Q&A on Startups and Investing Strategy with Massachusetts Clean Energy Center’s “State Angel” Arif Padaria
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happen already in terms of energy-efficiency companies. Platforms are being built, and private equity companies are sucking them up. Those are cash businesses.
X: So where is the cleantech investment ecosystem headed, more broadly?
AP: We need a lot more excitement around cleantech for people to jump into cleantech. The ecosystem is just so small right now, also for the services people. MIT is in the forefront, UMass is also there, and there are a lot of professionals from the IT side.
MassCEC is trying to do more project finance stuff. For example, you build a wind turbine that’s sexy, and nobody wants to build it, so you take the risk. Some new models will emerge that are more like a hedge fund. But the [limited partner] business is such that they don’t have a clean bucket for that. You’re either doing venture debt, or private equity, or a hedge fund. The question for our industry is, what is the real exit, what is that multiple you expect to get? I don’t know all the answers. You’ll see a lot more deals tied up with strategic investors—VCs will go into a company alongside GE’s or Siemens’s venture group.
Even though the capital intensity might be $30-40 million to get to break-even, and I’m putting in a sliver of $500K in a $2 million round, it’s really great engineering. Take Solartrec [a solar startup based in Somerville, MA]. The goal is to get to the prototype. By mid-next year, they’ll go out to raise a $5-10 million round. The goal is to move the needle now. For a Series A investor, that makes total sense. They need to see the proof of concept here. The runway from there is still probably another $20 million beyond that. But the metrics are in line with what cleantech folks are getting used to these days. These are not software metrics—you don’t build a company for $20 million all in. But the remainder could be done through government loan guarantee programs, and venture debt can be used.
X: How will you gauge the success of your investments, and your fund?
AP: One success metric is, who is the handoff to? Who are the top-tier investors I was able to bring in? Another is if the company’s successful, what did they do for that particular area—whether it’s algae, or biofuels. Did they move the needle, did they become thought leaders? Are they looked to as the next big emerging company? And the jobs they created. Ultimately if you’re going to be sustainable, you’re going to create some jobs, whether they’re higher engineering jobs or manufacturing jobs.