Q&A on Startups and Investing Strategy with Massachusetts Clean Energy Center’s “State Angel” Arif Padaria
It’s tough out there for angel investors and venture capitalists—not to mention entrepreneurs scrambling for money so they can build the next big thing. Nothing surprising there, but it’s especially true in cleantech and energy, where the exit market has not yet matured, and the process of building early-stage companies is as thorny as ever.
Enter the Massachusetts Clean Energy Center (MassCEC), a Boston-based state agency that supports and promotes local clean energy companies. Led by executive director Patrick Cloney, MassCEC is trying to develop the cleantech ecosystem in the Bay state by focusing on renewable energy generation and workforce development, and by making investments in early-stage projects and startups. The agency has helped finance dozens of companies big and small, including A123Systems (NASDAQ: AONE), 1366 Technologies, FloDesign, Solartrec, and Next Step Living. It has investments in areas like solar, wind, biofuels, hydro, and energy storage—and an increasing focus on energy efficiency, smart buildings, and smart grid technologies.
Earlier this fall, I spoke with MassCEC’s managing director of investments, Arif Padaria, about the state’s energy landscape and his agency’s role. MassCEC receives $25 million a year from the state’s renewable energy tax, and about $8 million of that is controlled by Padaria, to be used for investments in early-stage technology companies.
Padaria, 42, is a software entrepreneur and computer scientist by training, and a tech investor by recent career. In the early 1990s, he dropped out of a PhD program at Princeton to help start a couple of software companies, both of which were acquired. He then went the business school route, got his MBA at Columbia, and went to work on Wall Street as a tech investment banker with Broadview; later he got into venture investing at TVM Capital and Pilot House Ventures (with a stint in strategic investing at Microsoft in between). Padaria started at MassCEC in January 2010.
A big part of his charge is to help selected Massachusetts cleantech startups traverse the so-called “valley of death” and obtain their first financing round, which is usually in the $1-3 million range. MassCEC participates in these rounds and gains an equity stake in the companies.
“How do we impact that?” Padaria says. “I’m essentially a state angel group. I come with a whole network of investors, especially in software. I’m going out there, beating the bushes, trying to find the right deals. My goal is return on success, not just return on investment. We take a thought leadership role in ecosystem development. We go into a field where nobody else [i.e., an institutional investor] is willing to touch it, so to speak.”
Padaria elaborated on some of these themes in our chat below. Here are some edited highlights:
Xconomy: Where does the MassCEC investment fund fit into the ecosystem of cleantech angels, venture capitalists, and federal government financing (such as grants from the Advanced Research Projects Agency-Energy)?
Arif Padaria: Where we really fit is on the angel side. VCs are pleased that someone is coming in to take the risk to move a company to a level that may work or not work. If it does work, it could … Next Page »