A Deep Dive with Black Coral Capital

7/8/09Follow @wroush

On Monday we learned that Rob Day, a former principal at @Ventures in Wilmington, MA, and one of the dynamic young leaders of the energy investing scene in New England, has taken on a new assignment. He’s become a partner at Black Coral Capital, a Boston-based private equity fund formed in 2008 to build a cleantech investment portfolio for an unnamed high-net-worth family.

I’ve known Day ever since mid-2007, when I wrote about the nearly simultaneous decisions that he and Advanced Technology Ventures principal Andrew Friendly made to leave energy-related jobs in California and take jobs in New England cleantech investing. Both Day and Friendly have helped bring new vitality to the Boston-area energy innovation community, setting up an East Coast branch of the California-based Renewable Energy Business Network and participating in numerous local events. Most recently, Day was part of a panel on bringing energy innovations to market at Xconomy’s XSITE summit on June 24.

I caught up with Day by phone Tuesday morning, and asked him to tell me about Black Coral, which had been more or less in stealth mode until Day circulated a note about his job switch. Here’s the transcript:

Xconomy: What’s Black Coral all about?

Rob Day:
It’s a new family office, with a broad mandate to invest in private equity in clean energy and related technologies.

X: What family is behind it?

RD: We have to maintain privacy about that.

X: But they’ve decided to put some of their money specifically into clean technology—why?

RD: They’ve got good strategic assets in related areas of energy, and they’re looking to put some money into the clean energy side of it. So we know we have some good assets we can bring to bear in our investments, but we also have a pretty broad mandate to develop an investment strategy with new things that make sense. We are going to be investing directly, and also indirectly, as limited partners in venture funds. We are looking across all sorts of private equity classes—capital projects, buyouts, early stage companies, growth stage, later stage. We’re really starting from a blank slate, which we think makes sense in this interesting time, economically.

X: When you talk about bringing strategic assets to bear, does that mean you’re going to be leaning away from new energy-generation technologies toward things that fit with the existing energy infrastructure?

RD: As much as anything else that reflects that the folks around the table are pretty pragmatic. We are investing to find good investments, we’re not making investments just in the latest cool technology.

X: Do you think too much venture capital in the cleantech industry has gone into blue-sky ideas?

RD: To be clear, at the places I’ve worked in the past, there has always been a shared pragmatic approach around the table. That’s why I’ve always invested in things like energy efficiency myself, in addition to other things. But if you look at where the money has gone in the cleantech venture structure, a lot of it has yet to come to market in terms of commercialized products. That, by itself, should tell you that there has been a lot of emphasis on funding breakthroughs, what some people have called the “black swan” technologies, where as the folks around the table at Black Coral are going to be really focused on the economic value propositions of the different models that we back.

X: Are there specific cleantech areas—say, thin-film photovoltaics or biofuels—that you might steer away from, either because there’s already enough venture money chasing them, or because the payoffs are taking longer than anticipated?

RD: Right now, because of the overall economic conditions, there are good economic opportunities across the landscape. There are a lot of companies that have a lot of capital deployed in developing their technologies, even in some of those overexposed sectors that you just mentioned, where you can get in at a reasonable price. I’m a big fan of solar as a long-term technology. I do think it’s challenging to talk about how, when you have 200-some venture-backed solar startups, all of them or even a majority of them end up being successful investments.

But even within the overexposed sectors, there are some good opportunities. Let’s look at solar really quick. Everybody put all of this money into new manufacturing technologies for solar cells, yet there are major parts of the rest of the value chain that remain underinvested. We actually have to get the solar panels onto rooftops, and build the rest of the system, the inverters and the writing, and it has to be cost-effective. This is one of those things where experienced investors will be able to find good investment opportunities, especially if they’re looking for parts of the value chain that are underinvested. That’s not to say that Black Coral will necessarily match my personal approach, but I am drawn to technologies that are scalable and that boost efficiency.

X: Black Coral has offices in Boston, New York, and Montreal, so you have a pretty heavy East Coast presence. Will your investing have a geographic focus, and how are you feeling these days about being a New England-based cleantech investor?

RD: We’re going to be investing pretty broadly. I don’t think we’re going to have a particular geographic focus. We’ve already got a commitment to an overseas venture capital fund, for instance. So especially when it comes to our LP commitments, we are going to have a fairly broad scope.

In terms of being here in New England, yeah, I was pretty excited about the opportunity to continue to be investing here in Boston, where there is a pretty decent venture capital scene in cleantech. I think that while there has been a significant amount of activity in cleantech venture here, and there is a good groundwork in terms of both the innovation scene and the later-stage-related private equity activity like project finance, in general there is still a lot of room to grow here in New England and a lot of room for specialization.

X: What can you tell me about the managing partner at Black Coral, Christian Zabbal?

RD:
Christian comes out of the management consulting world, and so he’s a real expert, a really smart guy when it comes to investing in management teams and managerial talent. If there is one success factor in cleantech, it comes down to management and execution. So being able to work with Christian is a great opportunity.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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