OVP is one of the few venture funds that invests in a wide variety of innovations that span from IT to life sciences to cleantech. So Greg and I zipped across the lake yesterday for a wide-ranging conversation with the team at Kirkland, WA-based OVP Venture Partners during their Monday portfolio meeting. They’ve surely seen better days, but the conversation sounded a lot more like a productive strategy session than a funeral. Here’s a sampling of what they had to say:
—OVP sizes up the cleantech sector much like it does life sciences. The company prefers not to invest huge sums of upfront capital in the speculative business of new drug development or renewable fuel generation, but rather in “picks and shovels” companies that sell stuff to the gold-seekers. “Cleantech really violates most of the principles of venture capital,” says managing director Gerry Langeler. “You want low capital investment, and high growth rates. Most of these companies, you need lots of cash to get going.”
One cleantech company that fits the OVP criteria is Laguna Hills, CA-based Verdezyne (formerly known as Coda Genetics) that aims uses a combination of genetics expertise and computer algorithms to boost yields at ethanol factories by 7 to 12 percent. “That would be huge,” says OVP managing director Chad Waite.
—The latest fourth-quarter numbers tell the sorry story of decline in the venture business, and OVP didn’t have any evidence to suggest that it’s turning around soon. “VCs right now are on strike,” Waite says. “They aren’t investing in anything. It takes six months now to do a deal, even with a good deal. And why not wait, if you think the price is only going to go down?”
Timing stinks for companies who had the misfortune of starting a few years ago, and now need to line up for a Series B or C round to keep going, Waite says. But companies that are just getting started now actually have much more of a fighting chance, because they’ll be in product development for a couple years anyway, and by the time they are ready to reach the marketplace, the economy ought to be picking up steam again. “This is a perfect time to be in product development,” Langeler says. “You have nothing to sell, no one is buying anything anyway.”
—The cooling of the information technology market has brought some fundamental thinking back into strategies for building IT businesses, says managing director Lucinda Stewart. Nobody is flooding the marketplace with huge marketing dollars to grab market share anymore, which is forcing companies to think harder about putting more resources into making a better product. “It’s healthy, it’s not as much of a race to be first,” she says. She also found a ray of light recently in a report from The Gartner Group that says the software-as-a-service market will balloon from $6 billion a year to $14 billion by 2012. OVP has five of its 13 IT investments in that category, she says.
—The cleantech sector can be broken down into three distinct categories—energy generation, storage, and management and transmission—says managing director Rick LeFaivre. The latter category includes smart-grid technologies for improving efficiency and dealing with energy demand on the fly. “That’s a huge area,” LeFaivre says.
Langeler adds that a major challenge in cleantech investing lies in accurately assessing where the line is between research and development—more so than in IT and life sciences, where investors have the benefit of more experience. “VCs don’t like to invest in ‘R,’ part of R&D,” he says. “But sometimes we invest in things that are ‘R,’ because we thought it was ‘D.'”
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