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To VC, or Not to VC: Cleantech startups on venture capital


Alex Livingston was just 22 years old when his idea for a portable, rechargeable electric car battery swept the 2008 Bronco Venture Championship, Northwest Venture Championship and TechLaunch 5.0 business competitions.

Heartened by the wins and bolstered by the exposure, his company, R2EV, secured flex-space in the VengaWorks business center in Meridian, and he got busy hiring a staff. Things were looking up.

But now, two years later, R2EV will be homeless after VengaWorks closes on Friday, April 30, Livingston's work force has dwindled to one--himself--and the company has ditched car batteries in favor of battery-backup systems, a "more mature market," he said.

He hopes the transition from batteries to back ups will help him raise some much-needed capital, but it's been an uphill struggle.

"It is awful. It is really hard," Livingston said of the local venture capital funding scene. "We just aren't in their space, and they've been really up front about that."

Livingston isn't the only entrepreneur having trouble tapping startup cash. Recessionary pressure drove down 2009 North American venture capital investment 47 percent--back to 2003 levels, according to the Cleantech Group and accounting firm Deloitte.

The first quarter 2010 numbers are looking better, and "cleantech" companies like Livingston's, which focus on green energy or energy efficiency, are getting funded in states like California. But that enthusiasm isn't shared locally.

Phil Syrdal, president of the Boise chapter of the Keiretsu Forum, a global network of investors, said a range of factors--from the recession to the federal government's priority shift from energy to health care--have tempered the attraction for cleantech investment.

"In Idaho, the kinds of companies that have come forward to us have been very small startups," Syrdal said. "For the most part, what we're seeing is people just working with products that are out there and finding ways to apply them."

In other words, unless a cleantech startup has a one-of-a-kind idea that can be immediately put into production, venture capitalists and other investors will likely avoid the risk.

"If you don't have an idea that can scale efficiently, then the large front-end money is hard to find," Syrdal said. "Basically, it's a hard market to raise money in."

Steve Hodges, founder and president of M2M Communications, doesn't think it's a bad thing that venture capitalists are shying away from cleantech.

His firm, based in Boise, specializes in remote monitoring systems used to control energy consumption at large irrigation pumps. For years, M2M has worked with Idaho utilities on energy efficiency programs, and the company recently landed a $2.1 million stimulus grant to install sensors on irrigation pumps in central California.

"My experience with investors over the years has almost all been negative," Hodges said. "We have learned that the best way to grow a company and have a good life is to bootstrap your company--to earn your way ... Investors have a different attitude: They're looking for that quick exit, that good sale."

Hodges has formed that opinion out of bitter experience. Brought to Boise by a job with Hewlett-Packard, he went on to found Telemetric, which is also in the wireless communications and monitoring business. After investing more than five years and a lot of his own money, he'd built a sizable, profitable company with between 15 and 20 employees. It was then that the "vulture capitalists," as he calls them, swooped in.

"Taking their money was really the beginning of the end both for Telemetric and for me," he said. "Within a pretty short amount of time, they pressured me to bring in a new CEO, someone who effectively reported directly to them." He acquiesced, and later, when he raised concerns about the new boss's management, he found himself fired from the company he'd started.

"They just took over the company themselves," he said. "When they sold the company last year, they got nice bonuses, but I got zero ... It is a horror story."

Syrdal said the term "vulture capitalist" is a misnomer. Long gone are the days when young turks fresh out of business school would take over a company and oust its founders in favor of a quick sale to benefit their cronies.

"Those are pretty much old wives tales now," he said. "We can't make those kinds of investments and take those kinds of risks ... Even in Sun Valley, I've heard more personal stories about how difficult this has been over the past year for investors to keep their balance. They're still frightened."

Nate Calvin, co-founder and CEO of AeroLEDS, agreed that venture capitalists are far less likely these days to invest obscene amounts of money into untested concepts.

His company makes light emitting diodes for the commercial-industrial and aviation markets. He's still leery of VC money, but recognizes that sometimes it's necessary.

"You can spend weeks on end, day after day, chasing venture money, and at the end of that whole process, end up with nothing," Calvin said.

"If you have a bright idea, then [it's] best to develop it yourself and start carving out a market niche," he added. "Once you have a track record, be open to those partnerships."

Syrdal emphasizes that "partnership" idea. "We don't want to run companies, we want to help entrepreneurs be successful in companies. You want him to make it. You're on his team," he said.

That's the kind of relationship Livingston would like to establish with investors, but in the meantime, he's taking the downturn in stride. R2EV was recognized last fall as a top 10 innovator at the Green Beat 2009 conference in San Mateo, Calif., and Livingston recently took the company to the New Venture Championship in Portland, Ore.

He has a few deals in the works to install back up systems around the valley and he still wants some venture funding. So far, a couple of out-of-state VCs have been willing to talk with him.

But as Livingston gears up to graduate from Boise State with a business degree next fall, he has no intention of pulling up stakes.

"We're a startup and I know how it is. You have to be hungry," he said. "I'm from Boise, so I plan on staying here."