round led by RockPort Capital Partners, with
participation from existing investors Atlas
Venture and General Catalyst Partners. The
funding will be used to accelerate
commercialization of AEB Emitters as one of
the world's most efficient, clean, and cost-
effective forms of industrial energy.
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reported in a quarter since the third quarter 2001. By stage of company development these
investments were: Seed/Startup: 3%; Early Stage: 19%; Expansion Stage: 33%; Later Stage:
44% (NVCA and PricewaterhouseCoopers, 2007).
The National Association of Seed and Venture Funds (NASVF) found that venture capitalists
primarily invest in those business sectors that are not only growing rapidly but also have not yet
reached the competitive shakeout stage. In other words, venture capitalists fill a gap between the
early startup stage and later consolidation (NASVF, 2006).
The Work Group made a decision to focus this study on Early Stage investments both
because this is a critical phase in the success of technology development and, given the small
number of interviews to be conducted, the Early Stage focus allowed the Work Group to narrow
the field of potential interviewees. Although Early Stage investments were the primary focus of
the study, the interviewees also described investments at other stages to make certain points.
During the course of the interviews, the venture capitalists also provided examples related to
investments at earlier and later stages (see Appendix G).
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IV. Findings from the Venture Capital Community
This section contains findings identified by the Work Group from the nine interviews
conducted during the study. These findings are arrayed across the following four subsections:
-Y- Drivers of Environmental Technology Investment
-Y- Regulatory Context
-Y- EPA Role in Technology Development and Commercialization
-Y- Future EPA Interactions with the Investment Community.
A. Drivers of Environmental Technology Investment
The Work Group identified the following findings related to drivers of environmental
technology investment:
1. Although venture capitalists have invested in cleantech companies, investors are
concerned that there currently is no system or metrics to monitor these technologies to
determine if they are "cleaner" than existing alternatives.
2. Environmental investors expect venture grade returns; they are not investing to "save the
planet."
3. Municipalities and utilities are the largest customers for environmental technologies and
they are a difficult and risk-averse customer set.
4. The role of the regulatory community is important in clean technology development and
commercialization.
5. Environmental technologies have a more difficult "exit strategy" than other clean
technologies. (Exit strategy is the process through which venture capitalists realize their
investment returns through sale or initial public offering.)
6. There is a lack of experienced managerial talent in environmental technology companies.
The decision thresholds for investors to capitalize environmental technology enterprises (i.e.,
companies or projects) are complex and varied. It was pointed out during the interviews that
venture capitalists do not invest in research and development or even in technologies, per se;
they invest in commercial enterprises for profit that are promoting innovative technologies under
certain regulatory and market conditions and scenarios.
Although venture capitalists have invested in cleantech companies, investors are concerned
that there currently is no system or metrics to monitor these technologies to determine if they are
"cleaner" than existing alternatives. Interviewees expressed the need to better understand the net
environmental benefits of clean energy and other technology investments. The California Public
Employees' Retirement System (CalPERS) uses both financial due diligence and environmental
due diligence when deciding what investments to make in venture capital firms that want to fund
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environmental technologies. Environmental Capital Group (ECG) currently performs the
environmental due diligence service for CalPERS.
A brief description of the ECG's environmental due diligence process is presented in the text
box on this page, and a more complete description of the process is contained in Appendix H.
Venture capitalists expect substantial profits over a 5 to 7 year horizon. As many of the
interviewees noted, environmental investors expect "venture grade" returns; they are not
investing to "save the planet."
"Environmental Due Diligence Process Used by CalPERS"
The California Public Employees' Retirement System (CalPERS) uses both financial due diligence and
environmental due diligence when deciding what investments to make in venture capital firms that want to fund
environmental technologies. CalPERS uses the Environmental Capital Group (ECG) to perform the environmental
due diligence. The purpose of the environmental due diligence is to answer two key questions:
1. If the technologies of the portfolio companies are successfully commercialized, will the fund result in
significant net environmental benefits?
2. Does the fund management have the capability and willingness to implement its environmental strategy
and measure the resultant environmental benefits?
ECG has developed analytical methods to measure and report significant net environmental benefits created by the
portfolio companies. To analyze net environmental benefits, ECG considers how the "new" process or product
compares to the "existing" process or product. This requires an understanding of not only the environmental impacts
of the company's technology, but also of the technology that it seeks to replace. It also requires establishing the
boundaries of the analysis and considering significant positive and negative environmental impacts within those
boundaries. The potential sources of environmental benefits relate to consumption of energy and raw materials,
manufacture of product and by-products, and product functionality (i.e., the technology may be more
environmentally benign than the product it replaces). All five areas—product raw materials, energy raw materials,
manufacturing or energy-production process, product functionality, and by-products (emissions)—must be
considered in an analysis of net environmental benefits and they usually are linked.
To move from concepts about environmental benefits to specific results for each portfolio company, ECG developed
an Environmental Performance Reporting System (EPRS). The objectives of this system are to: (1) measure the
net environmental benefits of each fund and portfolio company investment, and (2) establish an environmental
performance basis for proactively choosing future clean energy and technology investments. The calculation of net
environmental benefits can be thought of as an engineering or technical report that links a business result, such as
the number of product units sold or amount of material processed, to the associated environmental result, such as
tons of emissions avoided or gallons of water saved. ECG works with the General Partner to conduct this analysis,
including assessing which environmental impacts should be included, identifying respected literature sources, and
checking the analysis for consistency with similar technologies based on our broad understanding of the market. In
some cases, the analysis is reviewed with an expert in the appropriate field.
At the end of each fiscal year, the General Partner collects business results data from each portfolio company and
calculates the associated net environmental benefits using the analysis framework established at the time of
investment. ECG collects and reviews this information and works with the General Partner to update and refine the
analysis framework.
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The most prevalent drivers identified among interviewees fall into three categories across the
spectrum of environmental technologies: (1) metrics—investment criteria for venture funds;
(2) policy—federal and state legal and regulatory framework, and legislative outlook; and (3)
market factors, including technological obsolescence, customer resistance, etc.
Metrics
A variety of metrics drive the investment decision and these metrics can be characterized as
"hard" metrics or "soft" metrics.
Hard metrics are the fundamental criteria for investment decisions, such as:
-Y- Expected rate of return commensurate with risk;
-Y- Break-through technologies with good comparative advantage;
-Y- Market size, penetration, and growth prospects; and
-Y- Economic value proposition based on business plan, management team, and eventual exit
strategy for capital return.
Return on investment (ROI) was the metric most often cited by venture capitalists during the
interviews. Their belief was that a risk-adjusted ROI is the only measurement that matters in an
investment. In other words, a highly profitable opportunity that has high risk and a long time
frame is less attractive than a less profitable idea with low risk and a short time frame. Investors
cannot know what the ROI will be ahead of time; they only know a projected one. Therefore,
other factors are weighed to evaluate the potential for and risks to successfully meeting a
projected ROI at the time of investment.
Besides ROI, many venture capitalists are concerned whether the technology they are
considering is a "breakthrough" technology with a good competitive advantage compared with
what is currently available. The cost and technological advantages of a product and/or service
need to be clearly demonstrated. Many venture capitalists agreed that the world market for
"disruptive" green technologies was good. The potential market size, the anticipated penetration
into the market, and the short-term growth potential for the technology and service were viewed
as significant determinants for driving investor decisions.
For environmental technologies, most investors were concerned about the potential
customers. Traditionally, municipalities and utilities are the largest customers for environmental
technologies and investors agreed that they are a difficult and risk-averse customer set. In using
new environmental technologies, municipalities and utilities are concerned about the uncertainty
of the technology and the financial strength of the supplier company's balance sheet. Based on
these concerns, most investors evaluate products for these customers by asking two questions:
"What change in application or performance does this technology present?" and "What is the
capability of the management team to get the technology to market?"
"Economic value propositions"—a company's business model, its management team, and the
eventual exit strategy for the investment—were considered important for any environmental
technology or clean technology investment. Unfortunately, the venture capitalists found a lack
of experienced managerial talent in environmental technology companies and that most
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environmental technologies have a more difficult exit strategy than other clean technologies in
the energy sector.
Soft metrics are considerations often employed by public pension funds, foundations, and
public institutions for environmental and other clean technology investments. They include:
-Y- Investment transparency that withstands public scrutiny;
-Y- Socially responsible investing;
-Y- Sustainability or reduced environmental and resource impact;
-Y- Good will reputation for investing in companies that have a positive impact on the
environment; and
-Y- Patient capital for longer term environmental improvements.
Because of their nature, public pension funds and their investment decisions are likely to be
held up to public scrutiny and require more "transparency" in their investments. These funds
may be especially concerned about the public's reaction to losses on investments with which the
public is unfamiliar such as high-risk venture capital investments. They also may require
evidence of satisfactory investment performance on a more regular basis.
Socially responsible investing describes an investment strategy that combines the intentions
to maximize both financial return and social good. In general, socially responsible investors
favor company practices that are environmentally responsible, support workplace diversity, and
increase product safety and quality.
The desire to "do well by doing good" is common to both sustainable investing and socially
responsible investing. The key difference between the two approaches is that sustainable
investors tend to give more weight and attention to environmental issues than socially
responsible investing. Sustainability or reduced environmental and resource impacts are
secondary considerations for many investors. Many pension funds, foundations, and public
institutions, however, prefer sustainable investments that have beneficial environmental and
economic results.
Some venture capital firms are creating a "good will" reputation for investing. These firms
offer high economic returns with a reputation for investing in companies that will have a
positive impact on the environment. Most sustainable investment opportunities, for example,
normally are believed to exist only in exciting young companies that focus on organic food or
alternative energy production; these good will firms, however, invest in "old economy"
industry companies, such as autos and oil, which are transforming themselves.
Patient capital—funding from investors who do not expect immediate returns on their
investments—is becoming more popular for some clean technology investments. Beyond the
financial ROI, there are externalities associated with environmental investing. How much
energy is saved, how much the carbon foot print is reduced, or how much water is conserved
are becoming important externalities in investing. The "universal investor concept" attempts to
capture these primary and secondary considerations.
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Policy or Legal Framework
The role of the regulatory community is important for clean technology investment. Most
investors are scared away from investing in a business that is based on the creation of
regulations. They do not want to invest in companies that hope a regulation will drive their
market potential. They prefer investing in companies that do a better job meeting existing
regulations; this creates a better economic value. Although government regulations are
important, venture capitalists do not favor investments in technologies whose future markets
could be eliminated with a "stroke of the pen" (i.e., regulation change). They want to see that the
technology provides enough economic value on its own.
The legal framework is comprised of many issues including applicable federal/state
regulatory and enforcement regimes, tax policies, subsidy provisions, and other mandates. The
regulatory and enforcement regime is an essential primary driver for many investments; whereas,
taxes, subsidies, and mandates play important subsidiary roles.
The legal framework is known as "policy risk" in the investment community. To minimize
this "policy risk," an investment calculus needs reasonable certainty and stability for the legal
framework with dependable terms of application of at least 5 years. Where the legal framework
is likely to change (such as new statutes authorizing "cap and trade" markets), clear signals in
anticipation of such change are needed. Hence, regulation is not enough to mobilize venture
investment; economic value is vital.
Market Factors
Market considerations are an important metric in any investment decision. Nearly all
interviewees agreed that the markets for environmental technology are driven by global markets
because they comprise the most basic functions of any economy: water treatment and delivery,
agriculture and land use, effluents of basic manufacturing and materials processing, air pollution
handling, and the instrumentation, design, monitoring, and services of these functions.
New market drivers are emerging that are creating more interest in environmental
technologies (i.e., instrumentation, process efficiency) and more sustainable energy options,
which are driven by higher oil and gas prices, more severe storm and weather damage (e.g.,
hurricanes, tornados, flooding, extended drought), rapid economic growth in developing
countries, and public awareness of resource strains.
Anticipation of new laws and mandates (e.g., legislation on carbon emissions, automobile
fleet mileage standards, and water treatment rules for shipping vessels) also is creating
expectations for market growth. Climate change considerations, for example, will drive the
market for water supply and treatment technologies.
Some interviewees identified market opportunities in "cross-over" technologies. These are
technologies that address both environmental and energy issues. One example of such a
technology is the use of a wastewater treatment technology to convert a sugar-laden waste stream
for the generation of ethanol. Other cross-over technologies that were identified during the
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interviews included: technologies that save energy through efficiencies, waste-to-energy plants,
drought-resistant crops, smart-grid sensors, and more energy efficient water treatment systems.
Although several market niches are growing, others such as Superfund cleanup and
underground storage tank remediation, have peaked in activity, and are subsiding.
Still, the market and customer base for pollution control/remediation technologies is constrained
by the risk-averse nature of municipalities, utilities, and their supporting engineers and
consultants. Most interviewees confirmed this view identifying "risk aversion of POTWs
[publicly owned treatment works]" as the highest rated market factor in evaluating an
investment.
B. Regulatory Context
The findings from the interviews with respect to regulatory context include:
1. The existence of regulations many times stimulates technology investment and the lack of
regulations can sometimes retard technology investment. Therefore, regulation of carbon
and climate change-related pollutants is needed to advance investment in new
technologies to address climate change issues.
2. The role of the regulatory community is important in clean technology development and
commercialization. Early-stage investors are looking for a minimum of 3 to 5 years of
certainty regarding investments contingent on government influences. Next-stage
investors provide capitalization for taking these new technologies to commercial scale.
During this commercialization phase, streamlined permitting and consistent enforcement
become increasingly important.
3. Investors expect that regulatory requirements will be aggressively enforced so that a
"level playing field" for all participating companies will exist.
4. Many EPA regulations prescribe specific control levels. Unfortunately, Best Available
Control Technology (BACT) rules and regulations are not written in a way to maximum
investor interest.
5. Some of EPA's most successful programs affecting investors are voluntary programs
such as Energy Star.
6. Intellectual Property Rights protection is an important issue for investors.
Market conditions and governmental activities have major impacts on the attractiveness of
investments in environmental technologies. Actions of the government may include
dissemination of information, advocacy, policy-setting, regulation promulgation, promotion of
voluntary programs, provision of funding, and offering of other incentives. Environmental
technology investments are not made in the absence of clear evidence that such ventures have a
high likelihood of success from a market standpoint. Without substantial profit potential, an
environmental technology will receive little attention. Even if the technology shows promise,
governmental actions and programs can have major influence, both on the final investment
decision and the final outcome.
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Regulatory Programs
Regulatory programs are of key interest to venture capital firms. Technologies have been
spawned by emergence of new and enhanced environmental requirements. Some of these
technologies have represented major markets with substantial profit possibilities while others,
similarly important, have been much narrower in scope and thus have been less appealing for
investment.
Interviewees offered diverse views on the importance of environmental regulation. In some
cases, investors reported that they avoid investing in ventures that are driven by, or dependent
on, government regulation or regulatory compliance. In other cases, a market may be perceived
to have the capacity to flourish because of the existence or promise of a regulation. The degree
of opportunity is case-specific and dependent on the perspectives of the investor. Several
venture capitalists saw regulations as useful but not sufficient to justify investment. Opinions
ranged from investments in companies where there is little regulation (i.e., government-wide
regulation, not just EPA) to investments in companies affected by regulation to investments in
companies where regulations help create the need for environmental technologies. Regardless of
their perspective, most interviewees found that, beyond government regulations, there must be an
economic case for the investment as well.
Environmental technologies may be mandated by, or may arise from, two different kinds of
regulations. Technology-based regulations specify that certain types of technologies must be
installed in specific circumstances and that the operation and maintenance of those devices will
constitute compliance with the regulations. Performance-based regulations deal less with
modifying behavior and focus more on outcomes. They specify the desired result and give the
regulated community more flexibility to determine how to comply in an effective way that
achieves the desired end result. Performance-based approaches generally allow the regulated
community to comply more efficiently and effectively, taking into consideration the unique
circumstances of their particular business. Venture capital firms tend to have a preference
towards performance-based regulations.
Many EPA regulations prescribe specific control levels. Unfortunately, such regulations are
not written in a way to stimulate keen investor interest. Because many regulations are worded in
a manner that limits flexibility, they do not encourage venture capitalists to invest in companies
responding to technology standards.
Regulatory predictability was cited by many interviewees as a necessity to merit a
technology investment. For those technologies dependent on government regulation and for
those investors interested in such technologies, success is dependent on certainty. Because
administrations and legislatures change with regularity, policies are likewise subject to routine
change. Most interviewees agreed that venture capitalists want potential government policies
"memorialized" in statutes and regulations.
Most investors are looking for a minimum of 3 to 5 years of certainty regarding investments
contingent on governmental influences and they prefer even longer horizons where the
regulatory requirements are fully known. Further, investors expect that the regulatory
requirements will be aggressively enforced so that a "level playing field" for all participating
companies will exist.
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Regulatory risks are an inherent part of any investment. Venture capitalists assume
substantial risks as they become involved in new growth businesses. It is hard for them to
understand why government agencies are not willing to assume risks relative to environmental
technologies. As new environmental technologies emerge, they must be tested in real-world
applications. In many cases, such tests require regulatory agency approval. Traditional
regulations, especially those that are technology-based, however, require a degree of certainty
that they will successfully achieve their design parameters. In many cases, field-testing is
required to confirm hypothesized performance levels. In the most critical environmental
programs and for the most promising technologies, interviewees suggested that regulators should
find ways to promote field-testing of new technologies so that their capabilities can be
established in a timely manner. Doing so would raise the interest level of those with capital to
invest in such emerging markets.
Non-Regulatory Practices
In addition to direct regulatory programs and requirements, interviewees found that
environmental technology investments can benefit from indirect regulation, voluntary programs,
incentives, and general advocacy. Interviewees found that some of EPA's most successful
programs affecting investments are voluntary rather than regulatory in nature (e.g., Energy Star).
Indirect Regulation
EPA's Toxics Release Inventory (TRI) is a public database of information on discharges,
emissions, and other releases of chemical compounds exhibiting certain toxics characteristics.
The TRI has become a database of prime interest to the public, raising concern in the minds of
facility owners and the public about actual and potential environmental impacts of releases.
Through public scrutiny and much media attention, companies became sensitized to these
concerns and voluntarily initiated release reduction plans as well as substitutions of less toxic
compounds where possible. Interviewees noted that since it was first introduced, TRI has caused
major reductions in releases of toxic compounds without any regulatory mandate to do so.
Financial rating agencies have reinforced this trend based on the public information value or the
"black-eye effect" of the TRI disclosures.
Voluntary Programs
EPA has established a number of voluntary programs that have encouraged the development
of more environmentally-friendly technologies. The Energy Star Program was initially designed
to identify consumer products that conserve energy. Public interest in such products has been
high and in the past 15 years the number of Energy Star products has grown substantially. As of
2006, more than 40,000 Energy Star products were available in a wide range of categories,
including major appliances, office equipment, lighting, home electronics, and more. In addition,
Energy Star labeling can be found on many new homes and commercial and industrial buildings.
In 2006, about 12 percent of the new U.S. housing stock was labeled Energy Star compliant.
Incentives
Venture capitalists are interested in technologies with a large potential for market success.
Most are only interested in technologies that have a multi-billion dollar market potential because
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technologies penetrating large markets generally can grow more dramatically. Unfortunately,
many niche environmental technology products that may be protective of human health and the
environment face less investor interest due to their limited market potential.
Several interviewees cited the value of government activities that can assist with bringing
technologies to the marketplace. Examples of such government activities include: tax credits,
direct funding (grants and loans), special regulatory provisions such as expedited permitting, and
general advocacy.
Protection of Intellectual Property Rights
Intellectual property rights (IPR) protection is an important issue for investors. Several
interviewees acknowledged that some technologies within their portfolio companies were created
from intellectual property developed in government or academic laboratories. IPR rules of
ownership need to be clear, particularly in foreign markets. Mixed IPR ownership discourages
investors. Interviewees found that IPR issues for government researchers must be addressed, and
if these researchers cannot share in invention royalties, then the government should find some
way to address this issue.
Absence of Regulation
Rather than being too regulatory dependent, sometimes the lack of regulations retards
technology investment. Many interviewees cited climate change or carbon regulation as a key
determinant for lack of investment in this market. If the government is going to mandate some
type of carbon controls sometime between 2009 and 2011, investors need to be making those
carbon-related investments now. Yet few investors are willing to make such investments with
the uncertainty about whether there will be future government regulations in this area and the
form that such regulations may take.
C. EPA Role in Technology Development and Commercialization
The findings regarding EPA's role in technology development and commercialization
include the following:
1. EPA credibility is high in the investment community. EPA certifications are recognized
internationally and can influence a technology's commercialization potential.
2. EPA and other government agencies can have a "positive catalytic effect" in venture
capital investments.
3. In the past 2 years, the U.S. DOE Office of Energy Efficiency and Renewable Energy has
initiated several successful clean technology development and commercialization
programs. There are "cross-over" technologies that have both energy and environmental
benefits (e.g., waste-to-energy and carbon sequestration technologies) on which EPA and
DOE could collaborate.
4. Some states, such as California and Pennsylvania, and non-profit organizations like Ceres
(www.ceres.org)—a coalition of investors and environmentalists for sustainable
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prosperity—and the New England Clean Energy Council have initiated noteworthy clean
technology initiatives.
Environmental Technology Development and Investment through Market Drivers
In addressing the question of what effort(s) might best promote market use or adoption of
environmental technologies, interviewees noted the following efforts that could carry the most
impact:
-Y- Expedited permitting
-Y- Federal mandates
-Y- Government grants to environmental technology firms
-Y- Federal subsidies for technology performance.
In specifically addressing EPA's role, interviewees also suggested investment in
environmental technologies would be enhanced by the following:
-Y- Programs approving specific technologies for emission reductions.
-Y- Grants or other incentives to directly fund a class of technologies.
-Y- Reports of performance (verification or demonstration).
-Y- Rules, regulations, or technical guidance specifying use of selected environmental
technologies.
These findings all suggest a need for EPA to establish market drivers for environmental
technology development.
Interviewees noted that market mechanisms could be used to address or prioritize
environmental technology investments. For example, CalPERS has established a $200 million
Environmental Technology Program Board that targets investments in environmental technology
solutions that are more efficient and less polluting than existing technologies such as recycling,
minimizing the use of natural resources, and reducing emissions, refuse, and contamination to
air, water, and land. The primary objective of the Program is to achieve attractive investment
returns over the long-term and help catalyze the adoption of environmental and clean
technologies to the broader marketplace (see the description of CalPERS in the text box on page
28).
EPA and other government agencies can have a "positive catalytic effect" in venture capital
investments. Governmental policies and programs that support the deployment of environmental
technologies coupled with certainty that these activities will remain in place stabilize the market.
Interviewees found, for example, that regulatory certainty is beneficial for both the regulated
community and investors. Mandates that last for 3 to 5 years or longer to allow venture firms to
amortize their investments enhance the predictability and influence of government activities on
new technology markets.
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National and International Technology Verification and Certification
Interviewees noted that third-party evaluations are helpful in supporting new technology
development, growth, and acceptance in the marketplace. They also indicated that certifications
are valuable in foreign markets. EPA certifications are recognized internationally and can
influence a technology's export potential. Interviewees noted that foreign interest in reciprocal
technology verification programs is strong. Most thought that the Agency needs to push for
objective, verified protocols and standards that can be used by all countries.
EPA credibility is high in the investment market. Several interviewees noted that EPA
procedures often can validate the performance claims of technology vendors. ORYXE Energy
International and WaterHealth International are venture capital portfolio company examples of
how EPA procedures helped validate technology developments for a fuel additive and ultraviolet
disinfection technology (see the descriptions of ORYXE Energy International and WaterHealth
International on page 29).
"Pension Fund Investing in Environmental Technology"
Environmental Technology Program
California Public Employees' Retirement System (CalPERS)
(http://www.calpers.ca.gov)
CalPERS provides retirement and health benefits to approximately 1.5 million public employees, retirees, and their
families and more than 2,500 employers. It has a strong track record of mobilizing financial capital in new and
innovative ways, consistent with the highest fiduciary standards. Earlier this decade, CalPERS began to explore
ways in which it could marry the jet stream of finance and the capital markets with public purpose with the goals of
achieving positive financial returns, while fostering energy savings, sustainable growth, and sound environmental
practices.
In March 2004, CalPERS launched a new investment program to invest up to $200 million in the burgeoning
environmental technology sector during the next few years. The System's Board of Administration approved the
CalPERS Environmental Technology Program that will target investments in environmental technology solutions that
are more efficient and less polluting than existing technologies such as recycling; minimizing the use of natural
resources; and reducing emissions, refuse, and contamination to air, water, and land. CalPERS established the
program to capitalize on the evolving investment sector and deliver increased returns to its private equity portfolio.
The primary objective of CalPERS' $200 million Environmental Technology Program is to achieve attractive
investment returns over the long-term and help catalyze the adoption of environmental and clean technologies to the
broader marketplace. CalPERS is building a "best of breed," diversified portfolio of clean technology-focused
investments by investing across stages, strategies, geographies, and structures. The Program defines environmental
or clean technologies as solutions that are more efficient and less polluting than existing or legacy products,
services, or technologies. Areas of particular interest include alternative and renewable energy (clean energy), water
technologies (clean water), advanced materials or nanotechnology (clean material), air purification technologies
(clean air), and transitional infrastructure opportunities. It is expected that investment returns in this sector will be
commensurate with the risk-adjusted returns of the general private equity market.
CalPERS uses both financial due diligence and environmental due diligence when deciding what investments to
make in venture capital firms that want to fund environmental technologies. As of September 30, 2007, CalPERS had
committed $200 million to seven investment partners: NGEN , Craton Equity Partners, Carlyle/Riverstone, DFJ
Element, RockPort Capital Partners, Vantage Point Venture Partners, and EnerTech Capital.
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Outside of Federal Government
efforts, several interviewees commented
on the value that non-governmental
certification can provide to investors.
Private-sector certification programs
such as the LEEDs (Leadership in
Energy and Environmental Designs)
Green Building Rating System as well
as the Forest Stewardship Council and
Marine Stewardship Council accredi-
tation services were cited as especially successful.
Federal, State, and Private Programs for
Technology Development and Investment
Interviewees mentioned several government
and non-government programs that have been
created in the past several years that are success-
fully supporting innovative technology
development. "Targeted" federal technology
development programs are the most effective ways
to stimulate investments. Existing federal
programs cited by interviewees include DOE
programs to develop renewable energy sources and
photovoltaics and U.S. Department of Defense
(DOD) Programs to develop energy storage
batteries.
Federal
At the federal level, many interviewees cited
DOE's Energy Efficiency and Renewable Energy
(EERE) Program and those ongoing at the DOE
national laboratories as worthy examples for EPA
to investigate. Two highly cited EERE Programs
include the Solar America Initiative and the EERE
Technology Maturation Funding Program. The
Solar America Initiative (SAI) is a DOE effort to
accelerate the development of advanced solar
energy technologies. The goal is to make solar
electricity cost-competitive with conventional
forms of electricity by 2015.
Several interviewees mentioned that the DOE SAI
is a good example of a successful federal funding
program that can augment venture capital invest-
ments in photovoltaic technology. Soliant
"Technology Verification Validates Innovative
Environmental Technology Claims"
ORYXE Energy International and
WaterHealth International
SAIL Venture Partners
(http://www.oryxe-energy.com)
(http://www.waterhealth.com)
ORYXE Energy and WaterHealth International (WHI), both in
Irvine, California, have developed patented environmental
technologies that are addressing unique environmental
problems. ORYXE Energy has developed a breakthrough
additive, ORYXE™ RFT, to improve efficiency and reduce
harmful emissions in residual oil-fired boilers and process
heaters. WHI developed a low cost, ultraviolet water
disinfection device, the UV Waterworks™ (UVW), which was
invented to address the needs of underserved communities
around the world. Both patented technologies have been
subjected to air and water pollution testing procedures
developed by EPA to validate their pollutant reductions
claims.
Testing has proven that ORYXE RFT provides significant
reductions in particulate matter emissions while keeping NOX
neutral and improving furnace heat transfer. Residual oil-fired
plants experience reduced black smoke emissions from their
exhaust stacks and improved overall efficiency with the use of
ORYXE RFT. The efficiency improvement often offsets the
cost of the additive, thus providing users with an emission
reduction program that requires no large capital expense and
little to no operational expense.
Dr. Ashok Gadgil, Vice President of Scientific Affairs for WHI,
developed UVW at the DOE Lawrence Berkeley National
Laboratory. Through a multi-stage filtration process coupled
with a proprietary UV disinfection technology, contaminated
water is converted into clean, potable water that exceeds the
World Health Organization's standards for potable water. The
UVW-based system effectively purifies and disinfects water
contaminated with a broad range of pathogens, including polio
and roto viruses, oocysts, such as Cryptosporidium and
G/arcf/a. Low maintenance requirements, high efficiency, and
high throughput make UVW systems capable of delivering
affordable, high-quality drinking water even to remote and
rural markets that have previously been under served.
ORYXE Energy's new technology already has been proven to
reduce emissions in diesel fuel. The technology was used to
develop an alternative diesel formulation, approved by the
Texas Commission on Environmental Quality, to meet the
new Low Emission Diesel standards in Texas. The immediate
success of this product, called ORYXE LED, also proves
ORYXE Energy's ability to meet its promise to supply a
revolutionary new additive to the market.
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Energy is an example of a venture capital port-
folio company that received SAI funding (see
the description of Soliant Energy on this page).
"Using Government Grants to Augment
Venture Capital Investment in Clean
Technology"
DOE's EERE technology maturation fund-
ing program attempts to bridge the gap in tech-
nology commercialization funding during the
particularly challenging period from prototype
and proof of concept to the critical later stages
of development and profitable revenues, a peri-
od known as the "Valley of Death." Usually, there is a
50/50 split in maturation funding between DOE and
venture capital firms on various technology investments.
Interviewees noted that some collaboration between DOE
and EPA already exists on biofuels but more direct DOE
and EPA laboratory communications should be explored.
Candidate DOE national laboratories for EPA to
investigate include the National Renewable Energy
Laboratory (NERL), the Oak Ridge National Laboratory
(ORNL), the Lawrence Livermore National Laboratory
(LLNL), and the Argonne National Laboratory (ANL).
The NREL's Industry Growth Forums and its periodic
"show and tell" meetings with venture capital firms were
cited as useful forums to encourage technology
investment and development (see description of NREL on
page 31). Several interviewees noted that they actively
look for technology investment opportunities within the
DOE national laboratories.
Several interviewees identified portfolio companies
supported by their firms that are successful examples of
technology "spin outs" from DOE national laboratories,
such as NREL and ORNL. Aldis, Inc., Planar Energy
Devices, and M2E Power are three examples of these
DOE laboratory originated technologies (see the
description of Aldis, Inc., and Planar Energy Devices on
page 32).
A similar approach adopted by EPA might enhance
environmental technology development and investment.
State
Beyond federal programs, several interviewees cited
state programs that encourage technology development
and investment. The programs most often cited were
those in Pennsylvania and California.
Soliant Energy
RockPort Capital Partners
(http://www.soliant-energy.com)
Soliant Energy in Pasadena, California, designs and
manufactures concentrator photovoltaic modules for
grid-tied and off-grid, residential and commercial
uses. Soliant was founded in 2005 and aims to
achieve grid-cost electricity via photovoltaic modules
by 2010. Soliant's product platform, the Heliotube™
concentrating solar panel, addresses the strong
market need for lower-cost, higher-power solutions
for rooftop solar power.
In contrast to the other photovoltaic concentrator
modules on the market today, the Heliotube panel
includes concentration and solar tracking within the
traditional form factor of a 4' x 6' solar panel.
Heliotube's integrated tracking mechanism provides
more uniform power output than traditional flat panels
and eliminates the substantial efficiency losses
associated with fixed low-concentration modules. In
addition, the Heliotube tracking system is self
powered and plug-compatible with conventional "flat
plate" x-Si products. As a plug-compatible alternative
to standard solar panels, Heliotube conforms to the
existing standards and practices of the large,
established channels of solar installers, integrators,
project managers, dealers, and distributors.
In March 2007, Soliant Energy (previously Practical
Instruments) was awarded a $4 million grant from the
U.S. Department of Energy (DOE) Solar America
Initiative (SAI). The DOE SAI grant will allow the
company to accelerate development of its
Heliotube™ product platform. Soliant's project
partners in the SAI award included: Spectrolab, the
DOE Sandia National Laboratory, SunEdison, and the
Massachusetts Institute of Technology.
Soliant's DOE SAI award is expected to allow the
company access to more private equity support if
needed in its photovoltaic product line development.
Currently, Soliant is funded by leading energy and
renewable technology investors, including RockPort
Capital, Trinity Ventures, Nth Power, Silicon Valley
Bank, and Rincon Venture Partners. A RockPort
Capital General Partner serves on the Board of
Directors of Soliant Energy.
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The Pennsylvania Department of Environmental Protection (DEP), Office of Energy and
Technology Deployment (OETD) serves as state's principal office for energy policy, the
assessment of energy and environmental technology, and the promotion of the use of appropriate
technology to address environmental problems. OETD's initiatives illustrate and emphasize the
common needs of a sustainable economy and a self-sustaining natural environment. As such,
OETD's priority projects encourage environmental technology enterprise, expand renewable and
advanced indigenous energy opportunities, identify and work to overcome market and regulatory
barriers, and promote related economic development in the Commonwealth. In particular, OETD
works to make Pennsylvania a center for environmentally beneficial technology and a natural
magnet for the manufacturing jobs associated with these businesses.
In September 2006, the Pennsylvania State Treasurer announced a new Keystone Green
Investment Strategy in which Pennsylvania will:
-Y- Reallocate up to $50 million in State Treasury assets to investment managers with a
demonstrated track record of investing in clean technology stocks;
-Y- Create a new $40 million investment fund to invest alongside the private sector in
cleantech products and firms that benefit Pennsylvania's economy; and
"Government Outreach to Venture Capital Community"
The Department of Energy (DOE) National Renewable Energy Laboratory (NREL) programs with the venture
capital community could serve as models for EPA to emulate to help commercialize innovative environmental
technologies. Three of NREL's programs to help commercialize promising technologies are described below.
Clean Energy Industry Growth Forums—NREL's Industry Growth Forums provide an opportunity for start-up
clean energy companies to present and receive feedback on business plans before a panel of venture capitalists
and other business executives. NREL has coordinated 20 Industry Growth Forums, which have facilitated the
formation of at least 25 strategic partnerships. Insights from past forums have helped to improve the number and
rate of commercial successes in the clean energy industry, and have enabled NREL and DOE to manage and
maximize return on technology development investments.
The Clean Energy Alliance—This national alliance of clean energy business incubators helps emerging clean
energy companies take more effective advantage of opportunities stimulated by the restructuring of the utility
markets, sustainability concerns, and more stringent environmental regulations. NREL catalyzes strategic
alliances among select business incubators across the country to provide an array of business and financial
services to start-up clean energy companies.
Technology Commercialization Development Fund Program—This new pilot program supports collaboration
between researchers and companies to develop commercial products based on NREL innovations. Commercial
partners will share 50 percent or more of project development costs, which will typically range from $150,000 to
$1 million. Both NREL researchers and outside industry can submit proposals.
Resources and Information for Renewable Energy Entrepreneurs—NREL provides access to informational
and how-to resources for renewable energy entrepreneurs, often at little or no charge.
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Develop new investment screens for its
investment managers to use when eval-
uating a company's potential exposure
to environmental liabilities.
In February 2004, California State Treas-
urer Phil Angelides launched the Green Wave
environmental investment initiative calling on
the CalPERS and the California State Teach-
ers Fund (CalSTRS) to implement a four-
pronged investment strategy to bolster their financial returns,
create jobs, clean up the environment, and combat global
warming. The Green Wave initiative urged the pension
funds to invest $1.5 billion in cutting-edge technologies and
environmentally responsible companies, to prod companies
to address the financial risks posed by environmental
liabilities and global warming, and to reduce energy
consumption by their massive real estate holdings.
Non-Government
Several interviewees noted that non-governmental
programs such as the New England Clean Energy Council
and Ceres—a national network of investors, environmental
organizations and other public interest groups working with
companies and investors to address sustainability challenges
such as global climate change, have been successful in
promoting cleantech or environmental technology
investments (see descriptions of the New England Clean
Energy Council and Ceres on pages 33 and 34, respectively).
International
Canadian provincial governments are very active in
providing research and financial support to new technology
companies. Venture capitalists noted that the Canadian
technologies and management teams they see often are
better than their U.S. counterparts. Interviewees suggested
that the Federal Government investigate and coordinate with
technology development and investment programs in other
countries, and consider adopting the more successful
approaches to improve technology development in the
United States.
"Technology 'Spinouts' from Government
Laboratories"
Aldis, Inc., and
Planar Energy Devices
Battelle Ventures
(http://www.aldiscorp.com)
(http://www.planarenergy.com)
Battelle Ventures, LP, and its affiliate fund,
Innovation Valley Partners (IVP), have committed
nearly $8 million in start-up financing to two energy-
related companies, Aldis, Inc., and Planar Energy
Devices, Inc., which are direct spinouts of the U.S.
Department of Energy's national laboratories
managed by Battelle Ventures' sole limited partner,
Battelle Memorial Institute (Battelle).
Aldis, a traffic management technology company
focused on energy efficiency, has a joint
development agreement with Oak Ridge National
Laboratory (ORNL). Planar Energy Devices
(Planar), a power-storage company developing thin-
film batteries, is a spinout of DOE's National
Renewable Energy Laboratory (NREL), as well as a
licensee of both NREL and ORNL technology.
Aldis and Planar are examples of how Battelle
Ventures has acted as a "founder capitalist,"
building technology companies from the ground up.
With Battelle as a limited partner, Battelle Ventures
cannot only deploy a unique set of company-
building capabilities, but it also can leverage its
position as a bridge between early-stage
businesses or technology entrepreneurs and the
Battelle network to add value to Battelle Ventures'
portfolio companies.
Battelle Ventures investments in Aldis and Planar
unfolded differently. For Aldis, assurances of the
management team capability came before the
technology. The idea for advanced traffic
management came from the Aldis cofounders, who
Battelle Ventures took to visit ORNL, where some
related projects were in development.
Battelle Ventures became aware of the
differentiated power-storage technology created at
NREL, which became the basis for Planar. Battelle
Ventures funded early prototype development of the
technology and recruited Planar1 s Chief Executive
Officer for the spinout. Planar then was introduced
to complementary work going on at ORNL in the
thin-film battery area and, as a result, became a
licensee of ORNL technology as well.
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D. Investor Suggestions for Future EPA Interactions with the Investment
Community
With respect to suggestions for future EPA interactions with the investment community, the
interviewees' findings were as follows:
1. EPA has few programs that focus on the commercialization stage. Assistance at this
stage is critical because many technologies are never commercialized because they
cannot bridge the "Valley of Death" (i.e., the particularly challenging period from
prototype and proof of concept to the critical later stages of development and profitable
revenues).
2. EPA often is viewed by the venture capital community as not being in touch with the
world of business and commerce.
3. The EPA Administrator and other EPA senior management officials need to be
technology advocates and they need to think expansively about EPA responsibilities
related to clean technologies and energy.
4. Most venture capital firms are unaware of what EPA does other than promulgate and
enforce environmental regulations.
5. EPA should consider new ways of creating a "stamp of approval" for environmental
technologies and recognition programs for plants and other manufacturing facilities.
In the first Environmental Technology Subcommittee report, EPA Technology Programs and
Intra-Agency Coordination, it became apparent that EPA had few programs to assist
technologies at the stage of commercialization. EPA programs assisting technologies in this
phase of the continuum have experienced substantial budget and resource reductions in recent
years. Interviewees noted that EPA assistance at this stage could provide the impetus needed to
interest the investment community in promising new technologies.
"Regional Mechanism for Bringing Together Venture Capitalists, Industry,
Academia, and Government to Accelerate the Region's Clean Energy Economy"
The New England Clean Energy Council's mission is to accelerate New England's clean energy economy to global
leadership by building an active community of stakeholders and a world-class cluster of clean energy companies.
The Council represents a diverse set of stakeholders, including the industry associations, area utilities, local universities,
labor, and large commercial end-users. The Council also includes 30 Chief Executive Officers of the region's leading clean
energy companies, representatives from most of Massachusetts' top 10 law firms, and partners from more than a dozen of
the top New England venture capital firms (with a total of more than $8 billion under management). The Council serves as a
forum through which these players collaborate on common interests.
The Council focuses its resources on five key areas, each of which has a significant impact on fulfilling the organization's
stated goal of accelerating the region's clean energy economy. These focus areas are innovation, growth, analysis and
education, market adoption, and policy.
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EPA often is viewed by the venture capital community as not being in touch with the world
of business and commerce. This lack of contact has produced and may be in part be caused by
cultural differences that include the language that is used, the issues that are most important, the
types of people who are involved, the ways of doing business, and others. It would be beneficial
to EPA, the venture capital community, the environment, and the economy for EPA to engage
with the venture capital community in significant ways to bridge this cultural divide and bring
together the resources of both sides.
"National Mechanism for Bringing Business, Capital Markets, and
Environmentalists Together to Help Corporate Governance Address
Climate Change"
Ceres (http://www.ceres.org) is a national network of investors, environmental organizations and other public interest
groups working with companies and investors to address sustainability challenges such as global climate change. Ceres'
mission is to integrate sustainability into capital markets for the health of the planet and its people.
At its founding in 1989, Ceres introduced a bold new vision to the business community. That vision is of a world in which
business and capital markets promote the well being of human society and the protection of the earth's biological
systems and resources. Ceres advances its vision by bringing investors, environmental groups, and other stakeholders
together to encourage companies and capital markets to incorporate environmental and social challenges into their day-
to-day decision-making. Ceres has received numerous awards including the 2006 Skoll Award for Social
Entrepreneurship and the Fast Company/Monitor Group Social Capitalist award, and was named one of the 100 most
influential players in the corporate governance movement by Directorship Magazine. By leveraging the collective power
of investors and other key stakeholders, Ceres has achieved some dramatic results:
•v- Launched the Global Reporting Initiative (GRI), now the de-facto international standard used by more than
1,200 companies for corporate reporting on environmental, social and economic performance.
> Partnered with Yale University and the insurance firm Marsh to create the Sustainable Governance Forum on
Climate Risk, a unique leadership development program designed to help corporate leaders address the
problem of climate risk.
•v- Spearheaded dozens of breakthrough achievements with companies, such as Nike becoming the first global
apparel company to disclose the names and locations of its 700-plus contract factories worldwide in 2005, Dell
Computer agreeing in June 2006 to support national legislation to require electronic product recycling and
"takeback" programs, and Bank of America announcing a $20 billion initiative in March 2007 to support the
growth of environmentally sustainable business activity to address global climate change.
> Brought together 500 investor, Wall Street, and corporate leaders at the United Nations in 2005 to address the
growing financial risks and opportunities posed by climate change. The ground-breaking meeting included 28
U.S. and European investors approving a 10-point action plan seeking stronger analysis, disclosure, and
action from companies, Wall Street, and regulators on climate change. Another investor summit will be held in
February 2008.
•v- Launched and directs the Investor Network on Climate Risk (INCR), a group of more than 60 leading
institutional investors with collective assets exceeding $4 trillion.
> Published cutting-edge research reports to help investors better understand the implications of global warming.
Among those: a January 2007 report, Climate Risk Disclosure by the S&P 500, an August 2006 report, From
Risk to Opportunity: How Insurers Can Proactively and Profitably Manage Climate Change, and a March 2006
report, Corporate Governance and Climate Change: Making the Connection, which analyzed how 100 of the
world's largest companies are addressing the business challenges from climate change.
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Increasingly there are shared values for EPA and the investment community in believing that
protecting and improving the environment are both important ends in themselves and important
for creating new business opportunities. The major issues forcing this convergence are the very
strong belief that climate change is real and needs to be recognized by government as a threat
that requires government leadership and the need for energy independence which drives
investment in alternative and renewable energy sources.
The Administrator and other senior management need to be technology advocates; to think
expansively about EPA's responsibilities related to cleantech and energy, including moving into
areas that have been seen as the purview of DOE; to create new mechanisms to support
investment in innovative technology development and commercialization, in part by learning
from DOE and other federal, state, local, and private sector organizations.
Need for Leadership at the Top
The role of the Administrator is very important in establishing a relationship with the venture
capital community. The Administrator's involvement is essential for EPA to be viewed as trying
to make its work more relevant to the investment community.
Interviewees viewed this study as a good first step because the recommendations will go to
the Administrator. One of the first things the Administrator can do in response to this study is to
host a national roundtable of senior venture capitalists to begin a dialogue between EPA senior
management and the investment community. The national meeting could be followed by
regional EPA-investor meetings that will extend this dialogue. At some point these dialogues
should include technology developers, academia, and other appropriate public and private
organizations.
There also can be mechanisms created that will enable an "open door" of easy
communication with senior members of the investment community on a continuing basis. One
way would be to create an advisory panel that includes members of the investment community so
they can participate in studies and give advice to the Administrator. Another way is to
periodically meet for a short period with the most senior members of the investment community,
which would permit a "taking of the pulse" of concerns, needs, approaches, and other issues.
The Administrator is also uniquely able to bring both policy and technology issues into
discussions with venture capitalists. The plans for and status of regulations and enforcement are
important types of information that the investment community needs and wants. This ranges all
the way from the question of carbon taxes and "cap and trade" to municipal wastewater
treatment plants. These issues have important consequences for the venture capital community's
investment in innovative technology development and commercialization.
Investors' risk calculations sometimes include the likelihood of a new government regulation
being put into effect and the lead time needed to develop breakthrough technologies. The
intelligence that EPA senior management can offer in this regard coupled with the Agency's
understanding of the most important technology needs and the existence of new ideas and
approaches are very important for these investors. Companies have staff members who
concentrate on a specific technology area and whose job is to find out this type of information.
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The more proactive EPA can be in helping companies to find this information, the more relevant
those companies will view a continuing relationship with EPA.
Need for Communication Follow-Through
Venture capital firms would be interested in knowing what the Agency cares about and what
its resources are in terms of technology, technical expertise, facilities, testing capabilities, etc.
EPA can provide this information to the venture capital community in part by attending and
making presentations at investor conferences and other meetings. These are opportunities to
describe the most important environmental problems EPA is addressing and what the technology
needs are to solve them, as well as some of the latest EPA and non-EPA technology
developments that EPA has found.
EPA can use its Web site to offer easy access to information about technology development
activities that might offer investment opportunities. It can use email to directly target key
venture capital firms that are making cleantech and environmental technology investments. EPA
can open its laboratories to visits by venture capitalists so they can not only learn about the latest
technology developments but also talk with the researchers and possibly establish continuing
relationship that could result in investment in the future.
Need for Programmatic Follow-Through
To connect with and enhance EPA's ability to substantively work with the venture capital
community it is necessary to have adequate programmatic and resource capabilities.
Programmatic follow-through between EPA laboratories and venture capital companies can
be through the development of cooperative research and development agreements (CRADAs).
As EPA works more closely with the investment community, there will be increased
opportunities for third party funding of the development of innovative technologies.
Interviewees noted that CRADAs have been useful in commercializing technologies that
have originated from government laboratories. M2E Power is an example of a technology that
originated in the DOE Idaho National Laboratory and was commercialized using a CRADA (see
the description of M2E Power on page 37).
If there is a good relationship a venture capital firm and an EPA laboratory, for example, the
venture capital firms may bring companies they have found that are developing new technologies
to the laboratory to create a working relationship among all three parties. This could result in
new cost-sharing arrangements.
There is a great need for EPA to invest more in its current technology development and
commercialization-related programs and to create new types of supports for these purposes.
Current programs include the SBIR program and the ETV program. EPA could increasingly
encourage and assist the use of third-party evaluations. EPA could support technology
demonstrations at federal facilities. Air purification, water membranes, and sterilization may be
areas where technology demonstrations could be conducted at federal facilities. There is less
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interest in federal remediation demonstrations
by investors because the exit strategy for these
companies is difficult.
"Utilizing CRADAs to Demonstrate and
Commercialize Innovative Technologies"
EPA can look at new ways of creating a
"stamp of approval" for technologies, which
can include recognition through programs like
Energy Star and through awards and public statements.
EPA could consider an Energy Star program for plants and
manufacturing facilities. If manufacturing plants realized
that additional energy efficiency or more pollution
reductions would merit EPA recognition, this could make a
major difference (e.g., raise employee morale). Public
recognition can be a strong personal and corporate
motivator.
EPA can investigate "Entrepreneur-in-Residence" and
"Entrepreneurial Fellows" programs as a means of exposing
successful entrepreneurs to environmental technologies (see
description in the text box on page 38).
EPA can develop new ways to provide financial
backstopping for innovative technologies. These include
providing seed funding to small companies at the early
stages of technology development. It can include grants that
are more substantial at later stages. It can provide loan
guarantees so if investment and utilization of innovative
technologies fail, there can be financial support to lessen the
cost to the investor. There also can be use of revolving
funds.
E. Actions of Venture Capital Firms to Help
EPA Encourage Environmental Technology
Development and Demonstration
Interviewees identified several actions that venture
capitalists could do to encourage environmental technology
development and demonstration. These actions include:
-Y- Conduct Direct, Routine Communications with
Key EPA Managers and Staff About Legislative
or Environmental Policy Issues Affecting Clean
Technology Development—Several interviewees
believed that the recently passed Energy Indepen-
dence and Security Act, Public Law 110-140, signed
on December 19, 2007, represents a revolutionary
boost for ethanol production. Routine
M2E Power
©Ventures
(http://www.m2epower.com)
M2E Power, Inc., a Boise, Idaho company, has
developed a micro-generator that converts
everyday human and vehicle motion into enough
energy to power mobile electronic devices. The
company expects its technology—an advance on
the technology found in devices like self-winding
watches and battery-free flashlights—will eventually
power cell phones, digital cameras, and portable
entertainment players. For now, however, the
company is focusing on powering mobile devices
on the battlefield.
The patent-pending M2E™ (Motion to Energy)
technology originated though a cooperative
research and development agreement (CRADA)
with the Department of Energy's Idaho National
Laboratory (INL). Inventor Eric Yarger and his team
at the INL sought to ease the military's battery
dependence for mobile power and offer soldiers a
way to generate power as they move around. It
leverages the well-proven Faraday Principle
(energy produced via motion of a magnet through a
wire coil), but with changes in the magnetic
architecture that have broad applicability to many
sizes of motor generators.
In November 16, 2007, ©Ventures, the clean
technology venture capital business of CMGI®, Inc.,
announced that it made a $2.0 million investment in
M2E Power, Inc. ©Ventures participated in the
company's $8 million Series A financing round,
along with OVP Venture Partners, Highway 12
Ventures and existing investors.
M2E Power will use the funds to speed
commercialization of its M2E™ technology, which
has the potential to fundamentally transform the
way military and consumer mobile devices are
powered. M2E's core technology also is potentially
applicable to large-scale power generation, such as
wind, wave, and most other electromagnetic
induction-based generation technologies.
M2E is an eco-friendly, cleantech solution that can
significantly reduce carbon emissions in larger
applications. Depending on usage, it may not need
to draw from power grids to recharge itself. It
eliminates up to 30 percent of the highly toxic heavy
metal contained in typical batteries and—by
doubling battery life—cuts in half the number of
batteries discarded in landfills.
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communications between EPA managers and staff (e.g., the SETO and RTAs) and
venture capitalists about existing laws and their impact on technology development could
be beneficial. Further, they thought that alerting EPA managers and staff to venture
capital investment considerations might encourage the Agency to better understand
commercialization opportunities for environmental technologies. Some interviewees
offered to meet with EPA managers and staff in Washington, DC, during their periodic
visits to the area to discuss venture capital investments in clean technologies.
Co-Sponsor an "Entrepreneur-in-Residence" Program at EPA Laboratories—
Several interviewees suggested that EPA review the DOE NREL and MIT Entrepreneur-
in-Residence (EIR) programs for possible application in the EPA labs. Potential "pools"
of entrepreneurs could be identified and vetted through partnerships with private-sector
organizations. Supporting private-sector organizations for EIR partnership could include:
non-profit organizations such as the New England Clean Energy Council; venture capital
"Government Partnering with Venture Capitalists to Commercialize Technology
from Federal Laboratories"
On February 27, 2008, DOE announced the competitive selection of three venture capital firms to participate in its newly
established Entrepreneur-in-Residence (EIR) pilot program, which aims to accelerate deployment and commercialization of
advanced clean energy technologies from three DOE national laboratories into the global marketplace. The EIR pilot
program provides venture capital-sponsored entrepreneurs with access into three of DOE's national laboratories to
accelerate adoption of advanced renewable energy and energy efficient technologies to fundamentally transform how the
nation is powered. DOE is leveraging private-sector expertise in new ways to capitalize on cutting-edge technologies that are
ripe for commercialization.
The EIR pilot program involves placing venture capital-sponsored and selected entrepreneurs in three of DOE's national
laboratories to identify laboratory-developed technologies funded by DOE's Office of Energy Efficiency and Renewable
Energy, and to develop business cases for their commercialization. DOE has selected Kleiner, Perkins, Caufield & Byers in
Menlo Park, California, to work with DOE's National Renewable Energy Laboratory, ARCH Venture Partners in Chicago,
Illinois, to work with DOE's Sandia National Laboratory, and Foundation Capital in Menlo Park, California, to work with
DOE's Oak Ridge National Laboratory. Each laboratory will host one entrepreneur-in-residence for an initial period of 1
year, and DOE will support this work by providing up to $100,000 for each entrepreneur to help defray salary and other
expenses. Each firm will match DOE funding and may contribute additional funds to support its entrepreneur's work. Using
their vast business expertise, the selected firms will be permitted to give proven start-up entrepreneurs the opportunity to
work directly with laboratory staff for a hands-on look at various, commercially viable technologies. Entrepreneurs will
conduct technology assessments, evaluate market opportunities, formulate preliminary business cases, and propose
business structures in an effort to bring cutting-edge technologies to market.
Upon selecting a technology for commercialization, entrepreneurs-in-residence and their venture capital sponsors would
negotiate a license to use the laboratory-developed technology. Working with their respective entrepreneur, the venture
capital sponsors will form and finance a start-up business based on the licensed technology. The foundation of each start-
up's business plan would be the commercialization of licensed clean energy technologies.
To further accelerate the commercialization process, the EIR pilot program seeks to utilize a Standard License Agreement-
built off the structure of successful university licenses—that is tailored for entrepreneurs and small businesses. The
Standard License Agreement includes a provision that would permit the EIR to offer partial ownership of the start-up
company as full or partial payment for the license. This provides the opportunity for a start-up company to use its initial
resources to grow the company rather than to make substantial up-front cash royalty payments.
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firm(s); or national trade associations such as the National Venture Capital Association,
the National Association of Small Business Investment Companies, and others.
-Y- Broker Partnerships Between DOE and EPA or EPA and the Small Business
Administration (SBA) on Technology Development Issues—Several interviewees
noted that their portfolio companies have already "spun out" technologies from DOE
national laboratories and in some cases combined innovative technologies across
laboratories or "brought innovative technology ideas" into national laboratories for
investigation. Venture capital firms could broker technology concepts between DOE and
EPA laboratories and possibly co-fund development of these technology demonstrations.
The SBA has licensed Small Business Investment Companies (SBICs) for over 50 years.
Although no interviewees were SBIC-affiliated firms, officials from these firms through
their trade association—the National Association of Small Business Investment
Companies (NASBIC)—might be able to identify environmental technologies of mutual
interest between SBA and EPA.
-Y- Invite EPA Officials to Visit Environmentally Beneficial Venture Capital Sponsored
Technology Demonstrations—Several interviewees had portfolio companies that were
developing innovative environmental technologies or technologies that were being
commercialized based on prototypes developed at DOE national laboratories or academic
institutions. Visits of EPA experts to these portfolio companies could offer the Agency
an opportunity to review these technologies and give EPA officials examples of how
similar technology demonstrations might be conducted based on EPA sponsored
prototypes.
-Y- Volunteer to Participate on EPA Advisory Boards and Committees—Several venture
capitalists acknowledged that they actively serve on advisory boards for DOE national
laboratories. These interviewees also expressed interest in serving on EPA advisory
boards to provide advice to the Agency on how EPA can encourage venture capital
investment in promising environmental technologies. Venture capital representatives also
could make presentations to Agency offices, boards, work groups, etc., concerning
actions EPA can take to encourage investment in environmental technology.
-Y- Identify Models for EPA Officials to Consider to Address High Priority
Environmental Problems—Interviewees argued for EPA to consider market
mechanisms, with regulators and investors working together, to address high priority
environmental problems like climate change. One successful model that was cited was
the joint meetings among the California Environmental Protection Agency (CalEPA), the
California Public Utilities Commission (CPUC), and CalPERS that have been conducted
for the past 2 to 3 years to address California energy and environmental issues.
-Y- Invite EPA Officials to Speak at Cleantech Conferences, Forums, and Meetings—
Several interviewees said that EPA officials have been noticeably absence from cleantech
activities. National trade association meetings and regional venture capital or investor
forums may offer opportunities for Agency representatives to make presentations and/or
routinely participate in networking activities.
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San Francisco, CA, and Boston, MA, are the two most active U.S. regions in cleantech
investments. Six of the nine interviewees had offices in one or both of these locations
and routinely participated in local venture capital forums and conferences.
Review and invest in EPA Small Business Innovation Research (SBIR) Program
Technologies—Nearly all of the interviewees were familiar with the federal SBIR
Program. Although none of the interviewees had portfolio companies that
commercialized an SBIR technology, several interviewees expressed interest in
reviewing EPA's SBIR-sponsored technologies.
The venture capital community also could advertise through its networks SBIR
solicitations and awards, as well as potentially advise SBIR recipients where additional
funding may be available. Venture capital representatives also expressed interest in
serving on an EPA advisory committee on SBIR activities.
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V. Next Steps -Work Group Recommendations
A common, notable theme among the venture capital investors interviewed is that there is a
growing interest in environmental technologies, spurred by awareness of global issues such as
climate change and the diminishing sources, high costs, and environmental consequences of
carbon-based energy. Also of concern are the decreasing availability and increasing costs of
other essential resources such as clean water. An expanded interest in environmental
responsibility stimulates interest and awareness of new technologies, and the global marketplace
increasingly strives to recognize the business as well as social costs of negative environmental
consequences.
Many individual and institutional investors are seeking opportunities to invest in the growing
environmental technology sector. There is a vast amount of capital available for investment.
Returns on investment, however, still must compete with other investment options. Therefore, it
is critical to investors that areas of investment risk—often based on regulatory uncertainty and
unpredictability—be identified and reduced.
Horizons for investment contemplate long-term potential for the technology, and a
predictable forecast of the regulatory environment is essential to reduce uncertainty. Moreover,
the new challenges that will be solved by emerging technologies often require a new regulatory
framework. Delays in establishing that regulatory framework impede investment in new
technology by perpetuating the risk of an uncertain, unpredictable market.
For these reasons, effective stimulation and adoption of new technology requires timely
regulatory action. EPA must accelerate its engagement with new technology developers and
investors, and commit to a credible, long-term advocacy of new technology.
The venture capitalists interviewed in this study and the Work Group members identified
some specific actions that EPA and the venture capital community can take to stimulate early-
stage investment and improve the promotion and adoption of new technology.
It is important that the Agency initiate action promptly to signal its commitment to
stimulating and supporting the development of new technology solutions. Some low-cost but
highly visible actions could have immediate impact and result in immediate gains. Others will
require a long-term commitment by the Agency. Some of the recommendations will require
funding, while others depend on leveraging the Agency's regulatory authority or its cumulative
technical and scientific know-how to influence the market and investors. The Environmental
Technology Subcommittee urges EPA and the venture capital community to consider the
following recommendations and take timely action to implement them.
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A. Recommendations for EPA
Key Recommendations
1. Recognize carbon dioxide, greenhouse gases, and climate-change related pollutants
as pollutants that are addressed in Goal 1 of EPA's Strategic Plan (Clean Air and
Global Climate Change*) and take priority measures within EPA's authority to
establish standards and long-term regulations for these pollutants, thereby signaling
to investors the predictability and certainty deemed necessary to drive the market
for environmental technologies.
a. Establish a clear regulatory framework for carbon dioxide, greenhouse gases, and
climate change-related technologies.
b. Include in the Strategic Plan a focus on technology objectives that address
environmental consequences related to climate change.
c. Host a Climate Change Technology Symposium with regulators and investors to
discuss new technology solutions to the environmental challenges of climate
change.
d. Publish long-term regulatory outlooks for other emerging technologies in such
market segments as alternative energies, nanotechnology, and pharmaceutical s.
2. Forge and sustain communications with the early-stage investment community.
a. Host a recurring event for venture capital investors to meet with senior EPA
officials, including the EPA Administrator, the Assistant Administrator for
Research and Development, the EPA Science Advisor, the EPA Laboratory/Center
Directors, the Senior Environmental Technology Officer, and the Regional
Environmental Technology Advocates, and announce EPA's commitments to
developing new technologies to solve environmental problems.
b. Host open, accessible events that facilitate communication and dialogue among
aspiring technology developers, investors, EPA, other regulatory bodies, and
partners and reflect EPA objectives.
c. Encourage headquarters program and regional office officials to attend investor
and new technology events sponsored by organizations such as:
^ Angel Capital Association
^ National Venture Capital Association
^ National Association of Seed and Venture Funds
^ National Business Incubator Association
d. Encourage EPA managers, scientists, and engineers at all levels to engage with
new technology developers and investors, including personal visits to early-stage
firms, particularly those developing and commercializing technologies funded by
venture capitalists.
* "Protect and improve the air so it is healthy to breathe and risks to human health and the environment are reduced. Reduce
greenhouse gas intensity by enhancing partnerships with business and other sectors." Goal 1. Clean Air and Global Climate
Change. U.S. Environmental Protection Agency. 2006-2011 Strategic Plan: Charting Our Course. EPA-190-R-06-001.
2006. Washington, DC. Available: http://www.epa.gov/ocfo/plan/plan.htm
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e. Establish a Technology Investment Advisory Board, as an independent advisory
body or a standing committee of NACEPT or the EFAB.
f. Encourage the Environmental Technology Council and Action Teams to invite the
investment community to participate in discussions of desired technologies.
3. Strengthen financial support (e.g., loan guarantees, grants, revolving loan funds)
and reduce regulatory risks for new technology development during the
commercialization period.
a. Fully fund the SBIR Program beyond the mandatory 2.5 percent of the R&D
budget level and include an additional 1 percent for commercialization support.
Also encourage co-funded SBIR grants with other federal agencies.
b. Establish closer SBIR partnering relationships among EPA program and regional
offices to share financial and technical support for adoption of SBIR technologies.
c. Increase the funding and scope of EPA's Environmental Technology Verification
Program.
d. Implement flexible enforcement requirements that allow use of emerging new
technologies that have been verified under EPA's ETV Program.
e. Provide loan guarantees to new technology companies.
f. Increase EPA laboratory research funding by 20 percent annually and designate
this funding to specifically support technologies that can be commercialized.
g. Offer research grants to colleges and universities to pursue commercialization of
technical solutions to solve specific EPA technology challenges.
h. Substantially increase the number of CRADAs that EPA laboratories establish
with private-sector partners. Fund grants for demonstration, pilot testing, and
initial commercial deployment of technologies related to addressing climate
change concerns.
4. Take steps to streamline permitting for commercial scale-up of new, innovative
environmental technologies.
a. Issue policy for streamlining the permitting process for commercial scale-up of
new, innovative environmental technologies to encourage capitalization for taking
these new clean technologies to commercial scale. During this commercialization
phase, streamlined permitting and consistent enforcement become increasingly
important.
b. Seek opportunities to work with regions, states, tribes, and municipalities to pilot a
streamlined permitting process to address priority problems. Such an approach was
used by Region 1's Center for Environmental Industry and Technology in
collaboration with the Interstate Technology and Regulatory Council to address
septic systems, arsenic removal technologies, and site characterization.
5. Enforce environmental regulations consistently, to clarify needs and avoid
uncertainty.
a. Establish long-term regulations to reduce regulatory risk in a timely manner.
When environmental regulations are reliably enforced, investors are able to gauge
the potential market for new technology penetrations.
b. Maintain a vigorous enforcement policy and drive technology through laws and
regulations; this reduces uncertainty in the marketplace.
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6. Support metrics and monitoring of new technologies.
a. Develop an EPA capability to verify the effectiveness of new environmental
technologies.
b. Develop an EPA capability to verify the effectiveness of clean technologies;
objectively validate the net environmental benefit of a technology adoption.
c. Expand and promote the Environmental Technology Verification Program.
d. Implement a recognition program for technologies that are successfully validated
in a metrics and monitoring program, and/or are successfully validated by EPA's
ETV Program.
Additional Recommendations
The following additional recommendations will further spur EPA support for environmental
technology development and commercialization.
1. Establish and promulgate management and policy changes within EPA to
encourage internal support for new technology development.
a. Publicly announce appointments of the EPA Senior Environmental Technology
Officer and Regional Environmental Technology Advocates.
b. Use internal and external communication mechanisms to recognize successful
technology adoptions throughout EPA.
c. Encourage the Environmental Technology Council and Action Teams to invite the
investment community to participate in discussions about technology development
and commercialization issues.
d. Recognize and reward EPA employees responsible for solving environmental
problems through successful new technology applications.
e. Create incentives for EPA research laboratories to support the development and
commercialization of environmental technologies arising from EPA research.
2. Increase public advocacy for new technology.
a. Announce EPA interests to identify possible technology solutions to address high-
priority environmental problems. Publish and maintain an active list of specific
problems for which new technology solutions are sought.
b. Establish policy advocating support for innovative technology approaches to solve
the most critical environmental problems.
c. Publicly advocate for new technologies that solve environmental problems;
communicate the sense of urgency for new technologies development and use.
d. Use the EPA Science Forum as an opportunity to review new technology
initiatives and to recognize EPA staff and partners for technology achievements.
e. Create a public electronic database of successful new environmental technologies.
f. Establish a Web-based "clearinghouse" or database that serves as a referral service
for technology investment opportunities and challenges.
g. EPA should provide technical and economic information so that companies can
overcome the initial hurdles to investing in innovative technologies. EPA also
should provide technical and economic information so that investors do not
overinvest in a particular technology.
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3. Use collaborative relationships and partnerships to further public funding and
private investment in technology development.
a. Increase collaborative technology development programs by active partnerships
with federal agencies, states, tribes, and other stakeholder organizations, including
industry organizations.
b. Work with federal and state agencies to provide access and support for technology
demonstrations and pilot programs on federal facilities, including military facilities
being converted for other uses through the Base Realignment and Closure (BRAC)
program.
4. Model EPA technology support activities after other successful programs.
a. Adopt technology development programs demonstrated effective by the DOE
national laboratories.
b. Address Intellectual Property Rights issues for government researchers. The
government should find some way to allow these researchers to share in invention
royalties.
c. Link EPA laboratories with business incubators, other entrepreneurial development
organizations, and the investment community.
d. Open EPA laboratories to visits by venture capitalists to allow them to learn about
technology developments and establish a relationship that could result in future co-
investments.
e. Establish an Entrepreneur-in-Residence program at EPA laboratories similar to
that underway at three DOE national laboratories.
f. Investigate and coordinate with technology development and investment programs
in other countries and consider adopting the most successful approaches to
improve technology development in the United States.
5. Clearly state technology development and commercialization objectives.
a. Include technology development objectives in the EPA Strategic Plan as well as
the Agency's other plans.
B. Recommendations for the Venture Capital Community
1. Collaborate with EPA to establish metrics and monitoring strategies for new
technologies to measure and document demonstrated actual performance of these
technologies.
a. Consider metrics and monitoring measurements to document the effectiveness of
new technologies.
b. Collaborate with EPA to see that the performance measurements address metrics
that are related to anticipated regulations and standards.
2. Participate in environmental technology verification programs and EPA-supported
metrics and monitoring programs.
a. Consider EPA SBIR-sponsored technologies for potential investments.
b. Use industry and investment community networks to promote SBIR solicitations
and awards, and advise SBIR recipients where additional funding may be
available.
c. Serve on an EPA advisory committee focused on SBIR activities.
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d. Encourage investment companies to participate in EPA's Technology Verification
Program.
e. Collaborate with EPA to develop and implement metrics and monitoring programs
relevant to new technologies.
3. Encourage communication and interaction among technology developers, investors,
and EPA.
a. Sponsor Entrepreneur-in-Residence (EIR) programs for possible application in the
EPA laboratories. Potential "pools" of entrepreneurs could be identified and
vetted through partnerships with private-sector organizations.
b. Support private-sector organizations for EIR partnerships, which could include:
non-profit organizations such as the New England Clean Energy Coalition, venture
capital firm(s), or national trade associations such as the National Venture Capital
Association, the National Association of Small Business Investment Companies,
and others.
c. Alert EPA officials to venture capital investment considerations to better
understand commercialization opportunities for environmental technologies.
d. Meet with the Senior Environmental Technology Officer (SETO) and other EPA
officials in Washington, DC, to discuss venture capital investments in clean
technologies.
e. Meet with the EPA Regional Technology Advocates and other regional officials to
maintain mutual awareness of new technologies.
f Invite EPA officials to visit environmentally beneficial venture capital sponsored
technology demonstrations.
g. Invite EPA officials to participate in investment organization conferences and
events, h. Participate in EPA advisory boards, councils, and committees.
4. Provide opportunities for EPA to financially support promising new environmental
technologies through existing and new financial support programs.
a. Propose loan guarantees or grant approaches that would enhance investments in
environmental technologies.
b. Encourage firms to seek funding support through EPA's SBIR Program and
verification support through EPA's ETV Program.
c. Introduce EPA to market mechanisms that would allow regulators and investors to
work together to address high-priority environmental problems (e.g., the joint
meetings among the California Environmental Protection Agency (CalEPA), the
California Public Utilities Commission (CPUC), and CalPERS that have been
conducted for the past 2 to 3 years to address California energy and environmental
issues).
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Appendix A: Venture Capital Work Group Members
Work Group Members from the Environmental
Technology Subcommittee
Phil Helgerson, Subcommittee and Work Group
Chair
Computer Sciences Corporation
1201 M Street, SE, Suite 400
Washington, DC 2003
Tel: 202-675-8543
Fax: 202-547-5891
E-mail: phelgerson@csc.com
Dan Watts, Ph.D., NACEPT Council Liaison
Executive Director
Otto H. York Center for Environmental
Engineering & Science
New Jersey Institute of Technology
University Heights
Newark, NJ 07102-1982
Tel: 973-596-3465
E-mail: watts@njit.edu
John Hornback
Executive Director
Metro 4, Inc. and Southeastern States Air
Resource Managers, Inc.
526 Forest Pkwy, Ste F
Forest Park GA 30297-6140
Tel: 404-361-4000
Fax:404-361-2411
Cell: 770-605-3059
E-mail: hornback@metro4-sesarm.org
Robin Newmark, Ph.D.
Director, External Relations
Global Security Principal Directorate
Lawrence Livermore National Laboratory
L-640 PO Box 808
7000 East Ave, Livermore, CA 94550
Tel: 925-423-3644
Fax: 925-423-6305
E-mail: newmarkl@llnl.gov
Karen Riggs
Battelle Memorial Institute
Advanced Monitoring Systems Center
Columbus, OH
Tel: 614-424-7379
E-mail: riggsk@battelle.org
Work Group Members Not from the Environmental
Technology Subcommittee
R. Andrew de Pass
Managing Director & Head of Sustainable
Development Investments
Citi Alternative Investments
731 Lexington Avenue, 27th Floor
New York, NY 10022
Tel: 212-783-1106
E-mail: r.andrew.depass@citi.com
Bryan Martel
Managing Partner
Environmental Capital Group LLC
355 Crown Point Circle, Suite D
Grass Valley, CA 95945
Tel: 530-274-1191
E-mail: bryan@environmentalcapitalgroup.com
Frank McGrew, IV
Managing Director
Morgan Joseph & Company, Inc.
102 Woodmont Boulevard, Suite 450
Nashville, TN 37205-2287
Tel: 615-238-2308 (office)
615-364-3720 (cell)
Fax: 615-238-2301
E-mail: FMcGrew@morganjoseph.com
John Preston
Senior Lecturer
MIT Entrepreneurship Center
One Amherst Street, E40-196
Cambridge, MA 02142
Tel: 508-324-6411 (office)
617-306-5759 (cell)
Fax: 508-324-6401
E-mail: preston@mit.edu
John Wise, EPA Environmental Financial
Advisory Board (EFAB) Liaison
205 91 Honey Hill Rd
Hidden Valley Lake, CA 95467
Tel: 510-501-5374 (cell)
707-987 -3742 (home)
E-mail: jcwise@mchsi.com
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EPA Staff
Mark Joyce, Designated Federal Officer
Associate Director
Office of Cooperative Environmental
Management
U.S. Environmental Protection Agency (1601M)
1201 Constitution Avenue NW
Washington, DC 20004
Tel: 202-564-2130
Fax: 202-564-8129
E-mail: joyce.mark@epa.gov
Paul Shapiro, Project Officer
Senior Environmental Engineer
National Center for Environmental Research
Office of Research and Development
U.S. Environmental Protection Agency (8722F)
1200 Pennsylvania Avenue, NW
Washington, D.C. 20024
Tel: 202-343-9801
Fax: 202-233-0678
E-mail: shapairo.paul@epa.gov
Sally Gutierrez
Director
National Risk Management Research Laboratory
Office of Research and Development
U.S. Environmental Protection Agency
(MC 235)
26 West Martin Luther King Drive
Cincinnati, OH 45268
Tel: 513-569-7683
E-mail: gutierrez.sally@epa.gov
Teresa Harten
Chief, Environmental Technology Assessment
and Verification Staff
National Risk Management Research Laboratory
Office of Research and Development
U.S. Environmental Protection Agency (MC
208A)
26 West Martin Luther King Drive
Cincinnati, OH 45268
Tel: 513-569-7565
E-mail: harten.teresa@epa.gov
Maggie Theroux
Environmental Technology Assessment and
Verification Staff
National Risk Management Research Laboratory
Office of Research and Development
U.S. Environmental Protection Agency (SPP)
Tel: 617-918-1613
E-mail: theroux.maggie@epa.gov
Support Contractor—Scientific Consulting Group, Inc.
Beverly Campbell
President
The Scientific Consulting Group, Inc.
656 Quince Orchard Road, Suite 210
Gaithersburg, MD 20878
Tel: 301-670-4990
Fax: 301-670-3815
E-mail: bcampbell@scgcorp.com
Gregory Ondich, Ph.D.
The Scientific Consulting Group, Inc.
656 Quince Orchard Road, Suite 210
Gaithersburg, MD 20878
Tel: 301-670-4990
Fax: 301-670-3815
E-mail: gondich@scgcorp.com
Andrew Paterson
Director, Economics & Finance Consulting/
North America
Econergy International
1850 M Street, Suite 1050
Washington, DC 20007
Tel: 202-822-4980x311 (office)
619-807-3267 (cell)
Fax: 202-822-4986
E-mail: adpaterson@econergy.com
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Appendix B: Charge to the Work Group
Charge to the Venture Capital Work Group of
the NACEPT Subcommittee on Environmental Technology
I. Reasons for the Study
The Subcommittee in its first report, EPA Technology Programs andIntra-Agency
Coordination, May 2006, which can be found on www.epa.gov/etop, developed the EPA
Environmental Research and Development Continuum. The Continuum shows that EPA does
not have programs that support the commercialization of technology. This means that
environmental technologies developed by EPA and by others with and without EPA support
must largely rely on funding from the private sector if they are to be commercialized and used to
protect public health and the environment.
In its second report, EPA Technology Programs: Engaging the Marketplace, May 2007, also
available on the ETOP, the Subcommittee emphasized the need for EPA to partner with outside
organizations to develop and commercialize environmental technologies, and to help put them
into use. This means that EPA should work with the private sector to find ways to increase
investment in the commercialization of environmental technologies.
As a result, EPA wants to open communication with the investment community to get its
advice on actions that EPA and the investment community could take and partnerships they
could create to achieve the goal of greater private sector investment in the commercialization of
environmental technologies over the long-term.
II. Content of the Study
The study should address the following questions:
A. Current Investment Practices. What is the nature of current private sector investment in
environmental technology? Who are the investors? How do they differ in their investments?
How much are they currently investing? How do investors and developers find each other?
How do investors manage their investments? How do they judge the success of their
investments? Give examples of successful investments by different types of investors in
environmental technology.
B. Future Investment. What are the prospects for investment in environmental technology in
the future? What are the determinants of this prospective future? What sectors or applications of
environmental technology will be likely to attract investment and why? What is the likely
magnitude of these investments? Are there likely to be new or improved mechanisms to help
investors and developers find each other? What is hindering and helping the development of
dedicated environmental funds? What could industry do—either by itself or with EPA as a
partner to enhance investment in environmental technology?
C. Current EPA Role. To what extent and how is EPA a factor in current investment
decisions? When have EPA regulations helped and hindered investment (give examples)? Do
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EPA voluntary programs lead to investment (give examples of those that work)? What is the
role of technology assessment and verification in making investment decisions? To what extent
is there contact with EPA—e.g., Regional Offices, program offices, research office—and for
what purposes? To what extent are investors aware of EPA-developed technologies? How do
they find out about them? What is EPA doing that helps and hinders investment in those
technologies? Does the industry have successful interactions with other Federal agencies from
which EPA could learn? Do those Agencies have programs or policies that EPA could emulate
or partner with? If so, what are they and how could EPA best make use of them?
D. Future EPA Role. What can EPA do to make investment in environmental technology
more attractive and to facilitate that investment? Would it be helpful for EPA to communicate
its priority environmental problems? What would be the most effective and efficient
communication mechanisms between EPA and the industry—with whom and for what purposes?
Are their barriers that EPA can remove to encourage investment? Are there actions EPA can
take to facilitate investment? What kinds of long-term partnerships between EPA and the
investment community would be useful-with whom, for what purposes, and using with what
mechanisms?
III. Process for Carrying Out the Study
The Subcommittee is being asked to create a small work group consisting of members of the
Subcommittee and members of the investment community. The work group will meet by
teleconference and conduct its work by telephone and email, unless otherwise specified by EPA.
The work group members will use existing reports about investment in environmental
technology, their own experience, and contacts with knowledgeable people in the investment
community to gather, analyze, and write up contextual and background information on venture
capital investment in environmental technology. This material will inform the work group's
discussions and can be used in the work group's report both as part of the text and in an
appendix.
The work group will conduct structured interviews of no more than nine individuals who
comprise an informed group of venture capitalists and others with complementary experience
and knowledge of investment in environmental technology. The work group, with EPA support,
will design and do a limited pre-test of the questionnaire that will be used for these interviews.
The product of this work group will be a letter report to the EPA Administrator that gives
background, findings, and recommendations. It is not expected that this report will be bound,
but that will depend on its length and other considerations at the time of its completion.
It will be useful to have at least one early draft of the outline and initial information and
thoughts reviewed by the Subcommittee by January 15, 2008. The work group must complete it
final report, including obtaining Subcommittee approval, by March 30, 2008.
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Appendix C: Venture Capital Community Interviewees
T , .,.-,. ,. Capital Under
Interviewee Affiliation __r
Management
Rob Day
John DeVillars
Hank Habicht
Winston Hickox
KefKasdin
Eric McAfee
Chuck McDermott
William Reilly
Rosemary Ripley
@Ventures
BlueWave Strategies
SAIL Venture Partners
California Strategies
Battelle Ventures
Cagan-McAfee-Capital Partners
RockPort Capital Partners
Aqua International Partners/Texas Pacific Group
NGEN Partners
TOTAL CAPITAL UNDER MANAGEMENT
$100 million
$2 million
$170 million
Not Applicable
$220 million
$500 million
$3 86 million
$1,500 million
$250 million
$3.13 billion
Interviewee Biographical Sketches
Rob Day, Principal, @Ventures (www.ventures.com)
Rob Day, joined ©Ventures in 2007, and operates out of the company's Boston-area office.
He currently holds an observer seat on the boards of Powerit Solutions and M2E Power.
Prior to joining the @Ventures team, Mr. Day was an investor with Expansion Capital
Partners for more than 2 years, where he was an investment principal responsible for various
aspects of that firm's clean technology venture capital activities, including investments in Tiger
Optics, SensorTran, and Orion Energy Systems.
Mr. Day was formerly a consultant with Bain & Company, where he worked with companies
and evaluated private equity transactions in the energy/utilities, telecommunications, information
technology, health care, and retail industries. Earlier in his career, Mr. Day was a founding
member of the World Resources Institute's Sustainable Enterprise Program, where he developed
partnerships with companies across a wide range of industries to foster new business
opportunities with economic, environmental, and social benefits.
Mr. Day is the co-author of The Next Bottom Line: Making Sustainable Development
Tangible, co-leads the Renewable Energy Business Network (www.rebn.org), and authors the
Web site Cleantech Investing (www.cleantechvc.com). Mr. Day also serves on the boards of the
New England Clean Energy Council and GreenTech Media. Mr. Day received his M.B.A. at
Kellogg Graduate School of Management (Northwestern University), and his B.A. at
Swarthmore College.
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John DeVillars, Partner, BlueWave Strategies (www.bluewavestrategies.com)
John DeVillars is a Founder and Partner of BlueWave Strategies and Managing Partner of its
affiliated investment group, BlueWave Capital. He currently advises Brownfield developers and
environmental and renewable energy companies in the areas of project management, financing
and capital sourcing, regulatory approvals, community and government relations, and business
development.
From 2000 to 2003, Mr. DeVillars served as the Executive Vice President of Brownfields
Recovery Corporation, a Boston-based real estate investment and development company that
focuses on environmentally impaired properties. From 1994 to 2000, he served as the New
England Administrator of the U.S. Environmental Protection Agency. Previously, Mr. DeVillars
served as Secretary of Environmental Affairs for the Commonwealth of Massachusetts,
Chairman of the Board of the Massachusetts Water Resources Authority, and Chief of
Operations for Massachusetts Governor Michael Dukakis. From 1991 to 1994, he was Director
of the Environmental Services Group for Coopers & Lybrand, where he initiated and led the
firm's environmental management systems group.
Mr. DeVillars holds an M.P.A. from Harvard University and a B.A. from the University of
Pennsylvania. He serves on the Board of Directors of Clean Harbors, Inc., and the
Massachusetts Environmental Trust as well as several other privately held energy and
environmental corporations and nonprofit organizations.
Hank Habicht, Managing Partner, SAIL Venture Partners (www.sailvc.com)
Hank Habicht joined SAIL Venture Partners in 2005 and works in the company's
Washington, DC office. Mr. Habicht is the Chief Executive Officer for the Global
Environmental & Technology Foundation (GETF), a 501(c)3, not-for-profit corporation that
fosters innovation in environmental management and applications of clean technology that make
business and environmental sense. He is the Co-founder and Principal in Capital E, LLC, a
management consulting firm that works with energy technology companies in areas such as solid
oxide fuel cells, photovoltaic modules, combined heat and power projects, and bio-energy plants.
Previously, Mr. Habicht was Senior Vice President of Safety-Kleen, and served as Deputy
Administrator and Chief Operating Officer at the U.S. Environmental Protection Agency. He is
a co-founder of the American Council on Renewable Energy and an advisor to the Secretary of
the U.S. Department of Energy. Mr. Habicht received his bachelor's degree from Princeton and a
law degree from the University of Virginia.
Winston Hickox, Partner, California Strategies, LLC (www.calstrat.com)
Winston Hickox joined California Strategies, LLC, as a Partner in 2006. He has extensive
experience in environmental policy and regulation as well as public finance, including pension
fund investment management. His state environmental policy experience includes 5 years as
Secretary of the California Environmental Protection Agency (CalEPA); 7 years as a Special
Assistant for Environmental Affairs to California Governor Jerry Brown; and 2 years as an
alternate to the California Coastal Commission, appointed by the California Speaker of the
Assembly.
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Mr. Hickox recently completed a 2-year assignment with the California Public Employees'
Retirement System (CalPERS) Investment Office where he assisted with the design and
implementation of a series of Environmental Investment Initiatives in the Private Equity, Real
Estate, Global Public Equity, as well as Corporate Governance segments of the fund's $211
billion investment portfolio. In 2004, he was elected to the boards of Audubon California and
Sustainable Conservation. In 1998, the Sacramento County Board of Supervisors appointed him
to the Board of the $5 billion Sacramento County Employees' Retirement System (SCERS); he
was recently appointed to another 3-year term.
From 1987 to 1996, Mr. Hickox was a Managing Director and Partner with LaSalle
Investment Management, a major force in the world's real estate capital markets, and at that time
the largest manager of CalPERS real estate assets.
Kef Kasdin, General Partner, Battelle Ventures (www.battelleventures.com)
Kef Kasdin is a General Partner at Battelle Ventures and Innovation Valley Partners, where
she focuses primarily on investments in communications and emerging energy technologies. She
currently serves on the Boards of Directors of Aldis, Inc.; Multispectral Imaging, Inc.; Planar
Energy Devices, Inc.; and Rajant Corp.
Ms. Kasdin has been involved in developing and executing strategy for high-technology
companies for more than 20 years. In the 1990s, she held a number of positions of increasing
importance at 3Com Corporation in Santa Clara, California. Among the titles she held at 3Com
were: Vice President of Marketing, Desktop Products Division and Vice President and General
Manager of the $1-billion Ethernet Products Division. In the fall of 1998, Ms. Kasdin was named
3Com's first Executive in Residence, Office of the Chairman, driving key strategic and
operational initiatives for the company.
At the close of the decade, Ms. Kasdin moved to New Jersey and was a business and
marketing consultant to a dozen technology start-ups. One of her key clients was Sarnoff
Corporation, where she worked closely with senior executives to identify spinout opportunities
and areas for future investment.
Early in her career, Ms. Kasdin was a consultant with Booz, Allen and Hamilton in San
Francisco, California. She received a B.S.E degree in Operations Research from Princeton
University in 1985, and an M.B.A. from the Graduate School of Business, Stanford University,
in 1989.
Eric McAfee, Managing Director, Cagan McAfee Capital Partners (www.cmcp.com)
Eric McAfee is an entrepreneur, venture capitalist, and merchant banker, who has founded 11
companies in renewable energy, oil and gas, networking, and software. During the past 9 years,
he has invested in more than 20 companies through Berg McAfee Companies, a holding
company. Mr. McAfee is the founding shareholder of six companies that were taken public, and
also took five of the Cagan McAfee portfolio companies public via merger. The aggregate value
of public companies Mr. McAfee has founded or participated in building is in excess of $4
billion measured by combined high market capitalizations.
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AE Biofuels is an example of Mr. McAfee's involvement in clean technology development.
He is the Founder, Executive Chairman, and former Chief Executive Officer of AE Biofuels, an
ethanol and biodiesel company focused on the development of 2 billion gallons of ethanol
production in Nebraska and Illinois, and 800 million gallons of biodiesel production in the
United States and India. AE Biofuels was founded by Mr. McAfee in 2005 and taken public in
mid-2006.
In 1986, Mr. McAfee graduated as the Dean's Medalist from the Fresno State University
(FSU) Business School. He lectured as the 2001 Entrepreneur-in-Residence at FSU and earned
the Business School Alumni of the Year Award in 2002. Mr. McAfee is a 1993 graduate of the
Stanford Graduate School of Business Executive Program, and completed the Harvard Business
School Private Equity and Venture Capital Program.
Chuck McDermott, General Partner, RockPort Capital Partners (www.rockportcap.com)
Chuck McDermott began working in the energy and environmental area in 1984, when he
joined Citizens Energy Corporation as Manager of Project Development, helping to pioneer the
creation of the nation's first bulk electric power trading company. He later served as Campaign
Director and then as Chief of Staff for a U.S. Congressman from 1986-1990, directing all
political, constituent, and legislative matters. In 1990, Mr. McDermott joined the government
relations staff of Waste Management, Inc., the world's largest environmental services company,
and was made Vice President and Corporate Officer in 1993 responsible for the company's
federal advocacy before the White House, U.S. Congress, and federal agencies. He relocated to
Boston in 1998, and helped form RockPort's Merchant Bank in that year and the venture fund in
2001.
He currently serves on the Boards of Directors of Advanced Electron Beams, Renaissance
Lighting, Soliant Energy, and Tioga Energy. He also is a Member of the Board of Directors and
President of the Coalition to Advance Sustainable Technologies, a member of the Board of
Advisors to the Cleantech Venture Network, Chairman of the Gridwise Alliance, and Board
Member of the Flax Trust, a business incubator in Belfast, Northern Ireland.
Mr. McDermott studied at Yale University before becoming a producer, performer, writer,
and music company executive, recording three albums, and founding Homecoming Records with
John Stewart in 1982.
William Reilly, Founding Partner, Aqua International Partners
(www.texaspacificgroup.com)
William K. Reilly is a Founding Partner of Aqua International Partners, LP, a private equity
fund dedicated to investing in companies engaged in water and renewable energy, and a Senior
Advisor to TPG Capital, LP, an international investment partnership. Mr. Reilly served as the first
Payne Visiting Professor at Stanford University (1993-1994), Administrator of the U.S.
Environmental Protection Agency (1989-1993), President of the World Wildlife Fund (1985-
1989), President of The Conservation Foundation (1973-1989), and Director of the Rockefeller
Task Force on Land Use and Urban Growth from (1972-1973). He was head of the U.S.
delegation to the United Nations Earth Summit at Rio in 1992.
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Mr. Reilly is Chairman Emeritus of the Board of the World Wildlife Fund, Co-Chair of the
National Commission on Energy Policy, Chair of the Advisory Board for the Nicholas Institute for
Environmental Policy Solutions at Duke University, Chair of the Board for the Global Water
Challenge, and a Director of the Packard Foundation, the American Academy in Rome, and the
National Geographic Society. He also serves on the Board of Directors of DuPont, ConocoPhillips,
and Royal Caribbean International. In 2007, Mr. Reilly was elected to the American Academy of
Arts and Sciences. He holds a B.A. degree from Yale University, a J.D. from Harvard, and an
M.S. in Urban Planning from Columbia University.
Rosemary Ripley, NGEN Partners (www.ngenpartners.com)
Rosemary Ripley was asked to be a Member of NGEN in 2007. She joined NGEN as an
Entrepreneur-in-Residence in 2006 and shortly thereafter joined the Board of EnviroTower. Ms.
Ripley brings to NGEN substantial experience in strategic planning, acquisitions, and public and
private market transactions. Responsible for corporate business development at Altria Group
(previously Philip Morris Companies) from 1990-2005, Ms. Ripley helped spearhead and
execute numerous expansionary growth plans for the operating companies. She led teams that
invested heavily in Central and Eastern Europe and Asia and transformed Kraft Foods with the
$19 billion acquisition of Nabisco and subsequent $8.5 billion initial public offering. Ms. Ripley
also developed the strategy and led the transformation of Miller Brewing Company from a
domestic business to part of an international enterprise with the merger with South African
Breweries.
Prior to joining Altria, Ms. Ripley was a Managing Director at Furman Selz, responsible for
the Retail and Consumer Group, and prior to that she was a Senior Investment Banker at L.F.
Rothschild, Unterberg, Towbin, where she also ran the Retail and Consumer Group.
Ms. Ripley has been an active individual investor for years and co-founded Circle Financial
Group, a multi-family office in 2004. Ms. Ripley received both her B.A., cum laude, and M.B.A.
at Yale University.
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Appendix D: Pre-Interview Instrument
Background & Purpose of the Study
The U.S. Environmental Protection Agency (EPA) Office of Research and Development
(ORD) wants to open communication with the investment community. Through this
communication, EPA wants to get its advice on actions the Agency and the investment
community could take and partnerships they could create to achieve greater private sector
investment in the commercialization of environmental technologies (ET) over the long-term.
EPA has charged the National Advisory Council for Environmental Policy and Technology
(NACEPT) through its Subcommittee on Environmental Technology to create a Work Group to
carry out a Venture Capital Study. The Subcommittee has previously submitted to the Agency
two reports—EPA Technology Programs and Intra-Agency Coordination (May 2006) and EPA
Technology Programs: Engaging the Marketplace (May 2007), which may be viewed at
www.epa.gov/etop. One of the key findings of the first report was that EPA has no programs
specifically directed at commercialization of innovative technologies. One of the main
recommendations of the second report was that EPA should partner with the venture capital
community to increase private sector investment in the commercialization of environmental
technology. ORD is seeking guidance for that effort through this Venture Capital Study.
Process
1. The following pre-interview instrument is divided into four parts: A. Current Investment
Practices; B. Future Investment Outlook; C. EPA Activities; and D. Open-ended
Questions. At least 3 days before the interview, we are asking each interviewee to rate
items identified under Parts A, B, and C and return these ratings by e-mail or by fax to
Andy Paterson, Econergy (contact information provided in #5 below). Part D. Open-
ended Questions are offered as guides to identify the areas that will be discussed during
the telephone interview.
2. We realize that you may have more to say in response to certain questions than others;
that is okay, we will concentrate on the ones where you are most knowledgeable. Feel
free to tell us if we have missed important issues that we should discuss with you.
3. We will make rough transcriptions of each interview. These will be for use only by
members of the Work Group. You will not be directly quoted in the Work Group report.
4. We will give you an opportunity to review the Work Group's report to see if your views
are accurately reflected; however, the report must be submitted to the Subcommittee
before March 31,2008.
5. If you have any thoughts, questions, or useful information for us before or after the
interview, please contact Andrew Paterson (Econergy) at TEL: (202) 822-4980; FAX:
(202) 822-4986; E-mail: adpaterson@econergy.com or the EPA ORD Work Assignment
Manager for this project, Paul Shapiro (EPA/ORD) at TEL: (202) 343-9801; E-mail:
shapiro.paul@epa.gov.
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Interviewee:
Name: Fund/Firm:
HQ Locale: Phone:
Capital Under Mgmt: $ million Capital Available to Invest: $ million
A. CURRENT INVESTMENT PRACTICES1
ID#
1. Overall "Attractiveness" of Environmental Technology (ET) Market Segments
Rate overall "attractiveness" for each area according to the following scale:
1 = not attractive at all; would sell out of it, and would not recommend pursuing this sector to others
2 = not as attractive as other segments; not pursuing
3 = simply on par with other technology segments we are reviewing
4 = attractive niche; distinctive market and competitive traits for venture investment
5 = very attractive segment; actively reviewing and seeking investments
Rate: General ET segments (rate "attractiveness" based on scale above)
Monitoring and assessment technologies
Pollution prevention and control
Remediation and restoration technologies
Renewable or clean energy technologies and systems
Rate: Cleantech ET subsegments, excluding energy (rate based on scale above):
Agriculture (i.e., natural pesticides, land management, and aquaculture)
Air pollution control (cleanup, emissions control, monitoring - SOx, NOx, Hg, PM)
Low carbon projects, carbon offsets, monitoring technology for CC>2, greenhouse gases
(GHGs)
Manufacturing and industrial (advanced packaging, smart or "green" production)
Materials and industrial efficiency (i.e., "nanotech", biomaterials, chemicals)
Recycling and hazardous or solid waste treatment
Water & wastewater (water treatment, conservation, and wastewater treatment).
2. Factors Affecting Attractiveness of Environmental Technology Segments
Rate using: 1 = strongly Disagree; 2=disagree; 3=maybe; 4=agree; 5=strongly Agree
Note: Factors affecting attractiveness are stated in a negative voice because the premise of the survey is that
environmental technologies historically have failed to garner significant levels of investment.
Technology Factors / Challenges
Venture capital investment in ET (versus "clean energy") lags its potential.
The EPA R&D budget is not at a level that can move ET to market effectively.
Private industry funding of R&D in ET is inadequate, limiting innovative potential.
Interaction between private industry and government environmental R&D programs and
EPA Labs for commercializing ET must be improved (e.g., more resources, better focus,
etc.).
1 Examples of cleantech or clean technologies that include both environmental and energy technology segments are
attached. This definition was created by the Cleantech Group, LLC.
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The rigor of intellectual property protection in ET, in general, lags other technology areas.
Linkage between industry and permitting is weak.
Third-party verification programs, such as the EPA ORD Environmental Technology
Verification Program, do not provide information or results that are valuable enough to
affect investment decisions.
Engineering firms as users of ET lack real incentives to promote adoption of new
technology.
ET lacks a level of "technology breakthroughs" that merit venture investment attention.
Market Factors / Challenges
Market growth for ET is low or less attractive than other venture technology sectors.
Market growth for ET is lower or less attractive relative to renewable energy deals.
While markets for upgrading water infrastructure and treatment might be promising, public
and private spending is not growing fast enough for venture financing.
Water treatment plants as customers are "risk-averse" toward new technologies.
Remediation / waste management are low growth sectors with low margins.
Management teams in ET business plans generally lack experience, especially in marketing
and manufacturing expertise, and for managing growth of new technology ventures.
Investment exit strategy for ET is more difficult than energy-related Cleantech segments.
Regulatory & Policy Factors / Challenges
A lack of new environmental legislation (e.g., Clean Air Act, RCRA) limits upside growth.
EPA's budget has been declining since 2004, reducing resources for enforcement, which in
turn has muted market growth for ET.
Big equipment makers and engineering firms hamper the pace of ET adoption by favoring
traditional, proven technologies over innovative ET.
Climate change legislation still has not been enacted, so it is not a driver yet.
Climate change legislation, if it occurs in the next five years, will provide more stimulus for
renewable energy than ET (list above).
[i.e., Of dollars invested in Cleantech, more will go into energy than into ET.]
Lack of familiarity with applications of ET technologies by federal / state regulators hinders
use.
Other:
B. FUTURE INVESTMENT OUTLOOK (Next 3 years)
1. Which of the following ET subsectors do you expect to invest in over the next 3 years?
Rate each one for "High" (5), "Medium" (3) or "Low" (1) level of investment compared to the total amount of
investment your firm expects to be making over the next 3 years.
General ET segments (rate based on scale above):
Monitoring and assessment technologies
Pollution prevention and control
Remediation and restoration technologies
Renewable or clean energy technologies and systems
Cleantech ET subsegments, excluding energy (rate based on scale above):
Agriculture (i.e., natural pesticides, land management, and aquaculture)
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Air pollution control (cleanup, emissions control, monitoring - Sox, NOx, Hg, PM)
Low carbon projects, carbon offsets, monitoring technology for CO2, GHGs
Manufacturing and industrial (advanced packaging, smart or "green" production)
Materials and industrial efficiency (i.e., "nanotech", biomaterials, chemicals)
Recycling and hazardous or solid waste treatment
Water & wastewater (water treatment, conservation, and wastewater treatment).
2. Which of the following might best promote market use or adoption of ET?
(Rate all on 1 to 5 scale, where 5 = "best", 3 = "some impact" and 1 = "least impact")
Voluntary educational campaigns for wider use of technologies (e.g., EPA, state outreach)
Corporate environmental commitments (voluntary or share-holder driven)
Expedited permitting, verification programs, or ISO Standards, for innovative ETs
Federal mandates, e.g., appliance standards, fuel requirements, water treatment regulations
Government purchasing programs for innovative "green" technologies
Federal agency funded R&D/Demos, followed by technology transfer programs with
industry
Government grants to ET technology firms for innovative devices (SBIR, R&D contracts)
Revolving loans, credit support (lower interest rates) for systems that employ ETs
Subsidies for investment, e.g., Investment Tax Credits, accelerated depreciation, R&D tax
credits
Federal subsidies for innovative technology performance, e.g., production tax credits
Taxes on traditional usage, e.g., taxes on fossil fuels or GHGs, increased water rates
International collaboration programs in ET
C. EPA ACTIVITIES
Which of the following EPA programs, policies or actions provide value added information
for ET investment decisions?
(Rate all on 1 to 5 scale, where 5 = "best", 3 = "some impact" and 1 = "least impact"
Programs (such as the Diesel Retrofit Technology Verification Program) that approve
specific technologies for a given set of emission reduction credits?
Grant or other financial incentive programs that link monetary support directly to a class of
technologies?
Reports of the performance of ET such as results of a verification or demonstration in the
field in real world situations?
Technologies that have been through Phase I and II of the SBIR program where the
technology has been peer reviewed?
EPA approved analytical methods?
Training and technical support of state regulatory personnel, consulting groups or others on
what technologies are available and their efficacy?
Correspondence from EPA Program Offices to EPA Regions supporting the use of
particular classes of technologies?
Rules, regulations, technical guidance documents that specify the use of selected
technologies?
Technologies where EPA researchers have developed or helped co-develop the technology?
Others? Please specify.
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D. OPEN-ENDED QUESTIONS
1. What are the most important metrics used by your firm in evaluating environmental technology
(ET) investments?
2. What is driving ET investment - EPA activities or Private Sector activities - or both?
3. Do you think ETs have a more difficult entry and/or exit investment strategy than other clean
technologies? If so, what can be done to make it easier?
4. Are there characteristics of ET technologies and markets that need to change to attract venture
investment?
5. Which ET segments (e.g., climate change, water technologies, etc.) have the greatest potential
to generate investments in the next few years?
6. Are there "crossover" opportunities for certain technologies to support both ET and energy
technologies?
7. What can EPA do to reduce the ET investment risks?
8. What EPA activities present significant barriers to ET investment?
9. Are there some successful technology development and commercialization programs that EPA
learn from? If so, what are the programs?
10. How can EPA continue a dialogue with the investment community in the future?
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Cleantech Definition
Cleantech Segment
Example Technologies
Agriculture
Bio-based materials; farm efficiency technologies; micro-irrigation systems;
bioremediation; non-toxic cleaners and natural pesticides. Does not include
organic health food or natural health products.
Air & Environment
Air purification products and air filtration systems, energy efficient HVAC;
universal gas detectors; multi-pollutant controls; fuel additives to increase
efficiency and reduce toxic emissions.
Materials
Biodegradable materials derived from seed proteins; micro-fluidics technology
for conducting biochemical reactions; nanomaterials; composite materials;
thermal regulating fibers and fabrics; environmentally friendly solvents;
nanotechnology components for electronics, sensor applications, and energy
storage; electrochromic glass; thermoelectric materials.
Energy
Energy Generation
Distributed and renewable energy generation and conversion, including wind,
solar/photovoltaic, hydro/marine, biofuels, fuel cells, gasification technologies
for biomass, and flywheel power systems.
Energy Infrastructure
Wireless networks to utilities for advanced metering, power quality monitoring
and outage management; integrated electronic systems for the management
of distributed power; demand response and energy management software.
Energy Storage
Batteries, e.g., thin film and rechargeable; power quality regulation; flywheels;
electro-textiles.
Energy Efficiency
Energy management systems; systems that improve output of power
generating plants; intelligent metering; solid state micro-refrigeration; control
technology for HVAC systems; automated energy conservation networks.
Recycling & Waste
Recycling technologies; waste treatment; internet marketplace for materials;
hazardous waste remediation; bio-mimetic technology for advance metals
separation and extraction.
Manufacturing/Industrial
Advanced packaging; natural chemistry; sensors; smart construction
materials; business process and data flow mapping tools; precision
manufacturing instruments & fault detectors; chemical management services.
Transportation
Hybrid vehicle technology; lighter materials for cars; smart logistics software;
car-sharing; temperature pressure sensors to improve transportation fuel
efficiency; telecommuting.
Water & Wastewater
Water recycling and ultra-filtration systems (e.g., UV membrane and ion
exchange systems); sensors and automation systems; water utility sub-
metering technology desalination equipment.
Source: Jones, et al., 2007 and Parker, et al., 2007
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Appendix E: Open-Ended Questions and Sub-Questions
Venture Capital Study - Interview Instrument
NOTE: These subquestions are for the interviewers' use only.
These will not be sent to the interviewees prior to the interview.
1. What is your firm's approach to investments in this field? What are the most
important metrics used by your firm in evaluating environmental technology (ET)
investments?
- Are there specific issues for ETs that influence investment strategies?
Are there transition issues for ET companies as they advance in each round?
2. What is driving ET investment—EPA activities, private sector activities, or both?
- EPA activities such as compliance/enforcement, voluntary programs, industry
partnerships, technology assessment/verification programs?
Private sector activities such as global competitiveness, shareholder pressures,
institutional investors, sustainability, socially responsible investing?
3. Do you think ETs have a more difficult entry and/or exit investment strategy than
other clean technologies? If so, what can be done to make it easier?
How much "draw" from institutional investors are you seeing for investment
inET?
4. Are there characteristics of ET technologies and markets that need to change to attract
venture investment?
One frequently mentioned concern for cleantech, especially ETs, is the slow
rate of market utilization and adoption. Innovative cleantech companies
frequently try to sell their products upstream against competing, deeply
entrenched traditional approaches.
Is there a fundamental deficiency inherent to ET that limits the likelihood of
profitability and thus investment in this sector?
- What are the elements of ET companies, technologies, and markets that
account for less venture investing in certain years compared to investments in
other categories?
Is the level of technology advancement in ETs sufficient to attract venture
investment?
5. Which ET segments (e.g., climate change, water technologies, etc.) have the greatest
potential to generate investments in the next few years?
You rated the following categories "high" . Why ?
- What technologies should be invested in to mitigate and adapt to rapid climate
change?
What can EPA do to work with the investment community in getting climate
change-related ETs to market?
- Have you seen increases in venture capital investments into companies in the
areas of water treatment, filtration, and purification; conservation and
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efficiency; and wastewater treatment and reuse? If so, what do you believe
has driven this sustained and increased investment?
Are you aware of technology breakthroughs in this sector or other ET sectors
that merit sustained venture capital interest?
Why did you rate the following areas "low":
6. Are there "crossover" opportunities for certain technologies to support both ET and
energy technologies?
For example, combustion techniques that reduce loading of air pollutants and
also improve fuel use efficiency.
- Is there a role to play for EPA to integrate market opportunities to achieve
multiple objectives?
Are there clean energy and environmental investment differences?
7. What can EPA do to reduce the ET investment risks?
- Leadership in science and advocacy for technology?
Research and development?
Verification protocols?
- Use of EPA's grant or loan (i.e., State Revolving Fund) funds to promote/pay
for technologies?
Compliance assistance and technology promotion?
8. What EPA activities present significant barriers to ET investment?
- Regulations specifying control technologies (Effluent Guidelines, Best
Available Control Technology, New Source Performance Standards, etc.)?
Methods—sampling, analysis, and instrumentation?
- Compliance assurance and enforcement?
9. Are there successful federal and/or private sector technology development and
commercialization programs that EPA can learn from? Is so, what are the programs?
- Department of Energy?
Department of Defense (e.g., DARPA)?
National Laboratories?
University-based technology promotion offices?
Small Business Administration?
State Departments of Commerce?
Consortia and/or public-private partnerships such as SEMATECH
(SEmiconductor MAnufacturing TECHnology) and CalStart?
- Do you have any examples to suggest or experiences to share?
10. How can EPA continue a dialogue with the investment community in the future?
Having this opportunity to interview you and other senior members of the
investment community is very helpful to us. We would like to devise a way
that we could continue getting this type of advice on a regular basis.
Would creating an advisory panel consisting of senior members of the
investment community work?
- If so, how should the membership be determined?
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What are the best ways to have ongoing working relationships and
partnerships with individuals, associations, and others?
Are there conferences and/or seminars where information could be shared
between government and private sector representatives?
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Appendix F: Summary of Pre-Interview Question
Responses
Pre-Instrument Ratings (9)
The nine venture capitalists interviewed rated a series of niches and factors in the Pre-Interview
Instrument. The nine interviewees were:
Rob Day, Principal-@Ventures
John DeVillars, Founder and Partner-Blue Wave Strategies
Hank Habicht, Managing Partner-SAIL Venture Partners
Winston Hickox, Partner-California Strategies
Kef Kasdin, General Partner-Battelle Ventures
Eric McAfee, Managing Director-Cagan McAfee Capital Partners
Chuck McDermott, General Partner-RockPort Capital Partners
William Reilly, Founding Partner-Aqua International Partners/
Texas Pacific Group
Rosemary Ripley, Member-NGEN Partners
A summary of the interviewees' responses follows:
•$• Current and Future Investment Trends for Environmental Technology Segments—Clean
energy was rated highest for current and future investment. Several high profile clean energy
deals went public in 2006 and 2007, creating broader venture capital interest. EPA actions
related to air emissions and water resource impacts have a direct bearing on clean energy options.
Within environmental technology segments, "low carbon" projects drew the highest levels of
interest given heightened prospects of legislation, while back-end remediation was seen as low
growth and rated lowest.
•$• Observations About Factors that Affect Investment in Environmental Technology—
There was wide agreement that EPA's research budget was not adequate relative to the challenges
and opportunities at hand. There was some sense that improved industry and government
laboratory interaction could lead to more technologies finding their way to the marketplace. Most
interviewees view engineering firms and big equipment makers as more risk-averse to new
technologies, perhaps because they are more invested in the current approaches, and there is little
incentive to risk trying new approaches absent some elevated enforcement or new regulations.
Likewise, POTWs (sewage treatment plants) were seen as risk-averse customers with little to gain
from going beyond current regulations. Although climate change legislation could be an
interesting driver, the lack of consensus on specific measures is causing uncertainty.
Nevertheless, it is a heightened area for investment interest.
•$• Viewpoints on Activities for Promoting Environmental Technology More Broadly—Many
investors noted that although investment deals could not be totally dependent on regulations, new
mandates help form markets. Government grants and other subsidies also could help new
technologies cross the proverbial "valley of death" from laboratory to commercial use. The
interviewees saw taxes on conventional fuels and water as encouraging adoption of
environmental technology because they would increase the cost of conventional use patterns, and
offer incentive for innovative approaches. International collaboration rated low universally, as
most of the interviewees were focused domestically.
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•$• Reactions to EPA Activities Related to Environmental Technology—Mirroring the notion that
mandates can help create markets or demand for environmental technology, technical guidance
specifying use of environmental technology was rated highest among the EPA activities. Grants
(or perhaps revolving funds because of EPA budget constraints) also could be useful, perhaps for
feasibility analyses. Some of the ratings of EPA activities were impacted by limited awareness of
specific EPA programs and activities by some interviewees.
The responses were completed in February. The ratings and observations are presented below.
Ratings for Interviews
A. CURRENT INVESTMENT PRACTICES
Al. Overall "Attractiveness" of ET Market Segments
General ET segments
Monitoring and assessment technologies
Pollution prevention and control
Remediation and restoration technologies
Renewable or clean energy technologies and systems
Cleantech ET subsegments, excluding energy
Agriculture (i.e., natural pesticides, land management, aquaculture)
Air pollution control (emissions control, monitoring)
Low carbon projects, carbon offsets, monitoring for GHGs
Manufacturing and industrial (packaging, "green" mfg.)
Materials & efficiency ("nanotech", biomaterials, chem)
Recycling and hazardous or solid waste treatment
Water & wastewater (treatment, conservation, recycling).
Overall average
Avg (9)
3.3
3.3
2.8
4.9
3.3
3.4
4.1
3.8
3.7
2.8
3.8
3.6
Al Observations on Current Investment
Overall, renewable energy related deals have attracted the most investment.
Low carbon projects were rated highest among the ET segments, perhaps because of the elevated interest
in the "climate change" issues as a driver for new market niches and for growth of expenditures to curtail
carbon emissions. Recycling and hazardous waste rated lowest as a back-end business that saw a lot of
bankruptcies in the 1990s.Water treatment rated just higher than average, could attract more capital with
belter growth prospects.
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A2. Factors Affecting Attractiveness of ET Segments
1 = strongly Disagree; 2=disagree; 3=maybe; 4=agree; 5=strongly Agree
Technology Factors / Challenges
Venture capital investment in ET (vs. "clean energy") lags.
EPA R&D budget not at level that moves ET to market.
Industry funding of R&D in ET is inadequate, limiting innovation.
Industry - Gov't / Lab interaction on ET R&D must be improved
Rigor of IP protection in ET lags other technology areas.
Linkage between industry and permitting is weak.
Verification results (EPA ETV) not valuable enough
Engineering firms lack incentives to promote ET technology.
ET lacks a level of breakthroughs to merit venture investment.
Market Factors / Challenges
Market growth for ET is less attractive than other sectors.
Market growth for ET is less attractive vs. renewable energy.
Water market spending not growing fast enough for venture financing.
Water treatment plants are "risk-averse" customers on ET.
Remediation / waste mgmt suffer low growth, low margins.
Mgmt teams in ET lack experience for managing growth.
Investment exit strategy for ET is more difficult than Cleantech energy.
Regulatory & Policy Factors / Challenges
Lack of new environmental legislation limits upside growth.
EPA's budget (down since 2004) reduces enforcement, growth for ET.
Equipment makers, engineering firms hamper ET adoption.
A climate change bill not enacted, so it is not a driver yet.
Climate change legislation (by 2012) will provide more stimulus for renewable
energy than ET
Lack of familiarity with ET by regulators hinders use.
Overall average (for A2)
Avg (9)
3.6
4.4
3.4
4.3
2.8
4.0
4.0
4.2
2.8
3.2
3.9
4.1
4.9
4.0
3.1
3.9
3.4
3.9
4.3
3.6
3.6
3.8
A2 Observations on Factor Ratings
There was wide agreement that EPA's R&D budget was not adequate relative to the challenges and
opportunities at hand. Perhaps related to R&D funding is a sense that Industry and government lab
interaction can be improved so that more of the R&D funding actually finds its way into the marketplace,
a key issue in "bridging the gaps" to investors and industry.
Many interviews see engineering firms and big equipment makers as more risk-averse to new
technologies, perhaps because they are more invested in the current approaches, and there is little
incentive to risk trying new approaches absent some elevated enforcement or new regulations. Likewise,
POTWs (sewage treatment plants) were seen as risk-averse.
Although climate change is an interesting driver, the lack of consensus on legislation is causing
uncertainty. Still, it is a heightened area for investment interest.
Regulators also need to improve their familiarity with innovative ET.
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B. FUTURE INVESTMENT OUTLOOK (Next 3 years)
Bl. Which ET subsectors do you expect to invest in (next 3 years).
Rate each one for "High" (5), "Medium" (3) or "Low" (1) level of investment compared to total amount of
investment your firm expects over the next 3 years.
General ET Segments
Monitoring and assessment technologies
Pollution prevention and control
Remediation and restoration technologies
Renewable or clean energy technologies and systems
Cleantech ET subsegments, excluding energy:
Agriculture (i.e., natural pesticides, land management, aquaculture)
Air pollution control (emissions control, monitoring)
Low carbon projects, carbon offsets, monitoring for GHGs
Manufacturing and industrial (packaging, "green" mfg.)
Materials & efficiency ("nanotech", biomaterials, chem)
Recycling and hazardous or solid waste treatment
Water & wastewater (treatment, conservation, recycling).
Overall average (for Bl)
Bl.
Future
Average
3.4
2.7
1.9
5.0
3.0
3.0
4.3
3.0
3.6
2.0
3.2
3.2
Al.
Current
Average
3.3
3.3
2.8
4.9
3.3
3.4
4.1
3.8
3.7
2.8
3.8
3.6
B1 Observations on Future Investment
Energy related deals will continue to attract more investment, while remediation has become less
attractive as a market that has plateaued, and one where technology is not seen to be as applicable to a
high growth niche. Low carbon projects were rated high across the board based on broader market
activity. Manufacturing or industrial packaging fell in attractiveness going forward.
B2. Which might best promote market use or adoption of ET?
(Rate all on 1 to 5 scale, where 5 = "best", 3 = "some impact" and 1 = "least impact")
Voluntary educational campaigns for use of ET (e.g., EPA, state outreach)
Corporate environmental commitments (voluntary or share -holder driven)
Expedited permitting, verification programs, or ISO Standards, for ET
Federal mandates: appliance standards, fuel regulations, water regulations
Government purchasing programs for innovative "green" technologies
Federal agency funded R&D/Demos, technology transfer with industry
Government grants to ET firms for innovative devices (SBIR, R&D)
Revolving loans, credit support (lower interest rates) for systems with ET
Subsidies for investment, e.g., Investment Tax Credits, depreciation
Federal subsidies for technology performance, e.g., production tax credits
Avg (9)
2.7
3.7
4.1
4.7
3.9
4.2
4.4
3.9
4.6
4.7
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Taxes on traditional usage, e.g., taxes on fossil fuels or GHGs, water use
International collaboration programs in ET
Overall average (for B2)
4.9
2.1
4.0
B2 Observations on Promotion of Environmental Technology
Many investors noted that while deals could not be totally dependent on regulations, new mandates
help form markets. Government grants and other subsidies could also help new technologies cross the
proverbial "valley of death" from lab to commercial use. All saw taxes on conventional fuels and water
as encouraging adoption of ET. International collaboration rated low universally, as most were focused
domestically.
C. EPA ACTIVITIES
Which of the following EPA programs, policies or actions provide value added information for
ET investment decisions?
(Rate all on 1 to 5 scale, where 5 = "best", 3 = "some impact" and 1 = "least impact")
Programs approving specific technologies for emission reductions
Grant or other incentives to directly fund a class of technologies
Reports of ET field performance (verification or demonstration)
Technology peer review (after Phase I and II of SBIR program)
EPA approved analytical methods
Training and technical support of state regulatory personnel, consultants
Correspondence from EPA Program Offices to EPA Regions for ET
Rules, regulations, technical guidance specifying use of selected ET
Info on technologies from EPA researchers
Overall average (for C)
Avg (9)
3.9
3.9
3.4
3.6
2.9
3.3
3.0
4.0
2.8
3.4
C Observations on EPA Activities
Mirroring the notion that mandates can help create markets or demand for ET, technical guidance
specifying use of ET was rated highest among EPA activities. Grants could also be useful, perhaps for
feasibility analysis. Some of the ratings of EPA activities were muted by incomplete awareness of EPA
programs and activities by some interviewees.
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Appendix G: Examples of Successful Investments from the
Venture Capital Community
The venture capitalists interviewed provided a number of examples of successful investments
in environmental technology. This appendix contains a selection of these examples to provide
some idea of the range and type of investments that have been and can be made by the venture
capital community.
Advanced Electron Beam
"Funding New Technology That Holds Promise for a Cleaner Environment"
RockPort Capital Partners
(http://www.aeb.com)
Advanced Electron Beam (AEB), a Wilmington, Massachusetts company, has developed a
breakthrough electron beam technology—the AEB Emitter—that is 10 times less expensive and
100 times more compact in size than conventional electron beam units. While electron beams
have historically been used in industrial applications to replace chemical and thermal processes,
adoption has been limited because of high equipment and operating costs, complex
implementation, and the huge size of conventional electron beam technologies. By contrast, the
AEB Emitter makes it possible to integrate this clean energy source into a wide array of
applications that was never before technically or economically feasible.
The small size of AEB Emitters allows electron beams to be easily integrated "in line" into
existing manufacturing and production equipment, bringing the beam to the production line for
maximum process efficiency. Available in 10-inch and 16-inch models, AEB Emitters can be
aligned in multiples to produce a beam of any desired width and are small enough to be directed
at any angle. Additional geometries to increase coverage area, electron dose and process
throughput also are possible. AEB Emitters have an operating voltage of 80-150 kV and weigh
less than 30 pounds. Moreover, the approach requires no active vacuum pumping equipment,
offers a compact, solid-state power supply, and requires no in-plant engineering or maintenance
expertise.
AEB Emitters offer the opportunity for a variety of manufacturers to transform their
production processes. Many companies in large industries are very interested in reducing
manufacturing costs, saving energy, and eliminating pollution and those are the benefits offered
by this new technology. AEB Emitters can address a range of applications across the
sterilization, pollution abatement, and curing and polymer treatment sectors. Specific AEB
Emitter applications include: the destruction of airborne viruses and bacteria; the extension of
shelf life of foods; generation of hydrogen for fuel-cell vehicles; the modification of recycled
tires into high-quality engineered plastics; and the removal of hazardous gases, such as sulfur
and nitrous oxides (SOX/NOX), from fossil-fuel burning power plants.
In March 2007, Advanced Electron Beam announced it has received $17.5 million in a Series
B funding round led by RockPort Capital Partners, with participation from existing investors
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Atlas Venture and General Catalyst Partners. The funding will be used to accelerate AEB's
efforts to commercialize its AEB Emitters as one of the world's most efficient, clean, and cost-
effective forms of industrial energy. A RockPort Capital General Partner serves on the Board of
Directors of Advanced Electron Beam.
AE Biofuels
"New Ethanol Production Technology Responds to
Energy and Environmental Legislation"
Cagan McAfee Capital Partners
(http://www.aebiofuels.com)
AE Biofuels, Inc., Cupertino, California, is an advanced energy company that has
constructed and is developing next-generation ethanol and biodiesel production worldwide. AE
Biofuels is seeking to become the first independent vertically integrated biofuels company in the
world. The company is developing biofuels production from both nonfood and traditional
materials. AE Biofuels has a new cellulosic ethanol plant in Montana, three biodiesel plants
operating or planned in India, and six U.S. ethanol plants—five plants in Illinois and one plant in
Nebraska.
On December 19, 2007, President Bush signed the Energy Independence and Security Act of
2007 (EISA, Public Law 110-140). This new law covers a wide range of energy topics with
extensive attention to biofuels, including ethanol and biodiesel. Key biofuels-related provisions
include: a major expansion of the renewable fuel standard (RFS) established in the Energy Policy
Act of 2005 (EPAct) expansion and/or modification of tax credits for alternative fuel refueling
infrastructure, and for ethanol and renewable diesel fuels; grants and loan guarantees for biofuels
research, development, deployment, and production; studies of the potential for ethanol pipeline
transportation, expanded biofuel use, market and environmental impacts of increased biofuel use,
and the effects of biodiesel on engines; and reauthorization of biofuels research and development
at the U.S. Department of Energy (DOE) and the U.S. Department of Agriculture (USDA).
Title II of EISA requires a dramatic expansion of the RFS under EPAct 2005. Instead of the
5.4 billion gallons required in 2008 by the EPAct, EISA requires 9.0 billion gallons. By 2022,
EISA will require 36 billion gallons of renewable fuel in motor fuels annually, compared to an
estimated 8.6 billion gallons under the EPAct. Of that, 21 billion gallons must be "advanced
biofuel," defined as biofuel produced from feedstocks other than corn starch and having 50
percent lower lifecycle emissions than petroleum fuels. Advanced Biofuel has three different
subcategories: cellulosic biofuel, biomass-based diesel, and other.
On February 7, 2008, EPA published new RFS regulations to comply with the EISA 2008
provision for 9 billion gallons of ethanol use. The new RFS is 7.76 percent ethanol in gasoline
for 2008. Section 211 of the Clean Air Act (CAA), as amended by EISA, requires EPA to
annually determine an RFS that is applicable to refiners, importers, and certain blenders of
gasoline, and publish the standard in the Federal Register. This standard is calculated as a
percentage, by dividing the amount of renewable fuel that the Act requires to be blended into
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gasoline for a given year by the amount of gasoline expected to be used during that year. EPA
originally set the RFS for 2008 at 4.66 percent based on the RFS requirement of 5.4 billion
gallons in 2008 in the EPAct of 2005.
In February 2008, AE Biofuels, announced the construction of an integrated cellulose and
starch ethanol commercial demonstration facility in Butte, Montana. The plant will use the
company's proven patent-pending Ambient Temperature Starch Hydrolysis (ATSH) enzyme
technology to optimize process conditions for multiple feedstocks. Nonfood ethanol feedstocks
used by the facility are expected to include switch grass, grass seed straw, small grain straw, and
corn stalks alone and in combination with a variety of traditional starch and sugar sources. The
9,000 square-foot pilot plant facility is expected to be fully operational in the second calendar
quarter of 2008.
The AE Biofuels technology significantly reduces the consumption of energy and water in
the production of ethanol, and allows the use of a combination of nonfood and traditional
feedstock inputs. Applications of the ATSH enzyme technology also may include licensing or
joint ventures with sugar cane ethanol plants.
AE Biofuels is supported by Cagan McAfee Capital Partners, a Silicon Valley-based venture
capital organization. Eric McAfee, Managing Director, Cagan McAfee Capital Partners, also is
the Chairman and Chief Executive Officer of AE Biofuels, Inc.
Aldis, Inc. and Planar Energy Devices
"Technology 'Spinouts' from Government Laboratories"
Battelle Ventures
(http://www.aldiscorp.com) and
(http://www.planarenergy.com)
Battelle Ventures, LP, and its affiliate fund, Innovation Valley Partners (IVP), have
committed nearly $8 million in start-up financing to two energy-related companies, Aldis, Inc.,
and Planar Energy Devices, Inc., which are direct spinouts of the U.S. Department of Energy's
national laboratories managed by Battelle Ventures' sole limited partner, Battelle Memorial
Institute (Battelle).
Aldis, a traffic management technology company focused on energy efficiency, has a joint
development agreement with Oak Ridge National Laboratory (ORNL), and Planar Energy
Devices (Planar), a power-storage company developing thin-film batteries, is a spinout of DOE's
National Renewable Energy Laboratory (NREL), as well as a licensee of both NREL and ORNL
technology.
Aldis and Planar are examples of how Battelle Ventures has acted as "founder capitalists,"
building technology companies from the ground up. With Battelle as a limited partner, Battelle
Ventures cannot only deploy a unique set of company-building capabilities, but it also can
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leverage its position as a bridge between early-stage businesses or technology entrepreneurs and
the Battelle network to add value to Battelle Ventures' portfolio companies.
Battelle Ventures investments in Aldis and Planar unfolded differently. For Aldis,
assurances of the management team capability came before the technology. The idea for
advanced traffic management came from the Aldis cofounders, who Battelle Ventures took to
visit ORNL, where some related projects were in development.
Battelle Ventures became aware of the differentiated power-storage technology created at
NREL, which became the basis for Planar. Battelle Ventures funded early prototype
development of the technology and recruited Planar's Chief Executive Officer for the spinout.
Planar then was introduced to complementary work going on at ORNL in the thin-film battery
area and, as a result, became a licensee of ORNL technology as well.
M2E Power
"Utilizing CRADAs to Demonstrate and Commercialize Innovative Technologies"
@Ventures
(http://www.m2epower.com)
M2E Power, Inc., a Boise, Idaho company, has developed a micro-generator that converts
everyday human and vehicle motion into enough energy to power mobile electronic devices. The
company expects its technology—an advance on the technology found in devices like self-
winding watches and battery-free flashlights—will eventually power cell phones, digital
cameras, and portable entertainment players. For now, however, the company is focusing on
powering mobile devices on the battlefield.
The patent-pending M2E™ (Motion to Energy) technology originated with Department of
Energy-funded research at the Idaho National Laboratory (INL). Inventor Eric Yarger and his
team at the INL sought to ease the military's battery dependence for mobile power and offer
soldiers a way to generate power as they move around. It leverages the well-proven Faraday
Principle (energy produced via motion of a magnet through a wire coil), but with changes in the
magnetic architecture that have broad applicability to many sizes of motor generators.
In November 16, 2007, @Ventures, the clean technology venture capital business of
CMGI®, Inc., announced that it made a $2.0 million investment in M2E Power, Inc. @Ventures
participated in the company's $8 million Series A financing round, along with OVP Venture
Partners, Highway 12 Ventures and existing investors.
M2E Power will use the funds to speed commercialization of its M2E™ technology, which
has the potential to fundamentally transform the way military and consumer mobile devices are
powered. M2E also may provide significant economic benefits for larger-scale generator
applications such as wind and ocean wave power.
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M2E also is an eco-friendly, cleantech solution that can significantly reduce carbon
emissions in larger applications. Depending on usage, it may not need to draw from power grids
to recharge itself. It eliminates up to 30 percent of the highly toxic heavy metal contained in
typical batteries and—by doubling battery life—cuts in half the number of batteries discarded in
landfills.
ORYXE Energy International and WaterHealth International
"Technology Verification Validates Innovative Environmental Technology
Claims"
SAIL Venture Partners
(http://www.oryxe-energy.com) and
(http://www.waterhealth.com)
ORYXE Energy and WaterHealth International (WHI), both in Irvine, California, have
developed patented environmental technologies that are addressing unique environmental
problems. ORYXE Energy has developed a breakthrough additive, ORYXE™ RFT, to improve
efficiency and reduce harmful emissions in residual oil-fired boilers and process heaters. WHI
developed a low cost, ultraviolet water disinfection device, the UV Waterworks™ (UVW),
which was invented to address the needs of underserved communities around the world. Both
patented technologies have been subjected to air and water pollution testing procedures
developed by EPA to validate their pollutant reductions claims.
Testing has proven that ORYXE RFT provides significant reductions in particulate matter
emissions while keeping NOX neutral and improving furnace heat transfer. Residual oil-fired
plants experience reduced black smoke emissions from their exhaust stacks and improved overall
efficiency with the use of ORYXE RFT. The efficiency improvement often offsets the cost of the
additive, thus providing users with an emission reduction program that requires no large capital
expense and little to no operational expense.
Dr. Ashok Gadgil, Vice President of Scientific Affairs for WHI, developed UVW at the DOE
Lawrence Berkeley National Laboratory. Through a multi-stage filtration process coupled with a
proprietary ultraviolet disinfection technology, contaminated water is converted into clean,
potable water that exceeds the World Health Organization's standards for potable water. The
UVW-based system effectively purifies and disinfects water contaminated with a broad range of
pathogens, including polio and roto viruses, oocysts, such as Cryptosporidium and Giardia. Low
maintenance requirements, high efficiency, and high throughput make UVW systems capable of
delivering affordable, high-quality drinking water even to remote and rural markets that have
previously been under served.
ORYXE Energy's new technology already has been proven to reduce emissions in diesel
fuel. The technology was used to develop an alternative diesel formulation, approved by the
Texas Commission on Environmental Quality, to meet the new Low Emission Diesel standards
in Texas. The immediate success of this product, called ORYXE LED, also proves ORYXE
Energy's ability to meet its promise to supply a revolutionary new additive to the market.
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Pacific Ethanol
"Time to Market for Clean Technologies is Essential"
Cagan McAfee Capital Partners
(http://www.pacificethanol.net)
Pacific Ethanol, Inc., Fresno, California, is the largest Western United States marketer and
producer of ethanol. The company was founded in 2003, and by 2006, it was worth $1.8 billion,
and publicly traded. Pacific Ethanol has operational ethanol plants in Madera, California, and
Boardman, Oregon, and has two additional plants under construction in Burley, Idaho, and in
Stockton, California. Pacific Ethanol also owns a 42 percent interest in Front Range Energy, LLC,
which owns an ethanol plant in Windsor, Colorado. From these facilities, Pacific Ethanol's goal is
to achieve 220 million gallons per year of ethanol production capacity in 2008, and to increase
total production capacity to 420 million gallons per year in 2010.
In February 2006, Fortune Magazine called Pacific Ethanol the only publicly traded pure-play
ethanol maker and commended the company for its ability to raise a private equity total of $111
million, including $84 million from Bill Gates. Based on DOE estimates, Fortune predicted that,
by 2030, ethanol could replace up to 30 percent of the projected gasoline usage at that time.
On December 19, 2007, President Bush signed the Energy Independence and
Security Act of 2007 (EISA, Public Law 110-140). This new law covers a wide range of energy
topics with extensive attention to biofuels, including ethanol and biodiesel. By 2022, EISA will
require 36 billion gallons of renewable fuel in motor fuels annually, compared to an estimated 8.6
billion gallons under the former Energy Policy Act. Of this 36 billion gallon requirement, 21
billion gallons must be "advanced biofuel," defined as biofuel produced from feedstocks other
than corn starch and having 50 percent lower lifecycle emissions than petroleum fuels.
In January 28, 2008, the U.S. Department of Energy announced that Pacific Ethanol would
receive a matching grant award totaling $24.32 million to build the first cellulosic ethanol
demonstration plant in the Northwest United States. The pilot plant is designed to produce 2.7
million gallons of ethanol annually. The plant will employ a technology to produce ethanol from
wheat straw, wood chips, and corn stover and will be co-located at the site of Pacific Ethanol's
existing corn-based ethanol facility in Boardman, Oregon. Pacific Ethanol's partners in winning
this competitive process were, BioGasol ApS and the Joint BioEnergy Institute (a consortium of
academic institutions and DOE laboratories including the Lawrence Berkeley National Laboratory
and Sandia National Laboratory). BioGasol ApS has developed the proprietary technology and
the Joint BioEnergy Institute will be providing support and specific research and development on
enzyme technology.
The two principal founders of Pacific Ethanol were Eric McAfee, Cagan McAfee Capital
Partners, and Bill Jones, former Secretary for the California Environmental Protection Agency.
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Sensicore
"ETV Evaluates the Sensicore 'Lab-on-Chip' Water Testing Technology"
NGEN Partners
(http://www.sensicore.com)
Sensicore, an Ann Arbor, Michigan company, manufactures smart sensors and sensor
networks that automate water testing, data collection, and analysis for both drinking and
industrial applications.
The Sensicore Water Point 870 (WP 870), lab-on-chip micro-sensor array technology, is used
to chemically profile drinking water (and/or other liquids) for municipal and industrial
applications. This hand-held system is capable of measuring and calculating 19 different water
parameters in 6 minutes. Key water quality tests that the WP 870 can perform include
measurements for pH, Free Chlorine, Total Chlorine, Ammonia, Total Dissolved Solids, Calcium
Hardness, and other water parameters. The Water Point system enables municipalities and
industrial customers to monitor their water in real-time, helps them pinpoint the extent of
contamination quickly and efficiently, and allows users to perform post-event monitoring while
still the field.
From April through July 2007, the WP870 was tested by the EPA Environmental Technology
Verification (ETV) Program evaluating the following parameters: accuracy—comparison to
results from standard laboratory water reference analyses; precision—repeatability from sample
replicates analyzed on the same day; inter-unit reproducibility—comparison of results from two
identical sensors and handheld units; field portability—operation during remote field site
analysis; and ease of use—general operation, data acquisition, set-up, consumables used, and
purchase and operational costs. In September 2007, EPA released its ETV Report on the
Sensicore WP870. The report is available on line at http://www.epa.gov/etv/pubs/
vrSensicoreWS.pdf
Sensicore was founded in November 2000, in partnership with researchers from the
University of Michigan, to explore new applications for solid-state sensors. The initial goal was
to create a means of liquid profiling that took full advantage of sensor technology and
emphasized greater convenience and ease of use than traditional methods.
By the end of 2003, the company met its first major challenge with the development of a
disposable micro-sensor that was cost effective and easy to replace. Based on this success, the
company assembled a broader team of international water industry experts to apply sensor
technology in a commercially viable product. Water POINT™, a hand-held device for point
source water testing, was launched nationally in the first quarter of 2005. In March 2006,
Sensicore announced the availability of the WP870, its second generation hand-held water
testing system.
Sensicore is supported by a group of Venture Capital organizations including: NGEN
Partners, Santa Barbara, California; Aridest, Ann Arbor, Michigan; Capital Management,
Palo Alto, California; Technology Partners, Palo Alto, California; and Topspin Partners,
Roslyn Heights, New York.
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Soliant Energy
"Using Government Grants to Augment Venture Capital Investment in Clean
Technology"
RockPort Capital Partners
(http://www.soliant-energy.com)
Soliant Energy in Pasadena, California, designs and manufactures concentrator photovoltaic
modules for grid-tied and off-grid, residential and commercial uses. Soliant was founded in
2005 and aims to achieve grid-cost electricity via photovoltaic modules by 2010. Soliant's
product platform, the Heliotube™ concentrating solar panel, addresses the strong market need
for lower-cost, higher-power solutions for rooftop solar power.
In contrast to the other photovoltaic concentrator modules on the market today, the Heliotube
panel includes concentration and solar tracking within the traditional form factor of a 4' x 6' solar
panel. Heliotube's integrated tracking mechanism provides more uniform power output than
traditional flat panels and eliminates the substantial efficiency losses associated with fixed low-
concentration modules. In addition, the Heliotube tracking system is self powered and plug-
compatible with conventional "flat plate" x-Si products. As a plug-compatible alternative to
standard solar panels, Heliotube conforms to the existing standards and practices of the large,
established channels of solar installers, integrators, project managers, dealers, and distributors.
In March 2007, Soliant Energy (previously Practical Instruments) was awarded a $4 million
grant from the U.S. Department of Energy (DOE) Solar America Initiative (SAI). The DOE SAI
grant will allow the company to accelerate development of its Heliotube™ product platform.
Soliant's project partners in the SAI award included: Spectrolab, the DOE Sandia National
Laboratory, SunEdison, and the Massachusetts Institute of Technology.
Soliant's DOE SAI award is expected to allow the company access to more private equity
support if needed in its photovoltaic product line development. Currently, Soliant is funded by
leading energy and renewable technology investors, including RockPort Capital, Trinity
Ventures, Nth Power, Silicon Valley Bank, and Rincon Venture Partners. A RockPort Capital
General Partner serves on the Board of Directors of Soliant Energy.
212 Resources
"Securing Long-Term Debt Financing for an Environmental Technology"
@Ventures
(http://www.212resources.com)
The focus of ©Ventures' current fund, formed in 2004, is on investments in the cleantech
sector, including alternative energy, energy storage and efficiency, and water purification
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technologies. In early 2007, @Ventures made a $3 million investment in 212 Resources
(formerly H2Oil Recovery Services), a natural resource recovery company specializing in the
reclamation of valuable hydrocarbons and fresh water from oil and gas exploration and
production processes.
In September 2007, @ Ventures helped 212 Resources secure a $250 million credit line from
GE Financial Services to help the company expand its technology applications in the oil and gas
industry.
As part of the GE Services credit, an initial $27.5 million of equipment and working capital
financing will allow the company to commence processing and recycling oilfield wastewater into
clean water for reuse in drilling operations at the Pinedale Anticline, the nation's second-largest
natural gas field. This facility will allow the company the flexibility to expand its services to
protect environmentally sensitive wilderness areas.
The 212 Resources company name reflects the "resource recovery opportunities at the
boiling point of water (212°F)" and how the company focuses on helping to address one the
world's most serious problems—water conservation.
The 212 Resources' well-site service enables oil and gas companies to develop reserves,
reclaim and purify water, and add incremental revenue by enhancing hydrocarbon recovery. The
company employs a patented vapor compression flash evaporation system that separates
wastewater generated by oil and natural gas exploration and production into clean water, brine,
methanol, and natural gas condensate.
Recovering valuable byproducts, while generating clean water, allows the oil and natural gas
industry to lower its water management costs. In addition to protecting fresh water aquifers in
production fields, the negative environmental impacts of trucking and impounding wastewater
are reduced. The company has several plants in Wyoming under construction to treat more than
9,000 barrels of water per day at different oil and gas sites.
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Appendix H: Understanding the Environmental Impact of
Clean Energy and Other Technology Investments:
Environmental Capital Group's Environmental Due
Diligence Process
Clean Energy and Technology Investments
Clean energy and technology investments include those that provide economic value while
improving the sustainable use of natural resources and reducing waste and emissions as
compared to existing products, services, or technologies. This includes alternative and renewable
energy (clean energy), water technologies (clean water), advanced materials or nanotechnology
(clean material), air purification technologies (clean air), and transitional infrastructure
opportunities. Environmental Capital Group (ECG) provides environmental due diligence,
performance monitoring, and reporting services that account for the real environmental impacts
created by the private equity investments in clean energy and technology.
Environmental Due Diligence
The purpose of environmental due diligence is to answer two key questions:
1. If the technologies of the portfolio companies are successfully commercialized, will the
fund result in significant net environmental benefits?
2. Does the fund management have the capability and willingness to implement its
environmental strategy and measure the resultant environmental benefits?
Each candidate fund responds to a set of questions about the fund's potential environmental
benefits, environmental strategy, prior experience in environmental investments, environmental
and technical expertise, and experience and knowledge of measurement of environmental results.
For a fund to be recommended, it has to meet expectations according to specific criteria in each
of the following categories:
• Priority and scope of environmental problems addressed.
• Magnitude of potential environmental benefits.
• Environmental strategy of fund.
• Likely environmental performance of fund.
• Management team environmental experience.
• Environmental performance monitoring capability.
Successful Investment Proposals
The most successful investment proposals have the following characteristics:
• The prospective portfolio companies are likely to result in significant environmental
benefits because of the potential for breakthrough technologies and/or because the
technology might be transferred to multiple companies.
• The fund management demonstrates an understanding of: a) the environmental problems
that it will address, b) the importance of considering positive and negative environmental
impacts, c) the legal/regulatory environment, and d) the need to have a plan to
commercialize technologies to achieve actual environmental benefits.
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• The proposal explicitly describes how the fund management will consider the potential
environmental impact prior to selection of portfolio companies, in addition to financial
considerations.
• The fund management includes people with sufficient technical depth and willingness to
undertake a quantitative analysis of net environmental benefits of its portfolio companies.
Net Environmental Benefits
ECG has developed analytical methods to measure and report significant net environmental
benefits created by the portfolio companies. To analyze net environmental benefits, we consider
how the "new" process or product compares to the "existing" process or product. This requires
an understanding of not only the environmental impacts of the company's technology, but also of
the technology that it seeks to replace. It also requires establishing the boundaries of the analysis
and considering significant positive and negative environmental impacts within those
boundaries. For example, when analyzing how an electric car benefits the environment, we must
first answer the question: "Compared to what?" Usually, the comparison is made to the industry
standard or typically-used product, which we call the "base case". We must then address the
question of how the new technology compares environmentally to the base case, both positively
and negatively. The diagram below shows potential sources of environmental benefits relating to
consumption of energy and raw materials and manufacture of product and by-products.
4. Product
Functionality
1. Product
Raw
Materials
3. Manufacturing
or Energy-
Production Process
AIR
WATER
LAND
5. By-
Products
(Emissions)
2. Energy Raw
Materials
Product Raw Materials: The technology may require either a smaller amount of raw
material or a more environmentally benign raw material to achieve the same result
compared to the industry-standard (e.g., a manufacturing process that recycles by-
products to be used as raw material).
The energy used to make the raw materials (embodied energy) or
to convert the raw materials to the final product (process energy) may be from a
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renewable energy source instead of a fossil carbon energy source (e.g., liquid fuels
produced from agricultural waste).
3. or Process: The technology may improve the
efficiency of a manufacturing or energy-production process so that less energy is
consumed (e.g., energy storage devices that allow for load-shifting and improved
efficiencies in power plants).
4. The product itself may be more environmentally benign than the
product it replaces (e.g., a less toxic insecticide).
5. The technology may result in fewer by-products or emissions
(air, water, and/or land) compared to the industry-standard (e.g., a cleaner burning coal).
All five of these areas must be considered in an analysis of net environmental benefits and are
usually linked. Consider solar energy as an example. The product functionality is electrical
power, which is similar to that produced from traditional sources, but with significantly less by-
products because the absence of combustion to produce the electricity also means the absence of
greenhouse gas and other air emissions. In addition, the energy raw material (the sun) is
renewable, so fossil carbon resources aren't depleted. However, the solar panels are
manufactured from product raw materials that consume energy to produce (embodied energy,
which may be fossil carbon based and which will vary in amount and type depending on the
panel technology employed). The amount of energy produced in the energy-production process
will also depend on the technology employed.
Clearly, the extent of conducting such an analysis depends upon the detail in which each area
is considered (do you count the energy required to make the machinery for a manufacturing
process?) and the boundaries selected for the analysis (do you count the fuel burned by the
workers driving to an ethanol plant?). This process has to be mindful of the costs associated with
capturing and accounting for the net environmental benefits. Toward this end, ECG considers
only those elements that significantly affected the results compared to the base case, what we call
the "80/20 rule". For example, for a portfolio company producing a new building insulation
product from recycled materials, we included the savings in product raw material embodied
energy because making the recycle-based product required at least 20% less fossil carbon-based
raw materials than making the traditional material. We also included the difference inproduct
functionality (insulating capability) because the insulating capability of the recycle-based
product was at least 20% better than the traditional material, resulting in building energy savings
and reducing associated air emission by-products. We did not go to the detail of comparing the
embodied energy of the machinery used to produce the recycle-based and traditional products. In
most cases, we only considered the direct raw materials and energy used in the manufacturing
process and the direct emissions from the process, not raw materials, energy and emissions
further downstream or upstream. As we follow these companies over the investment period, we
will continue to check if we are capturing all the material net environmental benefits.
Another example of our approach is small-scale wind-powered electricity generation. These
wind turbines are sold throughout the US. We selected as a base case the production of
electricity from all sources in the US (natural gas, coal, nuclear, etc.) and assumed that any
power generated from the wind turbines would displace power generated from a weighted
average of these sources. We then calculated the total amount of power displaced and an
associated reduction in air emissions (e.g., CC>2, NOx, SOx, Hg) based on the weighted average
emissions from all sources. This is obviously an approximation. If we could determine exactly
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where each wind turbine was installed, we could identify whether it was replacing natural gas-
based power or coal-based power, which have different emission profiles, but this is beyond the
scope of our analysis (and data available). We also did not include the energy required to make
the turbines. In other cases, such as photovoltaic-based solar power, the embodied energy in the
solar panels varies significantly between technologies and is significant compared to the energy
produced by the panels. As such, it is included in our calculations.
A defensible analysis of net environmental benefits must include consideration of significant
negative environmental impacts. There is a difference in net greenhouse gas emissions (€62)
between growing crops in an empty field to feed an ethanol plant and cutting down a rain forest
to make room for such crops. In fact, the analysis of the net environmental impact of biofuels
depends on careful consideration of each element in the model (raw materials, process energy
type and requirements, end-product functionality, by-products, etc.).
Environmental Performance Reporting System
To move from concepts about environmental benefits to specific results for each portfolio
company, ECG developed an Environmental Performance Reporting System (EPRS). The
objectives of this system are to:
1. Measure the net environmental benefits of each fund and portfolio company investment;
and
2. Establish an environmental performance basis for proactively choosing future clean
energy and technology investments.
The first step in this process takes place upon the initial investment in each portfolio company.
During due diligence, the General Partner of the fund identifies the significant environmental
impacts of each company and determines whether they are consistent with the overall
environmental objectives of the fund. Within 90 days of the initial investment, the General
Partner establishes an environmental performance framework for each portfolio company,
including selecting the appropriate base case and preparing a sample net environmental benefit
calculation.
The calculation of net environmental benefits can be thought of as an engineering or technical
report that links a business result, such as the number of product units sold or amount of material
processed, to the associated environmental result, such as tons of emissions avoided or gallons of
water saved. ECG works with the General Partner to conduct this analysis, including assessing
which environmental impacts should be included, identifying respected literature sources, and
checking the analysis for consistency with similar technologies based on our broad
understanding of the market. In some cases, the analysis is reviewed with an expert in the
appropriate field.
At the end of each fiscal year, the General Partner collects business results data from each
portfolio company and calculates the associated net environmental benefits using the analysis
framework established at the time of investment. ECG collects and reviews this information and
works with the General Partner to update and refine the analysis framework.
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Definitions
To facilitate discussion of these environmental impacts, we established a set of definitions as
follow.
"Environmental performance (or impact)"
The effects a company's operations and activities have on the natural environment in
terms of resource consumption, emissions, effluent, waste, biodiversity, and other aspects
of ecosystem quality.
"Direct environmental impact"
The effects on the natural environment that directly result from a company's operations
or product manufacturing, usage and disposal.
"Indirect environmental impact"
The effects on the natural environment as a secondary result of the company's technology
and activities, such as improvement in the environmental performance of its suppliers or
customers.
"Environmental performance indicator"
A measure of environmental performance used to monitor that performance over time.
Example indicators might be pounds of materials recycled, gallons of water saved, tons
of emissions avoided, etc. per unit sold, produced, or installed.
"Sustainability"
Meeting the needs of the present without compromising the ability of future generations
to meet their own needs.
"Base case scenario"
The assumptions about the environmental impacts that would have happened in the
absence of the portfolio company's existence. Often the industry standard will serve as
the base case scenario.
"Net environmental benefits"
Improvements in the absolute Sustainability or quality of the natural environment as a
result of a company's environmental performance. This is obtained by considering both
positive and negative changes to environmental systems that result from a company's
products, by-products and technologies, above and beyond the base case scenario.
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Appendix I: List of Acronyms
ANL
BACT
BRAC
CAA
CalEPA
CalPERS
Ceres
CPUC
CRADAs
DEP
DOD
DOE
E2
ECG
EERE
EFAB
EIR
EISA
EPA
EPAct
EPRS
ETV
FSU
IETO
INL
IPR
ITA
IVP
LEEDs
LLNL
MIT
NACEPT
NASBIC
NASVF
NRDC
NREL
NRMRL
OETD
ORNL
PNNL
RFS
ROI
RTA
SACERS
SBA
SBICs
Argonne National Laboratory
Best Available Control Technology
Base Realignment and Closure
Clean Air Act
California Environmental Protection Agency
California Public Employees' Retirement System
Coalition for Environmentally Responsible Economies
California Public Utilities Commission
Cooperative Research and Development Agreements
Department of Environmental Protection
U.S. Department of Defense
U.S. Department of Energy
Environmental Entrepreneurs
Environmental Capital Group
Energy Efficiency and Renewable Energy
Environmental Financial Advisory Board
Entrepreneur-in-Residence
Energy Independence and Security Act of 2007
U.S. Environmental Protection Agency
Energy Policy Act of 2005
Environmental Performance Reporting System
Environmental Technology Verification
Fresno State University
Interagency Environmental Technologies Office
Idaho National Laboratory
Intellectual Property Rights
International Trade Administration
Innovation Valley Partners
Leadership in Energy and Environmental Designs
Lawrence Livermore National Laboratory
Massachusetts Institute of Technology
National Advisory Council for Environmental Policy and Technology
National Association of Small Business Investment Companies
National Association of Seed and Venture Funds
Natural Resources Defense Council
National Renewable Energy Laboratory
National Risk Management Research Laboratory
Office of Energy and Technology Deployment
Oak Ridge National Laboratory
Pacific Northwest National Laboratory
Renewable Fuel Standard
Return on investment
Regional Technology Advocate
Sacramento County Employees' Retirement System
U.S. Small Business Administration
Small Business Investment Companies
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SBIR Small Business Innovation Research
SEMATECH SEmiconductor MAnufacturing TECHnology
SESARM Southeastern States Air Resource Managers, Inc.
SETO Senior Environmental Technology Officer
TRI Toxics Release Inventory
USD A U.S. Department of Agriculture
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Appendix J: References
Deloitte & louche Press Release. "Percentage of U.S. Venture Capitalist Investing Globally
Lower Than Expected," July 11, 2007.
Jones M, Berry J. "Earth, Wind and Fire: A Cleantech Perspective." Silicon Valley Bank Alliant,
April 2007.
National Advisory Council for Environmental Policy and Technology (NACEPT). "EPA
Technology Programs and Intra-Agency Coordination." Washington, DC. May 2006.
National Advisory Council for Environmental Policy and Technology (NACEPT). "EPA
Technology Programs: Engaging the Marketplace." Washington, DC. May 2007.
National Association of Seed and Venture Funds. "Seed and Venture Capital: State Experiences
and Options." May 2006.
National Science and Technology Council, Interagency Environmental Technologies Office.
"Bridge to a Sustainable Future: National Environmental Technology Strategy."
Washington, DC, 1995.
National Venture Capital Association and PricewaterhouseCoopers. "Venture Capital Investment
Volume in Q2 2007 at the Highest Level Since 2001." August 7, 2007.
Parker N. Presentation at the U.S. Environmental Protection Agency, Office of Research and
Development, National Risk Management Research Laboratory, Clean Water Partnership
Summit, Cincinnati, OH. "Cleantech in 2007: An Industry Emerges," Cleantech Group,
LLC, September 5, 2007.
Paterson A. Environmental Business Journal Data. Presented at the Environmental Industry
Summit, Coronado, CA. February 20, 2008.
Stack J, Balbach J, Epstein B, Hanggi T. "CleanTech Venture Capital: How Public Policy Has
Stimulated Private Investment." Environmental Entrepreneurs and the Cleantech Group,
LLC. 2007.
U.S. Department of Commerce, International Trade Administration. "Environmental Industries
Facts." Washington, DC. 2007.
U.S. Environmental Protection Agency. 2006-2011 Strategic Plan: Charting Our Course. EPA-
190-R-06-001, Washington, DC, 2006.
U.S. Environmental Protection Agency. "Venture Capital Support for Environmental
Technology: A Resource Guide. Prepared by The Scientific Consulting Group, Inc., under
EPA Contract No. EP-C-05-015, December 2007 (Draft).
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>;
|{ - •-' 5
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NACEPT
Shaping the Nation's Environmental Policy
National Advisory Council for Environmental Policy and Technology
April 25, 2008
Administrator Stephen L. Johnson
U.S. Environmental Protection Agency
1200 Pennsylvania Avenue, NW
Washington, DC 20460
Submission of the Report on Venture Capital from
NACEPT's Environmental Technology Subcommittee
Dear Administrator Johnson:
On behalf of the National Advisory Council for Environmental Policy and Technology, I am
pleased to forward to you, with the Council's endorsement, the third report from our
Subcommittee on Environmental Technology: EPA and the Venture Capital Community:
Building Bridges to Commercialize Technology.
The first two reports from the Subcommittee considered EPA's own activities and partnerships,
focusing on research, development, and verification as approaches to bring to the market new
environmental technology to help achieve EPA's mission of protecting human health and the
environment. Because you and the Agency have quickly responded to several of the
Subcommittee's recommendations, including establishing the position of the Senior
Environmental Technology Officer and the Regional Technology Advocates, environmental
technology prospects within the Agency are being strengthened.
Commercialization of environmental technology has historically been seen primarily as a
private-sector activity and was one area of the EPA Environmental Technology Development
Continuum that the Subcommittee had previously identified as receiving little EPA attention.
Recognizing that EPA's goals can be advanced with more new and effective technologies in the
market place, EPA asked the Subcommittee to seek the investment community's advice on what
actions EPA and the investment community could take, and what partnerships they could create,
to boost private-sector investment in the commercialization of environmental technologies over
the long-term. The Subcommittee has completed this task, with a focus on early-stage
investment activities, and the attached report presents their results and recommendations.
NACEPT thanks the entire Subcommittee, particularly Philip Helgerson (Subcommittee
Chairman), Dan Watts (NACEPT Liaison), and John Wise (Environmental Financial Advisory
Board Liaison), for their quick, thorough, and thoughtful response to EPA's request.
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The report discusses the importance of stimulating private-sector investment in new technologies
that could be very important contributors to advancing the nation's environmental agenda.
NACEPT believes this is very much in keeping with the Agency's recognition of the importance
of environmental stewardship and individual responsibility. The report's findings and
recommendations offer several strategies for EPA, including communication of needs, continued
verification of effectiveness and acceptability of technology for specific purposes, and a
framework of more predictable and consistently enforced regulations.
The key recommendations in the report, as well as the more detailed specific recommendations,
provide the Agency an opportunity to engage a new set of partners and advocates for
environmental progress, without the need for new regulations. This effort will take the initiation
of new outreach and communication by your office and others in the Agency, which work we
believe will yield positive outcomes well worth the effort. As Subcommittee Chairman
Helgerson states in the prologue, "Stimulating private-sector investment in new technologies is
among the most important initiatives EPA can undertake, particularly with ongoing budget
constraints. The global need for solutions exceeds the fiscal capacity of any government, and the
commercial market may be able to mobilize and invest immense resources of private capital to
develop and diffuse technologies rapidly."
The key recommendations to EPA, below, came from recognized members of the venture capital
community, some of whom are very familiar with EPA's strengths and limitations:
1. Recognize carbon dioxide, greenhouse gases, and climate-change related pollutants
as pollutants that are addressed in Goal 1 of EPA's Strategic Plan (Clean Air and
Global Climate Change) and take priority measures within EPA's authority to
establish standards and long-term regulations for these pollutants.
2. Forge and sustain communications with the early-stage investment community.
3. Strengthen financial support and reduce regulatory risks for new technology
development during the commercialization period.
4. Take steps to streamline permitting for commercial scale-up of new, innovative
environmental technologies.
5. Enforce environmental regulations consistently to clarify needs and avoid
uncertainty.
6. Support metrics and monitoring of new technologies.
NACEPT concurs with the Subcommittee that a critical response by EPA in responding to these
recommendations is improving communications with the early-stage investment community.
Such communication will be able to clarify and amplify these recommendations. The investment
community is aware of the legislative and resource constraints that guide EPA activities and can
aid in finding avenues to work within them in order to advance the commercialization of needed
environmental technology. With the strong investment interest today in energy and
environmental technology, EPA also can spur development and implementation of needed new
technology by helping to provide a more predictable regulatory framework for greenhouse gas
emissions.
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While the Subcommittee report does not identify precisely which entities within EPA should be
charged with carrying out these recommendations, key direction and involvement must start with
the Administrator's Office, particularly in fostering communications. The SETO and the Office
of Research and Development also are expected to be important contributors. Regarding
Recommendation 4 (streamlining the permitting for innovative technologies), NACEPT suggests
that a related role for EPA may include providing assistance to other agencies in their
preparation of environmental assessments and impact statements, where possible considering
available resources. In addition, NACEPT recommends that EPA consider modeling initiatives
on the report's highlighted Department of Energy programs that encourage technology
investment by the private sector, and exploring technology investment partnerships with the
Department of Energy and other federal agencies.
Interestingly, this report offers recommendations not only to EPA but also to the investment
community:
1. Collaborate with EPA to establish metrics and monitoring strategies for new
technologies to measure and document demonstrated actual performance of these
technologies.
2. Participate in environmental technology verification programs and EPA- supported
metrics and monitoring programs.
3. Encourage communication and interaction among technology developers, investors,
and EPA.
4. Provide opportunities for EPA to financially support promising new environmental
technologies through existing and new financial support programs.
NACEPT believes that this report presents findings and recommendations that illuminate
strategies that have potential to significantly enhance EPA's role in moving environmental
technology to the market place, while still allowing market-based decisionmaking to guide and
control the process. This is a new and growing opportunity for EPA to help meet the nation's
(and the world's) environmental needs. The report conveys a sense of urgency in the Agency
opening links with the venture capital community because of the strong investment interest today
in energy and environmental-related technology. NACEPT encourages your and the Agency's
consideration of these recommendations and urges a rapid initial response to the investment
community, who have asked EPA to "invite us in to talk."
We appreciate you giving us the opportunity to offer our thoughts on this important issue, and
we stand ready to provide any additional input or answer any questions.
Sincerely,
/Signed/
John L. Howard, Jr.
NACEPT Chair
Attachment
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cc: Marcus Peacock, Deputy Administrator
Charles Ingebretson, Chief of Staff
Ray Spears, Deputy Chief of Staff
George Gray, Assistant Administrator, ORD
Lyons Gray, Chief Financial Officer
Sally Gutierrez, Director, National Risk Management Research Laboratory
Daniel Watts, NACEPT Liaison to the Environmental Technology Subcommittee
Philip Helgerson, Chair, NACEPT Environmental Technology Subcommittee
Rafael DeLeon, Director, Office of Cooperative Environmental Management
Mark Joyce, Designated Federal Officer, NACEPT Environmental
Technology Subcommittee
Sonia Altieri, NACEPT Designated Federal Officer
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