OVP’s Rick LeFaivre on Venture Capital and the Future of Cleantech
Sick of cleantech yet? Rick LeFaivre certainly isn’t. In fact, he’s just getting started.
The managing director at Kirkland, WA-based OVP Venture Partners leads the VC firm’s investments in alternative energy and cleantech, together with fellow managing director Gerry Langeler, who is based in Portland, OR. To date, OVP has made five investments in cleantech—Carbonflow, Verdezyne, Tigo Energy, M2E Power, and Seattle-based EnerG2. It is also in the process of closing an investment deal with Arzeda, a University of Washington spinout that designs enzymes that could (among other things) make cellulosic biofuels feasible.
LeFaivre joined OVP in 2004 and originally comes from the world of computing. He was previously a vice president at Apple, and held other senior management positions at firms like Borland, Silicon Graphics, and Sun. Before that, he was a professor of computer science at Rutgers University. LeFaivre sees parallels between some aspects of today’s alternative energy technologies and information technologies, including the rise of the Internet (more on that in a minute).
As he sees it, the cleantech sector breaks down into three main tech categories: energy generation, storage, and management. Generation encompasses all the different ways to produce energy—wind, solar, nuclear, geothermal, and so forth. The storage aspect is what he calls the “time shift”—ways to save the energy you produce for later, when you need it. And the management side has to do with energy transmission and control— including the idea of a “smart grid” that directs energy flow to consumers in a more efficient and reliable manner than our conventional electric grid.
From a venture perspective, LeFaivre says now is the time to make new investments in cleantech, despite the financing risk. “Our attitude is, every VC has slowed down,” LeFaivre says. “It’s a pretty good time to invest. Prices are down, that helps us. The deals we invest in now—we’re in normal venture times—they’ll take five to seven years for an exit. The ones we worry about are the ones we invested in five to seven years ago, and the exit climate is lousy.”
In terms of what he looks for in new deals, LeFaivre says, “I don’t think of a cleantech deal as different from anything else. There’s a core concept that’s protectable and leverageable. It’s picking the right companies with venture economics.” By that, he means companies that are in the sweet spot between mom-and-pop operations and huge projects that need $100 million up front (e.g., building wind farms). “Where are the opportunities in the middle with venture economics, where you can do a $5-10 million A round, then get scalable and begin to acquire customers, and then do a B round? We’re doing a lot of poking around, looking at what will grow in the fertile ground of the Northwest.”
At Xconomy, we’ve been hearing a lot about smart-grid technologies in Washington state, so I asked LeFaivre about where the venture opportunities are there. That’s where he invoked an analogy to the Internet. “The Internet was not a giant top-down design. It was a bottoms-up thing,” he says. “Vint Cerf and others defined a small number of standards, and said, ‘If you can interpret and follow these standards, you can be a member of Arpanet.’ Now, is the grid similar?”
Given the existing power grid system, it’s like trying to rebuild an airplane while you’re flying it, LeFaivre says. Nevertheless, he points to startup opportunities in storage devices that can plug into the grid, and management software and hardware for things like smarter homes and buildings, and other faces of energy efficiency. “We’re moving toward an electric economy,” he says. “You can feed the grid with lots of sources like nuclear and solar, and others are interested in topping it off. There will be a rise in electric cars. Ultracapacitors have an important role to play. But a purely electric world doesn’t work—you still need renewable fuel. Airplanes need fuel.”
What about the role of big companies? LeFaivre says, “Google is most active in pushing an energy program. Everybody’s concerned about energy consumption. From a financial standpoint, they are finding ways to save money—like locating data centers next to dams.” Intel, he says, is trying to find ways to make processors use less power. And, he adds, “There are a lot of smart people in utilities.”
As for how it all will play out, LeFaivre doesn’t expect any big surprises. “I think we can see the trends now,” he says. “We’ve got to do better biofuels, develop the smart grid, develop storage devices. I do worry about the political aspects, like $40 oil…How you sustain this [cleantech effort] is very, very important.”