Posted: November 02, 2012
Cleantech 2.0: Pragmatic and capital-efficient
Colorado Cleantech Industry Association Special SectionBy David Lewis
While the popular media and one presidential candidate actively berate cleantech, a Colorado fund remains strongly confident in a strong future for cleantech. Aravaipa Ventures’ Founder and Managing Director Robert Fenwick-Smith calmly states, "Like all young industries, cleantech is growing from an idealistic spendthrift youth to a pragmatic and capital constrained adulthood. And for the investors who bought into the original hype, these are painful days."
Fenwick-Smith argues, "The first phase of cleantech investing has been mainly characterized by large coastal venture capital firms taking big bets on game-changing billion-dollar technologies. This is understandable as most of these VCs have IT backgrounds where game-changing bets provided superb returns, and these firms have such huge funds – hundreds of millions or billions – that they can only afford to make large investments."
Since its inception in 2008, Aravaipa Ventures has taken a very different approach: to build profitable and capital-efficient cleantech companies. Or put otherwise, "Aravaipa looks for singles, doubles or triples whereas traditional VCs look for home runs. These two very different approaches could yield similar returns for a fund: traditional VCs having very few large winners while Aravaipa has multiple smaller successes."
This more pragmatic approach does include backing technologies designed to have a tremendous impact on the world. Fenwick-Smith highlights Lightning Hybrids LLC, one of the Aravaipa portfolio companies: "Lightning Hybrids’ hydraulic hybrid system reduces gas consumption of light commercial fleets by 35 percent – a much bigger impact on U.S. gas consumption than Tesla and Fisker combined! Obviously not half as sexy – until you understand that Lightning Hybrids will have that impact with less than $10 million invested versus the billion going to each EV company." Aravaipa Ventures calls this pragmatic and capital-efficient investing "Cleantech 2.0."
Another example of Cleantech 2.0 from the Aravaipa portfolio company is RavenBrick LLC. Where its smart window competitors Sage and Soladigm have invested hundreds of millions of VC dollars to set up manufacturing, RavenBrick will do the same, right here in Denver, for less than $20 million, and produce a smarter and cheaper window.
Pragmatic and capital-efficient cleantech also means looking for niches instead of simply following the herd into wind and solar. "Silver Bullet is the most exciting Cleantech 2.0 venture that I have encountered in the last four years. First, because it achieves enormous energy AND water savings, and, more importantly because it has an extraordinary recurring revenue model that beats even most cloud computing cash flows," says Fenwick-Smith.
Interestingly, as Aravaipa applies its pragmatic and capital-efficient investment criteria to cleantech ventures in Colorado, it has only invested in companies whose products increase the efficiency of one resource and/or another. Fenwick-Smith believes, "This is most likely due to the fact that most efficiency ventures are making an EVOLUTIONARY play – not a moonshot. Typically, such efficiency-tech ventures have a shorter development phase, much earlier sales, and faster adoption." Aravaipa, therefore, will continue to concentrate on efficiency-tech in Colorado.
Fortunately for Colorado, Aravaipa is not the only Cleantech 2.0 fund in the state. Where Colorado had virtually no traditional VCs participating in Cleantech 1.0, a strong group of funds, in addition to Aravaipa Ventures, has emerged to invest in Cleantech 2.0: King Hill Capital, 9th Street Capital, Infield Capital and Vision Ridge Capital – to name the most active. Together these funds give Colorado a unique head start and may even herald a time when Colorado has a cleantech lead on the coasts. Also, pragmatic, capital-efficient companies have a better track record of creating long-term local jobs. Fenwick-Smith finishes, "Now if we can just get journalists interested in less sexy, but more realistic ventures, we can start promoting the future of Cleantech 2.0."
David Lewis is a freelance writer based in Denver.