Presentation to the California Commission for Economic Development “Venture Investing in Cleantech” Andrew G.W. Chung
Principal, Lightspeed Venture Partners September 15, 2008
Our mission: We partner with exceptional entrepreneurs to build high-growth, market-leading companies globally
Lightspeed: At a glance
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$2.1B of committed capital
Currently investing Fund VIII: $800M
Selected Managing Director Investments
22 investment professionals Lead investor orientation Global platform
U.S. China India Israel
Cleantech & Energy-Related Investments
Top-quartile performance across all funds
Global energy needs continue to rise along with dependence on carbon…
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Electricity Generation
CO2 Levels vs. Temperature Change
400ppm 10°C 8 350 6 4 China 300 2 0 250 -2 -4 200 -6 -8 150 -10 400 350 300 250 200 150 100 50 0 1000s Years Ago
4TWh
U.S.
3
2 Japan Russia India Canada 1980 1985 1990 1995 2000 2005
1
0
Source: IOGA, Bureau of Labor Statistics, US National Ocean and Atmospheric Administration (NOAA) / UK Climate Research Institute
3
…and the price of oil has reached levels unseen since early ’80’s
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Monthly Average Oil Price per Barrel
Nominal Prices
Source: IOGA, Bureau of Labor Statistics
Inflation-Adjusted Prices (December 2007 $)
4
Renewables expected to supply only 20% of energy by 2020…
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Global Sources of Energy
1600 1400
Annual Energy Output (1018 Joules)
1200 1000 800 600 400 200 0 2000
Geothermal Other Renewables Solarthermal Solar Electricity Wind Biomass (Modern) Biomass (Traditional) Hydro Nuclear Gas Coal Oil
Renewables
2010
2020
2030
2040
2050
Source: Scientific Advisory Committee, German Government
5
…and the U.S. continues to lag in renewables adoption
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% Share of Hydroelectricity
% Share of Other Renewables
% Share of Biofuel Vehicles
100%
30%
100%
80 20 60
80
60
40 10 20
World average
40
20
World average
U. ex K ic Br o az i I l S w tal y G ed er en m an Sp y F a Ph inl in ili an p d D pin en e m s ar k S.
0
S. Sw S w e N itz de e w er n Ze lan al d a Au nd st C ri Ve an a ne a d zu a I c ela Co ela lo nd m b B r ia N az or il w ay U.
0
U. M
0
U.S.
Brazil
Source: BP Statistical Review of World Energy 2008, Brazilian Automakers Association, U.S. Bureau of Transit Statistics, U.S. Energy Information Administration
6
Cleantech: a portfolio solution that comprises a broad set of sectors…
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Solar
Polysilicon/wafer Cell/modules Balance of systems Financing
Wind
Horizontal-axis turbines Vertical-axis turbines Small form factor Off-coast
Fuels
Petroleum substitutes Coal-to-liquids Gas-to-liquids Ethanol production Biodiesel production
Other Generation
Coal gasi-/purification Solar thermal Transportation tech Oil & gas solutions Hydropower Wave kinetics
Storage
Batteries Ultracapacitors Grid storage services Fuel cells
Energy Efficiency
Demand response Lighting/HVAC control Distributed generation management Automated metering
Water/Air
Water purification Air purification
Other
Building materials Waste management Recycling
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…each providing a depth of entrepreneurial opportunities
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Example: SOLAR
Traditional
Sample areas of innovation
Polysilicon
Metallurgical-grade
C-Si cells
Back-contact cells Sliver cells
Module packaging Balance of systems
Inverters MPP tracking Systems monitoring
Wafering
Continuous CZ method Ribbon technology
Thin-film
a-Si/CdTe/CIGS/CIS Dye, organics New materials
Solar financing
Residential Commercial
Concentrated PV Solarthermal Combined heat & power (CHP)
Capital equipment
8
Lightspeed’s cleantech/energy investments
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Solar
Wind
Fuels
Other Generation
Renewable petroleum biofuels
Coal pre-treatment systems
High-efficiency thin-film modules Algae-based biofuels/chemicals
Oil & gas exploration equipment
Storage
Energy Efficiency
Water/Air
Other
Next-generation lithium-ion batteries
Power management for LED lighting
Cleantech media & research
9
Why cleantech now?
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Shift in economics Massive end-markets Technology headroom
Entrepreneurs Businesses Investors
Corporate & social imperatives
Government imperatives
10
Sampling of corporate and social initiatives
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11
Cleantech venture investment up significantly since 2002…
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$4 $3 $ Billions
7.6% 10.1%
13.1%
15% % of Total VC Investment 12% 9%
$2
5.1%
6.9%
5.9% $2.8
$4.1
6% 3% 0%
$1
$1.1 $1.2 $1.2
$1.6
$0 2002 2003 2004 2005 2006 2007
VC Investment in Cleantech
Note: Includes only North American deals; Source: Cleantech Venture Monitor
% of Total VC Investment
12
…with the bulk of capital going into generation during 2007
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100% 80% 60% 40%
278
Other Agriculture Infrastructure Recycling Efficiency Transportation Storage
$4.1B
Other Agriculture Infrastructure Recycling Efficiency Transportation Storage
Generation
20% 0%
Generation
# of Rounds
Note: Includes only North American deals Source: Cleantech Venture Monitor
Total $ Raised
13
Cleantech-specific deal evaluation criteria
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Massive addressable market opportunity Strong technology, process defensibility Convincing fundamental economics Viable distribution, infrastructure compatibility Capital efficiency, milestones tiered for risk reduction Time-to-market consistent with investment horizon Macroeconomic, regulatory, and public policy tailwinds Team with start/scale-up experience and domain expertise
14
Solar: Cost economics
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Total Installed Cost per Peak Watt
$8 $7 $6 $5 $4 $3 $2 $1 $0
Crystalline Silicon
Thin Film (Projected Costs)
ESTIMATES
Systems and Installation Module
Mono
Target Efficiency
Source: Lightspeed analysis
Multi
14%
CIGS
13%
CdTe
10%
a-Si
8%
New Tech
15%++
15
18%
Biofuels: Cost economics
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$8 Production Cost Per Gallon (Gasoline Equivalent) $6
$25+ ESTIMATES
Infrastructure compatibility issues
Feedstock-constrained
Synthetic biology Metabolic engineering
Tax Credit
$4 $2 $0 $50/Barrel Oil Wholesale Soy-based Biodiesel Corn-based Ethanol Cellulosic Ethanol New Tech
Coal liquefaction Photosynthetic (algae)
Tax Credit Tax Credit
Algae-based Biocrude
Source: USDA, DOE, ILSA, Lightspeed analysis
16
Storage: Battery technologies
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Safer
Ni-Cd New Tech
Safety
Lead-acid Ni-MH
Li-Ion
0
50
100 Energy Density (Wh/Kg)
150
200
Smaller/Lighter
17
Source: Merriman, Curhan, Ford; IEA; Lightspeed analysis
Coal: primary source of SO2 emissions
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Growth in Global Energy Sources
US Electricity vs. SO2
Renewables
% change in global coal use (2001-04)
30% 25% 20% 15% 10% 5% 0% Coal NG Hydro Oil Nuclear 9% 8% 25%
100% 80% 60% 40%
Hydro Nuclear Gas
Other
Coal Coal
6%
4%
20% 0%
Electricity Generation
SO2 emission
Source: National Coal Council, Deutsche Bank, US Department of Energy
18
High-efficiency coal carries significant market premium
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Price Spread for Low-BTU vs. High-BTU Coal
~5-10X
Source: US Department of Energy
19
Government & public policy support has had strong “greening” impact
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Per Capita Electricity Sales
Per Capita Electricity Sales (not including self-generation) (kWh/person) (2006 to 2008 are forecast data)
U.S. Refrigerator Energy Use
New United States Refrigerator Use v. Time and Retail Prices
2,000 1,800 25
14,000
12,000
10,000
2005 Differences = 5,300kWh/yr = $165/capita
Average Energy Use or Price
United States
1,400 1,200 1,000 800 600 400
8,000
Refrigerator Size (cubic ft)
$ 1,270
15
6,000
California
10
4,000
Energy Use per Unit (kWh/Year) Refrigerator Price in 1983 $
$ 462 5
2,000
US GDP/capita Cal GSP/capita
Per Capita Income in Constant 2000 $ 1975 2005 % change 16,241 18,760 31,442 33,536 94% 79%
200 0
2008
0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982
0
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Key regulatory changes
Source: Art Rosenfield, California Energy Commission
2006
1947
1952
1957
1962
1967
1972
1977
1982
1987
1992
1997
2002
Key regulatory changes
20
Refrigerator volume (cubic feet)
1,600
20
How can policy support contribute to cleantech innovation today?
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Support Initiatives
Providing funding aid for cleantech startups and R&D efforts (grant monies, loan guarantees, tax breaks) Support creation of cleantech clusters and facilitate ecosystem communication Connecting startups to key export markets Setting example in adopting clean, energy efficient products for government use Reduce uncertainty by making multiyear commitments to environmental policy Expanding consumer and commercial incentives for cleantech adoption
Sample Policy Mechanisms
Solar: investment tax credit, residential/ commercial/utility-based PPA incentives Biofuel: blending/production credit, fuel distribution and performance requirements Wind: production tax credit Energy efficiency: demand response, HVAC, lighting, heating & green building incentives Smart grid: grid storage, net metering Transportation: incentives for fleet emissions/GHG reduction, ZEV credits Carbon reduction: cap & trade, carbon capture/sequestration, coal retrofitting
21
Greenhouse gas abatement necessitates a portfolio approach
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Source: McKinsey
22
Cleantech companies could have strong impact on the economy
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Average Employment for Energy Facilities
12 Jobs/MW operating capacity 10 8 6 4 2 0 Solar Biomass Wind Coal Gas 2.8 2.8 1.0 1.0
REPP: each MW of installed solar generates 35.5 new jobs CVN: 2007-10 cleantech VC-backed companies ~$14-19B investment 400-500K new jobs $70-100B new revenue Stern Review: cost of not addressing climate change: 5-20% of global GDP/yr
23
10.6
Source: UC Berkeley, Cleantech Venture Network, Renewable Energy Policy Project
Cleantech: A multitude of opportunities
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Solar
Wind
Fuels
Other Generation
Renewable petroleum biofuels
Coal pre-treatment systems
High-efficiency thin-film modules Algae-based biofuels/chemicals
Oil & gas exploration equipment
Storage
Energy Efficiency
Water/Air
Other
Next-generation lithium-ion batteries
Power management for LED lighting
Cleantech media & research
24
Questions?
Andrew G.W. Chung
Principal, Lightspeed Venture Partners andrew@lightspeedvp.com (650) 234-8300
Our mission: We partner with exceptional entrepreneurs to build high-growth, market-leading companies globally