Go East, Young Man: How Clean Tech Drew Two Venture Insiders from the Bay Area to the Bay State
If there is a central incubator for “clean-tech” businesses, it’s California. Stiff environmental regulations, generous tax incentives, top-ranked research universities and national labs, abundant capital, a huge potential market, and a Governator who takes global warming for real make the Golden State the nation’s undisputed leader in renewable energy innovation. Of the 10 investment firms worldwide that closed the most clean-energy deals in 2006, five are in California, where there are plans to draw 20 percent of the state’s energy from renewable sources by 2010.
So why would any young, ambitious, California-based energy investing insider even consider moving to Massachusetts? Ten words: “The opportunity to participate in some great early-stage ventures.”
That’s how Rob Day, 34, sums up his decision to leave San Francisco’s Expansion Capital Partners and become a principal at Wilmington, MA-based @Ventures in February. Of course, there was also the lure of free babysitting—Day’s young family is now much closer to the grandparents. But the reality is that Massachusetts lags so far behind California and other states in clean-energy business development that it’s an ideal hunting ground for budding dealmakers, Day says. “There’s so much world-class research here that even though there’s a good, strong energy startup cluster, I would expect it to be twice what it is,” he says. “Helping to make that come out in what ever little way I can is exciting.”
Andrew Friendly, a newly minted senior associate at Advanced Technology Ventures in Waltham, gives remarkably similar reasons for his own defection from California to Massachusetts in April. “Some of it was a personal decision to come back closer to family on the East Coast—but the other part was the opportunity to be involved in a growth industry in an area that has considerable growth potential,” says Friendly, who is 38. “As opposed to being a me-too investor in the Bay Area, I can help grow a smaller industry with an equally large potential in New England.”
While it could be argued that venture capitalists spend most of their time in the air and therefore aren’t based anywhere, there is anecdotal evidence that a handful more are landing on the East Coast and staying—or at least keeping their clocks on Eastern Time. Day and Friendly are joined, for example, by Susan Wu, a partner at Charles River Ventures. Wu works from the firm’s Menlo Park, CA, office but spends more and more of her time lately overseeing the company’s Boston-area investments, including open-source software consulting firm Optaros and onling gaming company Conduit Labs (see our recent profile). “I think companies like Conduit Labs are proof that there are fantastic entrepreneurs and exciting ideas in the area,” says Wu. “I’m looking forward to spending more time in the Boston area. Imagine that—a Silicon Valley VC coming East.”
But it’s the energy sector that seems to generate the most magnetism for the region among young VCs. The New England area is already home to more than 150 clean-tech companies, which means there’s a good base of experienced energy entrepreneurs. The big problem—read, opportunity—is overcoming what Day calls the “enterprise formation gap:” a lack of support in New England for early-stage ventures trying to turn proof-of-concept gadgets into customer-ready prototypes.
“There is an assumption that if there is a money-saving innovation out there it will get adopted, but the fact is that non-economic factors often make that difficult,” says Day. “I see my job as taking the innovation and not only helping the management team get the capital resources they need, but also helping them make connections so they can build out their teams and raising awareness so that the marketplace is clear about the economics.”
Day’s first assignment at @Ventures was to help align a startup called Powerit Solutions with its natural customers and partners. Powerit builds “demand response” systems, software and switches that allow businesses to smoothly power down equipment and facilities at times of peak electrical demand, freeing up power for a utility’s other customers and earning bonuses or rate breaks as a result. Powerit’s software “helps you figure out, when you get the call, how much power you can free up across your facility without sacrificing productivity and without hurting the bottom line,” explains Day.
“It’s a no-brainer” to install Powerit’s system, since “there’s an infinite payback period,” Days says. To get Powerit going, he helped arrange conversations with utilities and “demand aggregators” such as ComVerge and EnerNOC (NASDAQ: ENOC). (EnerNOC went public in May, becoming one of New England’s biggest clean-energy success stories). PowerIt is the sort of company that wouldn’t have trouble finding customers in California, Day suggests, but needs a bit of extra help in New England.
Beyond helping companies grow, Day says he’s encouraged by his partners at @Ventures to spend time promoting a healthier clean-energy technology cluster in New England. He sits on the advisory board of the nascent Massachusetts Clean Energy Council and also works on business-development initiatives with the New England Energy Innovation Collaborative (NEEIC), an @Ventures sponsoree. Day is also a member of the advisory board for new clean-tech news site Greentech Media and recently merged his blog Cleantech Investing into Greentech’s network. He and Friendly, who were classmates at Northwestern University’s Kellogg School of Management, have launched a Boston chapter of the Renewable Energy Business Network, a Bay Area group to which they both belonged. “REBN East” has so far sponsored one networking happy hour in Kendall Square and plans a second on September 11.
Friendly says he was drawn to work with Advanced Technology Ventures in part because it, too, is involved in cluster-building efforts such as NEEIC and the Clean Energy Council. The firm “has an appreciation for the challenges the [energy] sector will face—the capital intensity and the long development times,” says Friendly. “They are not scared by that, and they also understand what I call the four-legged stool of the sector: Not just the business opportunities, the markets you are attacking, and the technologies needed to address them, but the public policy drivers.”
Indeed, if Massachusetts’s clean energy industry is ever to catch up with California’s, Friendly explains, investors and businesses will need to lobby the state and federal governments for more California-style clean-energy incentives, rebate programs, and regulatory standards. “When the government sets a clean-air standard, that forces industries to look for solutions,” Friendly says. “New Jersey, for example, has learned from California, and they are reworking their solar energy program. Massachusetts has a long way to go.”
But even if government policies changed overnight, there would still be lingering cultural differences in the way energy businesses and other technology startups are funded on the two coasts, Friendly says.
“I think the cliche of people on the East Coast being a bit more pensive or spending more time analyzing something, whereas on the West Coast there is a tendency to be a gut investor and be a little faster to move—it isn’t fully true, but I have seen a little bit of it,” says Friendly. “New England is a harder area to break into. That being said, there are fascinating people and very dynamic innovation communities in both places.”
But if more folks move east from the West, maybe that, too, will change.