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CLEEN | NW in Spokane: 2/15

Posted by John Martin at Wed Feb 22 07:10:00 +0000 2012

Since the launch of Northwest Cleantech Open in 2009, the Greater Spokane Incorporated commerce chamber for the inland Northwest has been a close partner and liaison. Just the prior year, a new cleantech interest group called CLEEN | NW [Consortium of Leading Energy Efficiency Northwest companies] was launched by the GSI chamber and cleantech leaders including the regional utility - AVISTA, engineering firms CH2MHill and McKinstry, and local service providers and government agencies.

Last year, CLEEN | NW lead a major SWOT analysis project with local workforce development groups and State "innovation partnership zones" to focus efforts to further cultivate cleantech businesses in the inland Northwest. This was published in Q3.2011 and showed that, as we've seen in CLEANTECH OPEN, earlier business success is being found in efficiency ventures as compared to renewable fuels and that related areas of sustainable design and both smart home and smart farm held great promise.

Another conclusion was that, as always, good ventures had been sprouting up but that stronger, deeper efforts to foster and fund those companies were needed. CTO is one mechanism for doing that, so to start off the calendar year and our 4th competition season, CLEEN | NW and Cleantech Open jointly presented a "Find, Fund, Foster" program including a superb panel of regional financers and businessmen from Spokane, Portland and Seattle (below) and pitches by 4 showcase Inland NW energy ventures (sideblog). Cleantech Open's Regional Director, Byron McCann of Northwest Energy Angels and GSI's Technology Industry Economic Development Manager, Gary Mallon, were joint moderators.

The panel in the first half was direct, practical and pragmatic in its focus on the usual BUT EVER VITAL entrepreneurial fitness advice: really have your (stuff) together, know your market and your team, and have a sound, profitable, capitalist business model assuming no interventions or premiums. Panelists included

  • Scott Broder of the Inland Technology Start Fund
  • Tom Simpson, a Spokane-based angel investor
  • Brad Zenger, partner in Pivotal Investments of Portland (supporter of Cleantech Open)
  • Dave Curry, serial entrepreneur, currently leading the successful Demand Energy Networks of Spokane
  • Josh diLuciano of AVISTA, a founding sponsor of Cleantech Open NW and CLEEN | NW, testifying to the perspective of regulated utilities.

Both the financiers and several of the presenting ventures emphasized that cleantech success today is won by traditional customer cost-savings. In response to a question about sustainability certifications like the B-corporation as well as the role of so-called "impact investing" (a variation on “social responsibility investing”), the panelists all nixed those as superfluous and perhaps a taking of the eye off the ball of superior returns. They said that while the occasional inspired investor might get off on either of those, the overwhelming base of investment capital will simply cut to the chase and look at the numbers, not at how organic or free-range they are. Not what some in the audience wanted to hear, but hard realities nonetheless.

This puts to mind a quote from, I believe, pundit Michael Shellenberger that "PCs and office-software did not take over the workplace in the 80s because of a typewriter sequestration mandate", -- they just worked better at a good price, and that's what cleantech needs to be and, increasingly, CAN BE..

This is at variance with a researcher speaking earlier in Idaho suggesting energy markets were becoming differentiated like most other goods, with Wal-Mart, Nordstrom and Bergdorf demand tiers (my terms). These more battle-scarred financiers agreed that, especially COMMERCIAL, customers will opt for green but not for 1¢ less on their bottom line. Note below this is DIFFERENT from raw cost-per-joule.

There was a good back-n-forth about what exactly CLEANTECH is and is not. The first thing it’s not is Groupon or Facebook. Unfortunately, typical entrepreneurial funding analysis in north America focuses on the "Bay Area venture capital" model for which most commerce in society is very UNsuited. Further, as Josh D’ago of Avista, Spokane utility and Cleantech Open sponsor, noted, markets underlying many “cleantech” segments are deeply fundamental, pervasive and pre-historic – nutrition, light/heat, shelter – and thus have multi-generation infrastructure, deeply entrenched supply-chains, reluctance to change, and are often highly regulated as cornerstones of the fundamental social order. Thus, “cleantech” suffers an IMPEDENCE MISMATCH. Unlike the internet or fashion, where innovation can be taken up almost overnight, utilities, transport firms, farms, real-estate, etc., through no fault and intrinsically, CANNOT adopt AS FAST AS our society can INNOVATE.

Brad Zenger of Portland-based Pivotal Investments also noted that the term CLEANTECH ITSELF really is a misnomer. As with “dot-com” and “nano” previously, “clean” is not a separate market but an element or flavor to many existing segments which each have their own disparate dynamics. Speakers agreed that, more than novel widgets, a cleantech venture and its resolution of IMPENDENCE MISMATCH is often about changing the ECONOMICS around resource productivity, about financial and go-to-market innovations more than engineering. While cost-per-joule may or may not be higher, total savings or new earnings, combined with capital-conserving financing will drive success. Several examples were given around revenue-sharing installation amortizations, similar to the business model which is the cornerstone of regional poster-child McKinstry’s success.

Because cleantech is often slow, complex, generational and regulated - panelists repeatedly emphasized the need to think long, hard, deep, thoroughly, and "10 steps ahead", as to the milestones and scale of capitalization actually needed to get to ‘general release’. Also the need to accept and plan for the raw fact that reservoirs of capital outside Boston and SF, including Seattle but certainly markets like Spokane, Boise or Portland, IS VERY-LIMITED and ventures get STRANDED right at the goal-line, if they OUTGROW their home market and have not socialized their venture further away. Thus capitalization is another aspect where you may start local, but must THINK GLOBAL.

This was, of course, a panel of financiers -- so the discussion did not delve into social and climate trends, influencing markets or molecular science. I think it was Dave Broder who cautioned sternly that whatever business you thought you started (footprints, lifestyles, socialization), once you TAKE OTHER PEOPLE's MONEY you're SOLE BUSINESS BECOMES GETTING THEIR CASH BACK. While absent the extremities of loans from a shark or the mob, but only just this side of that, when you miss milestones or paybacks a great deal of ugly pain ensues and heads (figuratively at least) do roll and quickly. (Many good scars revealed on the panel, I'll save time and not elaborate) So, rather than visionary futurism (in a question on dos-and-donts, Zenger’s was “don’t be a ‘promoter’”), entrepreneurship is always only about greenbacks. Earning the chance to take other’s money, or being flagged as likely to get that chance by the Cleantech Open competition, is less a matter of periodic tables than cap tables.

This panel emphasized a well-known but valid chestnut about wringing as much risk out of a venture as possible before you approach institutional capital. That the technology works, the market exists and there’s some evidence of customer traction should be as known as possible. As one panelist noted, “you want to minimize the number of times I need to hit the ‘I believe’ button” (i.e. take on faith), suggesting that an investor is only going to hit that button once or twice in a venture pitch.   Probably if needed 3 times you’re out.

Entrepreneurs should take sacredly those REPRESENTATIONS and WARRANTS on which pledge their pound of flesh, for it may come to that surgery, and their team should be tough, resilient and highly agile to pivot early and as many times as needed to promptly tap a solid vein of revenue. In short, entrepreneurship is always focused on genuine CONSERVATION of RESOURCES, so the best cleantech should do well because it uses less, wastes less, repurposes more to a market-valued return, etc.    What could be cleaner?


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