CLEAN TECH

Startups scramble for investments, attention in new D.C. competitions

Having multiplied over the past few years in technology hubs such as Silicon Valley, green business competitions are headed to the nation's capital this year, giving the industry a new platform in Washington, D.C., at a time of stiff political head winds.

Leading the way is the Cleantech Open, a six-year-old contest that has spread eastward from its hometown of San Francisco and now includes preliminary rounds in the Rocky Mountain West, Texas, the Midwest and New England.

Joshua Greene, a partner at the law firm Patton Boggs LLP who organized the new Washington, D.C., region, said the contest could raise the profile of an emerging sector that often gets overshadowed by larger capital-area industries, such as government contracting, defense and biotechnology.

"Hosting it here in D.C., in some ways one would think it's intuitive," Greene said. "What better of a place to have it, than where the policy drivers that are helping the clean energy economy are being made?"

But in the current political environment, those drivers are mostly being unmade. Compared to a few years ago, when President Obama's stimulus package put billions of dollars toward the clean technology sector, green companies face a perception in certain Capitol Hill circles that their ideas won't put the United States' unemployed back to work or grow the economy.

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Like other business contests, the Cleantech Open is aimed at helping them do just that, by matching up entrepreneurs with mentors and giving them a chance to refine their pitches in front of actual investors.

They also offer budding companies a way to get funding without giving up any stake in the company. In the past, the winner of the Cleantech Open has gotten as much as $250,000.

Rex Northen, the executive director of the national Cleantech Open, said he is not interested in "tree-hugging" but in helping clean technology startups vie with incumbent companies that have had decades to refine their business models. He said it would be a tragedy to see a technology that could help avert climate change by keeping millions of tons of carbon dioxide out of the atmosphere but does not break into the market because its creators have a lack of business acumen.

"Getting in front of policymakers -- that's a long-term strategy," said Northen, who started a series of dot-com firms that included one early foray into cloud computing. "But getting out in front of customers and figuring out what they need to do with your products -- that's the most crucial part of running a business and it's something we can have a much shorter-term impact on."

Among the entrepreneurs to compete for the grand prize last year was Thomas Capote, who traveled to the regional contest in Boston with hopes of wowing the judges with his plan for helping heavy-duty trucks do their work with fewer trips to the pump.

That point, more than preventing the use of fossil fuels and reducing carbon emissions, is his value proposition as president of CVT Innovations Corp., a North Carolina startup that claims its patented transmission design would let long-haul trucks and other large vehicles burn 15 to 20 percent less fuel.

The company's design for a continuously variable transmission (CVT) uses a system of chains and sprockets to replace the belts and pulleys used in many modern cars. The other design lets new cars get more miles per gallon as well as more horsepower than earlier models, but adapting it to heavy-duty trucks poses a problem: The high torque of their engines can cause the belts to slip.

While at the competition in Boston, Capote told venture capitalists and business mentors why both businesses and the environment would gain if truck companies were to replace stick-shifts with his company's fuel-sipping design. But he didn't make it to the next stage. His company was "voted off the island," as they say on the reality television show "Survivor," while other entrepreneurs advanced to San Francisco for the six-year-old competition's final round and a shot at the grand prize.

"To put it another way, other people were voted onto the island and we weren't with them," Capote said.

Next month, the U.S. Department of Energy is planning to hold a contest of its own at a conference for the agency's technology incubator, the Advanced Research Projects Agency-Energy.

The competition draws its name from "America's Next Top Model," the reality television show in which fashion model Tyra Banks gives tutelage to contestants vying for a chance to break into the industry. Following another model used in television contests, "America's Next Top Innovator" will let the public vote from home for their favorite business ideas.

Each of the 36 startup companies in that contest has signed at least one option agreement, at a reduced rate of $1,000 apiece, to license new technologies from researchers at DOE-funded national laboratories.

Among them is Vorbeck Materials, a Jessup, Md., company using technology from the Pacific Northwest National Laboratory to develop lithium-ion batteries the company says could store twice as much electricity as current batteries and last for more charge cycles. Vorbeck, which took in an additional $10 million in financing last month, hopes that its proprietary process for making graphene -- sheets of carbon molecules a single atom thick -- will make energy technologies such as electric cars more affordable.

DOE has long supported the Cleantech Open as well, giving the group $250,000 in 2008 to take its first steps out of California.

The competition has kept a long list of sponsors since then, including the oil giant Chevron Corp. and the bank Wells Fargo & Co. But the best-known charity for entrepreneurs -- the Ewing Marion Kauffman Foundation -- decided to pull its support for the current fiscal year after giving $200,000 last year.

It pointed to the sector's lack of support among policymakers as its reason, Northen said.

That was another sign of the industry's reversal of political fortunes in 2011, even as investment by private venture capitalists rose 12 percent over the previous year, according to a report released last week by the National Venture Capital Association and the consulting firm PricewaterhouseCoopers LLP.

As of last week, the 581 alumni of the contest have raised $661 million. Power Assure Inc., a Santa Clara, Calif., company that aims to make data centers more efficient, raised $13.5 million of that money last year and grew its workforce to 43 people.

"It's crazy that your view on whether we should be investing in a clean energy future has been tainted by your politics, but there you go," Northen said of policymakers on Capitol Hill.

'Innovation marches on'

Critics on Capitol Hill have pointed to a few high-profile failures, such as the bankruptcy of the government-backed solar energy company Solyndra, as shorthand for the sector in the post-stimulus era.

"Pump enough money and mandates into just about anything and you can erect the facade of a market, at least until you run out of other people's money," wrote Kenneth Green, a scholar at the conservative American Enterprise Institute, in one recent article criticizing the U.S. government for its assistance to the solar energy industry.

"The boom has gone bust," wrote Juliet Eilperin of The Washington Post in an article for the current issue of Wired

Josh Green, a similarly named partner at Menlo Park, Calif.-based Mohr Davidow Ventures who has overseen investments in startups developing solar energy, biofuels and high-efficiency lighting, said clean technology companies have now moved past the "irrational exuberance" that came with the stimulus bill.

As government funding has dwindled, investors have been forced to reassess the real merits of green businesses, he said.

In other words, they are focusing more on technologies that are closer to making money. Some supporters of the clean energy sector have fretted that investors may be shifting away from new ideas in search of surer bets, but other analysts say it is a cycle resulting from the clean technology investment boom that started with budding companies about five years ago (Greenwire, Nov. 2, 2011).

Green, the venture capitalist, said policymakers should not give up on clean technology because of a few stumbles. For every 10 pie-in-the-sky ideas, there might be one that reaps rewards for Americans, he said.

"We fail, and we fail, and fail, and fail and fail again, until we succeed. And a single success will wipe out, many, many times over, the consequences of multiple failures," Green said. "It's good to see [the contests] happening in D.C. so people are reminded that despite the policy changes, innovation marches on."

Another company that competed in last year's Cleantech Open was Agri-Tech Producers LLC, a South Carolina-based company with a custom design for a machine that turns wood scraps or other types of biomass into dried-out, energy-rich hunks. The process, called "torrefaction," results in a fuel that can be stored, pulverized and burned the same way as coal, making it more attractive to existing power plants that have a hard time using untreated plant matter.

Because it uses the exact same equipment as coal, torrefied biomass could someday become a common fuel for power stations that are generally in good shape but face constraints on their carbon emissions. In the near term, Agri-Tech hopes to market its torrefied biomass in Europe, where the cap on carbon emissions and relatively high fuel prices mean that biomass-burning power plants can already compete, said Joe James, the company's founder and president.

"The nice thing about that is, it allows us to become a mature sector and be prepared whenever the policy gets to where it should be in the U.S.," James said.

Europe's interest was made clear when Germany-based RWE AG, the second largest utility in Europe, built the world's largest wood pellet factory to supply its power stations. The factory is not in Europe, but in Waycross, Ga.

RWE's Dutch subsidiary already gets 30 percent of its electricity from biomass and has said it plans to raise that number to 80 percent, according to company statements. The company has also announced plans to have a 750-megawatt coal plant in the English town of Tilbury start running entirely on plant matter by early this year, an undertaking that would require about 1.4 million tons of biomass fuel per year.

Though some U.S. power plants already burn biomass along with coal to meet permit requirements, torrefied biomass probably would not become competitive with coal unless policy pushes power companies toward low-carbon fuels. Even without such a policy, biomass could have an easier time replacing the expensive, high-quality metallurgical coal used in steel mills, James said.

"One could cry in their beer about the lack of a national energy policy that would encourage the use of more renewables, but it's just a matter of time in my opinion, given the apparent evidence of global warming, not to even mention pollution," James said.

Not all clean technology companies find themselves in that boat. Capote said his company's invention has the potential to save its customers money even if the government does not put a price on carbon -- though that would only bring the company more business.

Fuel becomes the largest expense for trucking fleets at $3.60 or $3.80 per gallon of diesel, giving them more reason than ever to buy or license fuel-saving technology, as Capote told the judges at the green technology contest last year.

"The purpose of our product is to generate a cost savings for our customers through fuel efficiency," he said, still rattling off his pitch. "Now, it happens to also benefit the environment, and if that's the reason why you're interested in the innovation, you're not going to be disappointed. So we can do it both ways."

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