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AN OVERVIEW OF  ENERGY VENTURE CAPITAL Richard T. Stuebi President, NextWave Energy November 18, 2004 Energy Advancement L...
TOPICAL AREAS <ul><li>Overview of venture capital </li></ul><ul><li>VC in overall energy finance spectrum </li></ul><ul><l...
FAILURE RATE OF NEW VENTURES Percent Source:  U.S. Department of Commerce, New Jersey Institute of Technology 2
TYPICAL VC PORTFOLIO # Invested $ mm Return multiple Year 5 value $ mm “ Dogs” 3 $3.0 0 x $0.0 “ Walking Dead” “ Cash Cows...
VC CONCERNS <ul><li>Misguided strategies </li></ul><ul><ul><li>Excessive reliance on government support to spur/sustain ma...
WHY VC’S INVEST <ul><li>Huge, rapidly growing, real market </li></ul><ul><ul><li>Market size:  multiple millions per year ...
TOPICAL AREAS <ul><li>Overview of venture capital </li></ul><ul><li>VC in overall energy finance spectrum </li></ul><ul><l...
ENERGY SECTOR FINANCE Asset-based energy infrastructure projects Energy technology  venture capital Businesses involving  ...
ENERGY FINANCE ALTERNATIVES <ul><li>Windfarms </li></ul><ul><li>Cogeneration </li></ul><ul><li>Energy efficiency </li></ul...
IMPLICATIONS FOR VC INVESTORS  IN ENERGY TECHNOLOGY PLAYS <ul><li>Typically make inroads in niches (rather than address th...
RECENT ENERGY DEVELOPMENTS AFFECTING VC INTEREST <ul><li>California debacle    deregulation? </li></ul><ul><li>Enron deba...
TOPICAL AREAS <ul><li>Overview of venture capital </li></ul><ul><li>VC in overall energy finance spectrum </li></ul><ul><l...
Source:  Nth Power, U.S. Dept. of Commerce, U.S. Energy Information Administration,   NextWave Energy analysis SMALL SHARE...
U.S. ENERGY VC INVESTMENTS $ millions Source:  Nth Power 13
WORLDWIDE ENERGY TECH VC $ millions Source:  Nth Power 14 -10% $526.2 $583.6 Total -34% $32.5 $49.5 Other +42% $17.0 $12.0...
PROFILE OF GLOBAL  ENERGY VC DEALS $ millions Source:  Nth Power More, smaller deals  (risk diversification) 15 $526 $6.26...
LEADING ENERGY TECH VC INVESTORS <ul><li>Altira </li></ul><ul><li>Arete </li></ul><ul><li>EnerTech </li></ul><ul><li>Allia...
CONTACT INFORMATION <ul><li>Richard T. Stuebi </li></ul><ul><li>President </li></ul><ul><li>NextWave Energy, Inc. </li></u...
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Richard T Stuebi

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Richard T Stuebi

  1. 1. AN OVERVIEW OF ENERGY VENTURE CAPITAL Richard T. Stuebi President, NextWave Energy November 18, 2004 Energy Advancement Leadership Conference, Houston
  2. 2. TOPICAL AREAS <ul><li>Overview of venture capital </li></ul><ul><li>VC in overall energy finance spectrum </li></ul><ul><li>Facts about energy VC marketplace </li></ul>1
  3. 3. FAILURE RATE OF NEW VENTURES Percent Source: U.S. Department of Commerce, New Jersey Institute of Technology 2
  4. 4. TYPICAL VC PORTFOLIO # Invested $ mm Return multiple Year 5 value $ mm “ Dogs” 3 $3.0 0 x $0.0 “ Walking Dead” “ Cash Cows” “ Home Runs” Source: Venture Capital Online Return CAGR NA 4 $4.0 2 x $8.0 15% 2 $2.0 5 x $10.0 38% 1 $1.0 10 x $10.0 58% TOTAL 10 $10.0 2.8 x $28.0 23% Only 3 out of 10 investments produce favorable returns 3
  5. 5. VC CONCERNS <ul><li>Misguided strategies </li></ul><ul><ul><li>Excessive reliance on government support to spur/sustain market </li></ul></ul><ul><ul><li>“ Me-too” strategies, no differentiating advantage </li></ul></ul><ul><ul><li>Customer needs not urgent enough to adopt new technology </li></ul></ul><ul><li>Implausible analyses </li></ul><ul><ul><li>Overoptimistic or unwarranted assumptions </li></ul></ul><ul><ul><li>Insufficient research in pricing and attainable market share </li></ul></ul><ul><li>Excessive technical orientation </li></ul><ul><ul><li>Inadequate marketing and sales experience </li></ul></ul><ul><ul><li>Questionable management skills </li></ul></ul><ul><ul><li>“ Perfect is the enemy of the good enough” </li></ul></ul>4
  6. 6. WHY VC’S INVEST <ul><li>Huge, rapidly growing, real market </li></ul><ul><ul><li>Market size: multiple millions per year desired </li></ul></ul><ul><ul><li>Market growth: 10% + per year </li></ul></ul><ul><ul><li>Demonstrated customer willingness to pay </li></ul></ul><ul><li>Compelling business model </li></ul><ul><ul><li>Recurring revenue streams vs. large, one-time sales </li></ul></ul><ul><ul><li>Sustainable advantage over competitors </li></ul></ul><ul><ul><li>Solves urgent customer “pain” </li></ul></ul><ul><li>Attractive, realistic financials </li></ul><ul><ul><li>Logically supportable assumptions </li></ul></ul><ul><ul><li>Plausible revenue, cost and profit projections </li></ul></ul><ul><ul><li>Reasonable valuations of venture </li></ul></ul><ul><ul><li>Solid capital formation plan </li></ul></ul><ul><li>Strong management team </li></ul><ul><ul><li>“ Bet on jockeys, not on horses” </li></ul></ul><ul><ul><li>Deep commercial orientation and business acumen </li></ul></ul><ul><ul><li>Demonstrated successes in related fields </li></ul></ul>Most important factor 5
  7. 7. TOPICAL AREAS <ul><li>Overview of venture capital </li></ul><ul><li>VC in overall energy finance spectrum </li></ul><ul><li>Facts about energy VC marketplace </li></ul>6
  8. 8. ENERGY SECTOR FINANCE Asset-based energy infrastructure projects Energy technology venture capital Businesses involving energy services Energy sector finance 7 Increasing risk/return
  9. 9. ENERGY FINANCE ALTERNATIVES <ul><li>Windfarms </li></ul><ul><li>Cogeneration </li></ul><ul><li>Energy efficiency </li></ul><ul><li>Hydrogen infrastructure </li></ul>Examples Key success factors Risk/reward profile <ul><li>Well-structured contracts (especially off-take) </li></ul><ul><li>Favorable economics </li></ul><ul><li>Management team with strong development/ operating experience </li></ul><ul><li>Technology risks assessed/accepted </li></ul><ul><li>Modest upside (20% equity IRR max?) </li></ul><ul><li>Minimal downside (assuming technology risks nil or hedged) </li></ul>8 Asset-based projects <ul><li>Green energy retailing </li></ul><ul><li>Mass-market retailing of energy technologies </li></ul><ul><li>Networking of distributed generation </li></ul><ul><li>Hydrogen sales </li></ul><ul><li>Solid general management team, with marketing/sales expertise </li></ul><ul><li>Clear evidence of customer willingness (ability) to pay to solve a clear need </li></ul><ul><li>Barriers to competitor mimicry </li></ul><ul><li>Minimal technology risk </li></ul><ul><li>Possibly attractive upside… </li></ul><ul><li>But significant market and execution risk </li></ul>Service businesses Technology VC <ul><li>Nanotech for PV </li></ul><ul><li>New wind turbine concepts </li></ul><ul><li>Stirling engines </li></ul><ul><li>“ Exotics” </li></ul><ul><li>Acceptable technology development risks </li></ul><ul><li>Modest market adoption challenges </li></ul><ul><li>Time to exit/ liquidity acceptable </li></ul><ul><li>Strong patent position </li></ul><ul><li>Big potential upside (3-10x)… </li></ul><ul><li>But significant possibility of total loss </li></ul>
  10. 10. IMPLICATIONS FOR VC INVESTORS IN ENERGY TECHNOLOGY PLAYS <ul><li>Typically make inroads in niches (rather than address the overall market) </li></ul><ul><li>Often rely in some degree on government subsidies </li></ul><ul><li>Often entail higher upfront costs in exchange for lower annual costs </li></ul><ul><li>Often require a long time to fully develop technologies </li></ul><ul><li>Face high customer inertia and obstacles from incumbents </li></ul><ul><li>Attract relatively few investors (because of these issues) </li></ul><ul><li>Understand customer needs/ economics in those exact niches </li></ul><ul><li>Assess future “firmness” of government supports </li></ul><ul><li>Research customer acceptance of “paybacks” </li></ul><ul><li>Be willing to accept longer time horizon to exit/liquidity </li></ul><ul><li>Evaluate these obstacles accurately (conservatively?) </li></ul><ul><li>Consider risks associated with subsequent financing requirements </li></ul>Because new energy tech’s...: … VC investors must: 9
  11. 11. RECENT ENERGY DEVELOPMENTS AFFECTING VC INTEREST <ul><li>California debacle  deregulation? </li></ul><ul><li>Enron debacle  trading? generation? </li></ul><ul><li>Premature hype (microturbines, fuel cells, hydrogen?) </li></ul><ul><li>Lack of consistent transmission policy </li></ul>“ Negatives” “ Positives” <ul><li>High oil/gas prices </li></ul><ul><li>Energy security post-9/11 </li></ul><ul><li>Increased recognition of grid vulnerability (Aug. 03 blackout) </li></ul>10
  12. 12. TOPICAL AREAS <ul><li>Overview of venture capital </li></ul><ul><li>VC in overall energy finance spectrum </li></ul><ul><li>Facts about energy VC marketplace </li></ul>11
  13. 13. Source: Nth Power, U.S. Dept. of Commerce, U.S. Energy Information Administration, NextWave Energy analysis SMALL SHARE OF VC TO ENERGY Percent 7.1% 100% = $9.8 trillion (2000) 2.3% 92.9% 100% = $18.2 billion (2003) 97.7% U.S. VC investments U.S. GDP 12
  14. 14. U.S. ENERGY VC INVESTMENTS $ millions Source: Nth Power 13
  15. 15. WORLDWIDE ENERGY TECH VC $ millions Source: Nth Power 14 -10% $526.2 $583.6 Total -34% $32.5 $49.5 Other +42% $17.0 $12.0 Grid optimization -10% $46.5 $51.7 Power quality -51% $23.7 $48.4 Services +191% $94.2 $24.1 Customer energy management +27% $87.6 $68.9 Power IT -32% $224.7 $329.0 DG & storage Change 2003 2002 Sector
  16. 16. PROFILE OF GLOBAL ENERGY VC DEALS $ millions Source: Nth Power More, smaller deals (risk diversification) 15 $526 $6.26 84 2003 $584 $10.61 55 2002 Total investment Avg. deal size No. of deals
  17. 17. LEADING ENERGY TECH VC INVESTORS <ul><li>Altira </li></ul><ul><li>Arete </li></ul><ul><li>EnerTech </li></ul><ul><li>Alliant </li></ul><ul><li>Avista </li></ul><ul><li>Chevron </li></ul><ul><li>Cinergy </li></ul><ul><li>DQE </li></ul><ul><li>Enron </li></ul><ul><li>FA Tech Ventures </li></ul><ul><li>Kinetic </li></ul><ul><li>Nth Power </li></ul><ul><li>Perseus </li></ul><ul><li>Exelon </li></ul><ul><li>Hydro-Quebec </li></ul><ul><li>OPG </li></ul><ul><li>PG&E </li></ul><ul><li>Reliant </li></ul><ul><li>Shell </li></ul><ul><li>Advent </li></ul><ul><li>Altira </li></ul><ul><li>Braemar </li></ul><ul><li>ChevronTexaco </li></ul><ul><li>Cinergy </li></ul><ul><li>ConocoPhillips </li></ul><ul><li>Eastman </li></ul><ul><li>EnerTech </li></ul><ul><li>Nth Power </li></ul><ul><li>RockPort </li></ul><ul><li>Hunt </li></ul><ul><li>OPG </li></ul><ul><li>Shell </li></ul><ul><li>Alta </li></ul><ul><li>Benchmark </li></ul><ul><li>DFJ </li></ul><ul><li>JP Morgan </li></ul><ul><li>Mayfield </li></ul><ul><li>Mohr Davidow </li></ul><ul><li>RBC </li></ul><ul><li>Sevin Rosen </li></ul><ul><li>Technology Partners </li></ul><ul><li>USVP </li></ul><ul><li>JP Morgan (Beacon) </li></ul><ul><li>RBC </li></ul><ul><li>Sevin Rosen </li></ul><ul><li>Technology Partners </li></ul>Strategic investors Energy VC’s General VC’s “ Then” (2000/2001) “ Now” (2004) Source: NextWave Energy assessment 16
  18. 18. CONTACT INFORMATION <ul><li>Richard T. Stuebi </li></ul><ul><li>President </li></ul><ul><li>NextWave Energy, Inc. </li></ul><ul><li>1600 Broadway, Suite 2400 </li></ul><ul><li>Denver, CO 80202 </li></ul><ul><li>(303) 352-0377 </li></ul><ul><li>(303) 573-1830 fax </li></ul><ul><li>[email_address] </li></ul><ul><li>www.nextwave-energy.com </li></ul>17

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