Highland’s Paul Maeder Taking Firm Into Energy Investments—Targeting Efficiency, Not “Science Projects”

10/15/08Follow @bbuderi

Three or four years ago, Highland Capital Partners made one cleantech investment—in Amp Resources, a Nevada geothermal company that was sold last year to Italian power company Enel. That’s been it for Highland’s cleantech or energy deals.

But all that is about to change: Highland general partner Paul Maeder, who traditionally has focused on information technology and communications investments, has been studying the energy space for months, and in June decided to shift his focus almost exclusively to energy investments—and the firm is right now recruiting a new senior associate to help him. Maeder says the time is right for investing in energy. But you aren’t likely to see Highland joining the ranks of other venture firms that have done deals in solar, geothermal, biofuel, and other alternative fuels. Rather, Maeder’s focus is efficiency, which he calls an area overlooked “not just by venture capital, but by society.” Says Maeder, “They light up the whole Prudential Center so the janitors can clean one room.”

In some senses Highland is way behind the legions of other top venture firms—from Polaris to Flagship to Khosla to KPCB—who began investing seriously in energy—most visibly on the cleantech front—several years ago. But the Lexington, MA-based firm may be also leap-frogging its counterparts by focusing intently on the efficiency space.

“I’ve always been interested in energy. I wrote my senior thesis in college on energy. It was just that nobody else cared about it,” Maeder told me last week. At the time of the Amp investment several years ago, however, he says the firm made a study of the space, “and we came to the conclusion then that it was still a bit early for cleantech.” Meanwhile, investments on the power production side (wind farms, geothermal, ethanol, and nuclear plans, for example) were dominated by huge projects that took $500 million and up—too rich, and with time frames too long, for Highland’s blood.

But several months ago, Maeder began looking into the field again. “I came to the conclusion back in June that there were opportunities in specific sectors, and I’ve been building up that practice. I haven’t made any investments yet, but I’m going to look at two companies today.”

The biggest opportunity, Maeder says, is efficiency. “We waste so much power in this country and we’re so unaware about it,” he says. By contrast, he notes, Europeans are far more energy conscious than Americans. Maeder talks, for instance, about visiting his grandmother in Switzerland: If you left a light on in her place, he says, “you might as well have just shit on the carpet.”

Today, he says, European hotels have card keys that must be used to lock your door when you leave a room, automatically turning the lights out in the process. “We don’t do minimal stuff like that in this country, and that’s good news because it means there’s a lot of low-hanging fruit, a lot of room for improvement,” he says.

Maeder says that you save three units of coal for each one unit of energy you conserve. “There’s a big multiplier effect in conservation…and there’s not a lot being done with it.”

One area he mentioned specifically is better monitoring and sensing. Maeder points to a number of studies around smart metering that show if you give people real-time feedback on how much power they are using and what it’s costing that it results in a significant—10 percent or so—drop in their consumption. “Imagine if people had really good information about what’s used…” he says, “it would make a huge difference.”

In what types of companies, and at what stages, is Maeder hoping to invest? Well, he didn’t quite say it directly, but it doesn’t seem to be cleantech, especially early-stage cleantech ventures. “I’m looking at existing companies with revenue streams,” Maeder says, emphasizing he wants to invest in “real companies, not science projects.” Maeder says this could involve rollups of services businesses, for example. But the bottom line is “I’m looking for real businesses, because I think there’s a lot of stuff being done that’s very productive but underfinanced.”

Maeder says his investments will come from Highland’s general fund—and that the firm does not plan a dedicated energy fund, at least not now. Though he was evaluating deals almost as we spoke, Maeder wouldn’t give a timetable for Highland’s next energy investment. “If you could tell me when we’re going to hit bottom with the Dow, I could tell you when I’m going to make my next investment.”

The Highland general partner will be looking far and wide for investments, but says he is partial to the New England area, where he thinks a lot is happening. “MIT is a real hotbed of activity. There are a lot of interesting businesses around here.”

Bob is Xconomy's founder and editor in chief. You can e-mail him at bbuderi@xconomy.com, call him at 617.500.5926. Follow @bbuderi

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