Never Mind That Bailout: Venture Funding for Auto Innovation Accelerates As Startups Race to Leave Detroit in its Own Dust

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called the Roadster—with a base price of $109,000.

Rather than investing in “one-off cars that cost $100,000 apiece,” Zuberi says many VCs are looking for automotive innovations that make conventional vehicles more energy-efficient or significantly reduce pollutants, especially carbon dioxide and other greenhouse gases.

He cited as examples:

— San Diego-based Achates Power, which has been developing “a radically different” high-efficiency two-stroke diesel engine conceived by founder James Lemke of UC San Diego. The startup, which is in stealth mode, has received undisclosed venture funding from Sequoia Capital, RockPort Capital Partners, Interwest Partners, and Madrone Capital Partners.

A123 Systems of Watertown, MA, which has developed innovative lithium-ion batteries for use in motor vehicles, portable power markets, and electric power grids. The startup founded in 2001 raised at least $102 million this year alone from more than a dozen corporate and venture investors, including North Bridge Venture Partners, General Electric and Qualcomm Ventures.

ISE Corp. of Poway, CA, about 25 miles north of San Diego, which is making hybrid-electric drive trains for heavy-duty vehicles such as buses, garbage trucks, cargo “yard hustlers,” airport ground vehicles, and military vehicles. “You can think of it as a very large version of the Toyota Prius,” says co-founder David Mazaika, who recently raised $17.5 million in a fourth venture round led by Siemens Venture Capital, Macquarie Clean Technology Fund, and DTE Energy Ventures. Gaining a major industrial partner like Siemens was key to increasing production at ISE, which did about $28 million in sales this year.

Geo2 Technologies of Woburn, MA, which is developing high-temperature ceramic air filters with the ability to remove up to 99 percent of particulates, or soot, from diesel engine exhaust, without affecting engine power or efficiency. The company, where Zuberi worked before joining General Catalyst Partners, has raised about $25 million from Firelake Capital Management and a number of wealthy individual investors, including Gary Jacobs, eldest son of Qualcomm founder Irwin Jacobs and Gary Weiss. Both Jacobs and Weiss also are investors in San Diego’s Fallbrook Technologies.

Of the automobile startups, Tesla Motors probably ranks as the largest and best-funded company. The five-year-old startup has raised about $145 million from venture investors, including $55 million from PayPal founder Elon Musk, who is the chairman and current CEO, and Google co-founders Sergey Brin and Larry Page. The company recently secured another $40 million in convertible debt financing, but is facing fresh challenges in its plans to build a $250 million manufacturing plant in San Jose, CA.

Fisker Automotive of Irvine, CA, also has been developing a sleek, hybrid sports car for the high-end market. The company recently raised $65 million in venture funding from Kleiner Perkins Caufield & Byers, Palo Alto Investors, and others.

Aptera Motors of Carlsbad, CA, about 26 miles north of San Diego, is taking a more practical approach by developing a futuristic, two-person electric car for suburban commuters. The startup, which has raised $24 million from Idealab, Google, and others, has had no trouble attracting additional funding despite the economic downturn, CEO Paul Wilbur says.

“We are talking to a number of VCs right at this second … Next Page »

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Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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