Greenstart Hatches Four Startups, Proving Accelerators Work in the Energy Business
Will the startup accelerator model that’s proved so popular and successful in the Web and mobile sectors also help to boost entrepreneurship in other industries, such as healthcare and cleantech? In a tottering economy that needs all the job-creating companies it can get, that’s a crucial question. And here in the Bay Area, it’s been getting a thorough test this year.
Back in August I reported on the first class of 13 startups graduating from Rock Health, a new health-tech incubator with offices in San Francisco’s Chinatown. In just five months, the startups came up with a dazzling array of products and services, ranging from diabetes-prevention programs to iPad fitness training to meditation aids. I won’t be surprised if several of these Rock Health alums strike it rich.
Just as Rock Health was winding down, another new accelerator, Greenstart, was getting underway a few blocks down the hill, in San Francisco’s Financial District. Greenstart invests in cleantech companies, with the goal of promoting renewable-energy technologies and reducing the nation’s carbon footprint. Four companies participated in Greenstart’s inaugural 12-week session, and yesterday they made their formal “demo day” pitches to investors (though one of them, Tenrehte, didn’t need the money—it had just signed a Series A term sheet with unnamed venture investors).
Once again, I was impressed by all that these companies had accomplished. Their founders gave polished presentations, and seemed to have a solid grasp on the potential markets for their products, which include self-tinting windows (SmarterShade), an inexpensive way to mix biofuels with diesel fuel (Sylvatex), an online game designed to heighten consumers’ awareness of their energy consumption (Wa.tt), and a wireless system for managing the energy flowing through electrical plugs (Tenrehte).
So while the sample size is still small, there’s starting to be some evidence that accelerators are effective, even in slow-moving fields like healthcare and energy.
That definitely wasn’t a foregone conclusion. The most famous tech accelerators, such as Y Combinator, TechStars, AngelPad, and 500 Startups, are able to churn out dozens of promising new companies every year in part because their canvas is generally limited to the Internet and the world of Internet-connected devices. In that realm, a magic confluence of infrastructure components such as open source software, cloud computing, and app marketplaces has made it drastically easier and cheaper to start new companies. The healthcare and energy industries, by contrast, are about as Neolithic as they come. Software and the Internet are only beginning to have a real impact in these businesses. More money is at stake, the big players are far more deeply entrenched, and getting a new product to market means negotiating a daunting maze of existing supplier-customer relationships.
Rock Health and Greenstart have both found formulas that help get their companies off to a strong start despite the long odds against them. One of Rock Health’s main techniques is to avoid a frontal assault on the healthcare system, and instead deploy companies building various health-related Internet and mobile products to nibble around the edges. (Blueprint Health, a new accelerator in New York, is adopting a similar strategy, but with a focus on enterprise software rather than consumer products.)
Greenstart’s key tactic, I gathered from attending yesterday’s event, is slightly different. It aims to succeed mainly by selecting teams of entrepreneurs who have already developed promising technologies, but who need help identifying the most promising markets for their product or recruiting the first few customers. At this stage, founders can also benefit from basic company-building advice, on things like how to connect with investors and how to stay sane as a CEO.
Mitch Lowe, Greenstart’s managing partner, says mentorship is the most important resource the program provides, aside from cash and office space. (In return for a small equity stake, Greenstart invests between $25,000 and $100,000 in each company. At the high end, that’s about four times more than the sums most other venture incubators hand out.) The four companies in Greenstart’s first group got more than 200 hours of coaching from a network of 40 mentors, including venture partners from firms like Kleiner Perkins and Flagship Ventures, insiders from the automobile and petroleum industries, and veterans of Silicon Valley standouts like Pandora and Tesla Motors.
That’s valuable help for companies like Sylvatex that arrive with fleshed-out technologies but without a clear commercialization strategy, Lowe says. Run by CEO Virginia Klausmeier, daughter of the late inventor William Klausmeier, Sylvatex has developed a microemulsion technique that reduces the cost of mixing ethanol and other additives into diesel fuel. With help from Greenstart mentors, including David Perry, founder and CEO of pharmaceutical company Anacor, the company decided to abandon plans to build its own production facilities and instead try to license the technology to diesel producers, who are struggling to meet fuel-efficiency and emissions reductions mandates. “They realized that there was a much faster path to market if they sold their technology to existing producers,” Lowe says.
SmarterShade was in a similar situation. The company—which won $50,000 in this year’s MassChallenge competition in Boston—has developed remote-controlled window cartridges containing sheets of inexpensive polarizing material. By changing the relative position of the sheets, windows can be tinted any shade from clear to dark; according to co-founder Mike Stacey, this mechanical approach can be implemented for less than half the cost of so-called “switchable glass” technologies that change opacity when a voltage is applied.
There could be dozens of ways to bring such a product to market, but SmarterShade needed to identify one strategic partner to help get the cartridges into the field. Through Greenstart’s network, Lowe says, SmarterShade found a leading skylight manufacturer eager to test the technology. It expects to bring a product to market next year.
Jennifer Indovina, president, CEO, and co-founder of Rochester, NY-based Tenrehte Technologies, didn’t need as much commercialization advice: Her company’s “PICOwatt” smart-plug device, which helps building managers wirelessly control the power flowing to plugged-in appliances, won a “Best of CES” award from CNET at the 2010 Consumer Electronics Show in Las Vegas, and is already being used by Lockheed Martin, the Rochester Institute of Technology, and other customers. (Tenrehte is pronounced TEN-rate, and in case you hadn’t noticed, it’s “Ethernet” spelled backwards. “Ethernet was the communications medium for the wired world, and we’re turning that inside out,” Indovina says.)
But what Indovina did need help with was knowing how to run a growing company, and understanding her own limits as an entrepreneur. “As the CEO I thought I should be doing everything, including running down to the hardware store to buy supplies,” she says. Greenstart’s mentors taught her that “in a real company there has to be specialization, or you’ll go insane.” Indovina says Lowe and his co-founders at Greenstart also introduced her to the venture firm that eventually offered the company a term sheet.
Only one of the four Greenstart companies, Wa.tt, arrived with a concept rather than a finished product. And that concept changed completely soon after the term began, according to co-founder James Highsmith. “The idea for the product was a smartphone application that used optical character recognition to take a picture of your utility bill,” feed the data into an online energy dashboard, and help consumers spot ways to lower their bills, he says. But after talking with mentors and their fellow Greenstart entrepreneurs, the Watt team realized that the smartphone process took too much work, and that the end result wasn’t fun enough.
They pivoted—a classic accelerator experience—and decided to build a “game for going green,” in Highsmith’s words. The company provides a Mint-like system that pulls spending data directly from users’ bank accounts and credit card bills. It then “reverse engineers” the information to pull out details about each user’s monthly energy footprint—for example, the mix of fossil fuel, renewable sources, and nuclear power that went into making the electricity they used.
“We are able to get a huge amount of data about what happens on the other side of the plug, and make it really fun and interesting,” Highsmith says. Users can earn points and badges for increasing their clean energy use and lowering their overall energy consumption, and the site uses additional game features like competitions to keep players motivated.
Highsmith says that for Wa.tt, the “firehose” of advice and feedback from the Greenstart mentors and the other teams was the most valuable part of the program. “I thought it was the perfect environment to be around other people in a cleantech hub, so that we could just bounce ideas off each other really quick,” he says. “You talk to people, they give you an idea, there is a little spark of insight here and there. That is where the magic happens for me. Then bringing in the mentors only magnifies that.”
So there you have it: direct testimony that many of the benefits of the incubator model pioneered by Internet entrepreneurs do extend to energy-related startups. The emphasis may be different—with the exception of Wa.tt, the Greenstart companies focused on developing their business models and customer networks rather than iterating their products. But all technology startups face the same core challenges, and are tempted into making similar mistakes. An accelerator is one of the best places for an early-stage company to connect with industry veterans who can help short-circuit that process. (That’s why they’re called accelerators, after all.)
Greenstart’s next session gets underway February 13, and will include five or six new startups, Lowe says. (The spring 2012 companies have already been selected, but Greenstart is soliciting applications for the fall 2012 session.) Below, for your entertainment, is a great series of videos Greenstart created to document its inaugural session.