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CleanTech Market : VC Opportunities for Taiwan

CleanTech Market : VC Opportunities for Taiwan. Hank Habicht Managing Partner, SAIL Ventures Taipei Forum January 14, 2009. Objectives for Today. Describe global and U.S. trends in Clean Technology (“CleanTech”) development and investment, including projections for 2009

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CleanTech Market : VC Opportunities for Taiwan

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  1. CleanTech Market :VC Opportunities for Taiwan Hank Habicht Managing Partner, SAIL VenturesTaipei ForumJanuary 14, 2009

  2. Objectives for Today • Describe global and U.S. trends in Clean Technology (“CleanTech”) development and investment, including projections for 2009 • Outline the role venture capital and public-private partnerships play in bringing new technology to market • Discuss opportunities for Taiwan and ideas for accelerating investments and market growth for Taiwan CleanTech firms and products A key to success is teaming with the right partners

  3. Taiwan Can Help Change the World Thesis: Clean Technology can change how we produce and consume. Success depends on: • Entrepreneurs funded by VCs and public • Government support for new ideas/ventures • Customers willing to try new ideas • Strong partnerships (businesses & government) Taiwan has excellent combination of innovation, entrepreneurial business culture and partnerships to succeed in Cleantech

  4. Current Perspective • SAIL Venture Partners: CleanTech focus, based in California and Washington, D.C; 5 Partners; 10 current portfolio companies (www.sailvc.com) • GETF: developing clean energy and water projects globally (www.getf.org) • Commissioner, National Commission on Energy Policy (www.energycommission.org) • Steering Committee, Energy Future Coalition (www.energyfuturecoalition.org), ACORE, • and 25x25

  5. SAIL Team Synergy Alan Sellers Management Systems/People David Jones Business & Financial Models Walter Schindler Deal Structure/Exits Hank Habicht CleanTech Markets/Policy Thomas Cain Operations/ Engineering • Partner Westar Capital • Executive Pacific Holding Company • EVP Dole Foods • VP Ultrasystems • General Counsel Pacific Holdings • 25-year Boards • Wilmington Trust Advisory Board • Wharton MBA • Columbia JD/CPA • Yale BA • COO of EPA • US Attorney General –Energy & Environment • Senior VP Safety-Kleen • Head of M&A and Corp Acct sales • Principal in Environmental Venture Fund (3x) • Founder ACORE • Advisor to Secretary of Energy and NREL • Princeton BA • Virginia JD • Founded and grew start-up to $100M and 2,000 employees • Serial Entrepreneur in IT and Energy • Led DAI, Frontstep, Interact, Starco, and Evans • Led 2 NASDAQ Turnarounds • Chairman or Director of 15 Companies • YPO Exec Ed @ MIT & Harvard Business School • 25-Year Venture Capitalist as Managing Partner • 60 Investments • Northwest Pipe • Co-invested with 100 other VC’s • Chairman NASBIC • 4 Early-Stage Funds • Chairman or Director of 12 Public/Private Companies • Dartmouth BA • USC JD & MBA • Managing Partner Gibson Dunn and Crutcher • Alternative Energy Expert at GDC • 60 M&A / IPO’s (Ultrasystems, PIMCO and RemedyTemp) • US Bank Advisory Board • CEO Roundtable—UC Irvine • 20 years strategic advisor on value creation • Harvard JD • Yale BA, MA, PhD

  6. Strategy and Execution • Deploy networks of experts to find optimal combination of technology, team and scalable business model • Deep understanding of domain trends: Identify biggest problems whose solutions can be profitable in a VC timeframe • Sophisticated and documented process • Engage all partners to deliver victories, add value and build deep relationships with portfolio companies

  7. What is CleanTech? • Technology innovation in the more efficient use of energy, water, food and other scarce and valuable global resources: • - Optimize use of natural resources • - Reduce ecological impact and • - Add economic value by lowering costs and improving profits Clean Technology Large, Growing, Profitable Markets • CleanTech is the world’s fastest growing investment category • The 3rd largest venture capital investment category: over 14% market share in North America, 18% in Europe • CleanTech markets are large multibillion dollar global markets Enormous Growth Potential • “May be the largest wealth creation opportunity of the 21st century” • Multiple waves of technological innovation

  8. The Market: Why 2009 is a Big Year • Impact of credit crisis and volatile energy prices • Competition for scarce energy and water resources • Political transitioning: Obama’s Agenda (proposed $150Billion to invest in cleantech) • Climate change has become a top priority • The power of emerging economies as buyers and users of clean technology Strong drivers of change in energy and water markets

  9. Many Ways to Finance Innovation • Entrepreneur Personal Funds • Personal credit card & other borrowings • Venture capital • Venture leasing • Merger and Acquisition • Secondary/Follow-on Public Offering • Buyout/Acquisition Financing • Corporate Debt • “Friends and Family” • Angel investors • Corporate direct investment • Mezzanine Financing • Initial Public Offering • Private Placements – Debt & Equity • Corporate R&D Source: “Green Technology and Venture Capital Investment” presentation, The National Venture Capital Association, March 2008.

  10. Analysis of Investment Styles – Risk and Return Profiles, Financing Venture Capital: New Clean/Environmental Technologies Style Buyout/ Expansion/ PIPES Clean Energy Infrastructure Existing and New Technologies Angel / A B / C D / IPO Stage Technology Identification & Business Formation Pilot Plant Demo Plant First Commercial Scale Plant Project Development Project Finance (Infrastructure) Portfolio of Assets Risks High Medium Low to Medium • Technology Selection • Business Formation • Initial management selection • Execution Strategy • Technology scale up risk from “bench scale” to integrated demonstration scale • Engineering, design • Management • Financial risks • Performance guarantees • Site and permits • Engineering & design • Additional scale up: • Construction cost • O&M • Performance • Site selection • Permitting • Securing equipment • Contractors’ cost estimates • Organizational structure and management • Financing • Off-take agreements (i.e. Power Purchase Agreements or “PPA”s) • Engineering, Procurement and Construction (“EPC”) contracts • Supply agreements & logistics • Project debt & equity financing • Hedging • Valuations • Growth potential/ incremental development • Capital structure Returns • 40% + IRRs • New “disruptive technologies, such as: • - Solar thin film, other non crystalline technologies • - 2nd generation biofuels, including cellulosic • ethanol • - Coal gasification; carbon capture & sequestration • - Battery technology (auto) • 25%-30% + IRRs • Development promote: • -Repayment of costs at financial close • - Equity promote to developer • Growth: wind, solar thermal, geothermal, biofuels, waste-to-energy, hydro • 12% - 20% IRRs, depending on cash flow volatility – i.e. low (landfill gas); high (biofuels) • 25% + IRR • Growth • Equipment/services • Generation/develop. • $100bn total market cap all clean energy Fin. 70 -100% Equity 70 – 80% Debt 100% Equity Varies Source: Sustainable Development Investments presentation by Citi Alternative Investments

  11. US Venture Capital Investment in Perspective • US GDP (national income) $12.5 trillion annually • Hedge fund intake $1.5 trillion over last 3 years (estimated) • Mutual fund intake $158 billion in 2006 • Buyout intake $103 billion in 2006 • Venture capital intake $28.6 billion in 2006 • Venture capital fundraising & investment Is 0.2% of total GDP Source: BLS website, Investment Company Institute, Thomson Financial, NVCA

  12. Global Insight Study • In 2006, venture backed companies: • Provided 10.4 million US jobs • Had sales of $2.3 trillion • Represents 17.6% of GDP • Still dominated venture-created sectors • 56% of biotech revenue • 78% of computer and peripherals revenue • 94% of computer and peripherals jobs • 88% of software sector jobs • Outgrew the economy 2003-2006 in every sector Source: Venture Impact 2006 by Global Insight

  13. Venture-Backed Employment VC-Backed US Jobs (millions) As a % of total US Pvt Jobs in 2006 Outpaces 2003 - 2006 Total US Job Growth Source: Venture Impact 2006 by Global Insight

  14. Venture Capital Investment is Productive ... • For VC every dollar invested in 1970-2001, there was $7.90 in US revenue during 2006 • For every $28,463 of venture capital invested in 1970-2001, there was one job in the year 2006 • Note these ratios are based on investment through 2001 ($296B) because investment after that time has likely had little effect on 2006 jobs and revenues. If investment through 2006 ($421B) is used, the ratios would be $5.55 and $40,364 respectively Source: Venture Impact 2006 by Global Insight

  15. CleanTech VC Scales Relatively Top 6 U.S. Venture Capital Industries, Percent Change Q3 2001 to Q3 2007 Source: CleanTech Venture Network

  16. CleanTech VC Scales Absolutely Annual North American CleanTech Venture Capital Deals and Investment Totals 2001 to Q3 2007 (Millions of dollars) Source: CleanTech Venture Network

  17. CleanTech Index 45 US Traded Stocks Combined Market Cap of approx $280BN Minimum market float of $150M and 50%+ of sales or operating profits from CleanTech businesses Source: CleanTech Venture Network

  18. Can CleanTech Make Money? CleanTech IPO’s have yielded returns to pre-IPO investors of 5.5X, while European venture-backed IPO’s have generated returns of over 8X. Returns on CleanTech M&A transactions have been 4.3X on invested equity A hypothetical portfolio of CleanTech venture capital investments would have delivered an estimated IRR of approximately 30%. Based on a 2006 study by the CleanTech Group CleanTech Venture Capital: Performance

  19. Where Did the CleanTech Money Go in 2008? (A Record $8.4 Billion) Source: The Cleantech Group; January 12, 2009 Report (www.cleantech.org )

  20. What Makes A Market Attractive to Venture Capital? • Capital formation • Prudent man rule – enabled pension investment • Limited Partner laws • Capital gains tax reduction • Empowered entrepreneurs • Capital gains tax reductions • Stock options/team building tools • Reasonable bankruptcy laws • Protect companies – Patent and IP laws • Abundant customers willing to do business with SMEs • Exit markets – the NASDAQ • Face-to-face investing/proximity • Adoption--Cultural acceptance of new ideas Source: “Green Technology and Venture Capital Investment” presentation, The National Venture Capital Association, March 2008.

  21. Investment Drivers • High Energy Prices • Imported Mideast Oil • Climate Change

  22. Investment Drivers 4. Electric Grid Capacity Issues 5. Successful Cost Reductions/Technology Innovations

  23. Investment Drivers 6. Public Awareness/Corporate Action

  24. A Venture Capital Perspective • We look for: • Huge TAM (Total Available Market) • “White Space” = Unmet Needs and Big Problems • Team + Technology = Major Market Advantage • Time Frames • Near-term beachheads (market share) • Exits in 5-7 years

  25. Urban Infrastructure Needs Makeover The World’s Urban Infrastructure Needs More Than $40 Trillion

  26. Reducing Carbon – Targets Source: CleanTech Venture Network

  27. Examples of CleanTech Energy Efficiency – New Spark Plug causes more complete combustion, greater fuel economy and less pollution Alternative Energy and Renewable Fuels – Solar, wind, and biomass power; waste to energy; biofuels Electrical Efficiency – New Electric Motor is 50% more efficient, reducing strain on the electric grid Energy Storage – Batteries that last for the life of the product, or perform large-scale load leveling Lighting – New light source technology uses 1/10 the electrical power

  28. Clean Energy Yields Big Benefits Source: IEA, IPCC, Mckinsey, and other sources with NREL benefits analysis

  29. Innovations in Efficiency • Demand Side Management: The resurgence of “Negawatts” • Lighting: 30% of the load at 15% efficiency • Edison Vs. Tesla: AC Vs. DC • Green Buildings: Coming of Age, 20 years later IEA says 80% of CO2 Reductions from Efficiency

  30. Green Buildings A platform for multiple technologies • Combined heat and power systems • Nano-insulation • “Smart” windows • Advanced lighting applications • Renewable power sources • Smart appliances • Load shifting/storage

  31. Connecting Vehicles and Grid • Electric vehicles to use off-peak power • Key is advanced batteries with maximum energy and power density • President Obama goal: 1 million plug-in Hybrid Vehicles • Major Companies inU.S. Battery Consortium

  32. Drivers for Global Water Markets • 20th century: Population grew 3x, water use grew 6x • Shortages: 3 billion people face water scarcity by 2025 • Water market exceeds $500 billion (GlobalWaterIntelligence) • Private equity accelerating • India and China • Water-spending growth >20% annually • Infrastructure needs ($5 trillion): Big gaps in coverage

  33. Water Technologies (Both hardware and practices) • Information/analytics/monitoring • Demand-side technologies, cost-effective efficiency opportunities • Agriculture: 10-50% (e.g., CIMIS) • Industry: 40-90% (e.g., GEMI) • Cities: 30% • Supply-side technologies • Adv. purification (e.g., adv. sewage treatment, recycling) • Source augmentation (e.g., rainwater harvesting) • Water security • Desalination • Next big thing: Energy-water interface

  34. Selected Investments ofSAIL I

  35. Problems Solved: Globally Affordable pathogen free drinking water conveniently accessible. Product: UV water purification systems Source: Approached by WHI & Dow Chemical, co-investor IP Estate: solid patents Management: Tralance Addy, President & CEO; David Katz, CFO Environmental Impact: Major human quality of life; life expectancy; education; carbon reduction. Other Investors Dr. Anji Reddy, Johnson & Johnson, Acumen Fund, International Finance Corporation, Dow Chemical Examples of SAIL’s value-add Provided key guidance on international business, strategic relationships and business model. Helping at high levels to source financing for village systems from corporate, International banks and Indian institutions. Awards Toshiba Green Innovation Award 2007 Discover magazine’s Award for Technical Innovation & “Best of the Decade” invention US News & World Report cites as one of “20 Ways to Save the World”

  36. Problems Solved: Eliminate peak-power requirements due to air-conditioning by shifting consumption to night. Product: Refrigeration-based air conditioning unit that makes ice at night Source: Trade show IP Estate: Robust patents Management: Frank Ramirez, CEO; Greg Tropsa, COO; Brian Parsennet, CTO Environmental Impact: Reduce 95% of peak-power demand for A/C; lowest-cost LEED/Title 24 building credits; each unit reduces GHG equivalent of 2 cars. Other Investors Goldman Sachs, Good Energies, Joe Gorman, Pete Higgins, Energy Capital Partners Examples of SAIL’s value-add Focused company on reducing costs through off-shore sourcing. Assisted in market development with regulators and business introductions. Awards 2005 Innovation Quotient Award 2005 Top 10 Green Building product 2003, 2004 & 2005 “Most Promising Company,” Energy Venture Fair 2004 “World’s Best Technology” Gold Award

  37. Problems Solved: Incomplete burning of gasoline or 2-cycle fuel. Product: Replacement intelligent plug (ultracapacitor) that generates several thousand times the spark of current plugs. Source: Trade show IP Estate: Robust IP Management: Dan Parker, CEO; Lou Camilli, President; Jim Scott, CMO; Brian Templeton, CFOEnvironmental Impact: Reduction of gasoline consumption in US by 30 million gallons/day (11B/yr) and reduction of pollutant generated on remaining 360 million gallons/day. Other Investors Altira Ventures Examples of SAIL’s value-add Introduction to advanced direct selling technology; Genalytics. Tim Ford, ex-CEO of JC Whitney. Secured commitment from Nissan engineers to test. Test Results VehicleEconomyTorque0-60 Marquis 10.5% 11% 5% Corolla 2.2% 5% 10% Avalanche 8.4% 11.2% 7.8% BMW 740i 8.4% 6.9% 8.0%

  38. Problems Solved: 400M 60% efficient HVAC electric motors in US/yr. Millions more in Washer/Dryers, pools, dishwashers, refrigerators Product: Low-cost, brushless DC motor with Electronic Communication (ECM) at 90% efficiency. Source: Firm Advisor IP Estate: Robust IP Management: James Jeung, CTO Director: Thomas Cain Environmental Impact: DOE estimates US electric grid is 60% electric motor. SN Tech motors are 80% more efficient than existing. Result is removing pressure on grid and eliminating peak-power issues. Other Investors Korean Angel investors Examples of SAIL’s value-add Recruitment of CEO, CFO, initial sales staff. Identify new rapid adoption market. Define initial marketing strategy and initiate IP estate development. Awards Silver Medal – 18th, 20th, 26th Salon International Inventions, Switzerland IFIA Cup Prize, Germany Gold Prize IENA

  39. Problems Solved: Reduce pollutants from burning fossil fuels through simple-to-apply additives. Product: Proven products for diesel, biodiesel and 2-cycle. Products in final commercialization for residual & gasoline. Product in development for coal. Source: Referral IP Estate: Patents of biotechnology (beta-carotene) Management: Jim Cleary, CEO; Fred Jordan, CTO; Kevin McGlensey, President; Jerome Kaiser, CFO Environmental Impact: Reduction of millions of tons of NOx and particulates; removes significant conventional pollutants from each gallon of fossil fuel. Other Investors Paladin Homeland Security Fund, Ridgewood Ventures Examples of SAIL’s value-add Led company to obtain 1st certification, Texas LED. Sourced major strategic customer, protected IP. Led development of 1st manufacturing facility. Raised $27M in Series C financing. Awards Red Herring’s “100 Most Innovative Companies” EPA Scientific and Technology Achievement Award

  40. Problems Solved: Catalyze the CleanTech Sector through building networks of conferences, indexes, advisory services and recruiting. Product: CleanTech Venture Network (US, Europe, China); CleanTech Advisory Service; CleanTech Executive Search; CleanTech Forum, CleanTech Indices Source: Strategic target IP Estate: CleanTech trademark Management: Nick Parker, Chairman; Keith Raab, CEO Environmental Impact: Leading enabler of CleanTech investments and purchases of sustainable technology. Leader in investment partners in US, China and Europe. Other Investors Credit Suisse, Bob Epstein (closing with a top-tier investment bank) Examples of SAIL’s value-add Advised company on internal operational matters, expansion and strategic relationships; developed high-level government contacts, private partners and sponsors. Enablers Ernst & Young, Global Environment Fund, Jefferies, Wilson Sonsini, Masdar, HellerEhrman, Canaccord Adams, 3i, Rockport Capital, Expansion Capital, John Deere

  41. Problems Solved: Efficient, safe, economical storage of massive amounts of electricity to buffer wind/solar farms, replace peak power plants, load shift buildings from peak. Product: Solid lead acid 1kw battery and power management system designed to place in low cost massive array configuration. Source: Personal Contact with Angel Investor IP Estate: Robust IP & Trade Secret Management: Carlos Coe, CEO; Aeron Hurst, Technologist; Michael Breen, CFO Environmental Impact: Reduction of fossil fuel consumption for electrical generation, enable renewable fuel usage, relieve current grid stress points. Other Institutional Investors None Large scale Storage • Initial Customers Home Depot, Grainger, Freescale, TEES • Examples of SAIL’s value-add: • Secure IP of batteries and power management. Resolve market exclusivities. Create strategy for trade secret protection. Facilitation of major new customer acquisition. Creation of business plan. • Test Results • Imperceptible resistance under load • Less than 7% round trip energy loss • $200K /MW hr of storage • 10-20 Year Battery Life • 5000 100/5 deep discharge cycles • 250,000 90/20 charge/discharge cycles • Full charge in 5 minutes • 100MW/hr array configurations 41

  42. Finding the Best Deals • SAIL Team focuses on strategic priorities, contacts network of sources weekly • Dedicated networks of science and business advisors • All 5 partners have extensive deal networks • Partners review more than 10 possible deals per week – deeper review of 1/10

  43. Directions in CleanTech • CleanTech sectors and potential portfolio allocations include: • Renewable Energy • Energy Efficiency • Water Quality and Supply • “Smart” Electricity Grid • Electric (PHEV) Vehicles • Enabling Technologies • Alternative Materials • Pollution/Waste Reduction and Conversion 43

  44. CleanTech Top 10 Regions The Top 10 CleanTech Regions in Q1 – Q3 2007 • US : West Coast ($1.3B) • US : Northeast ($526M) • Western Europe ($394M) • US : Southwest ($299M) • US : Northwest ($283M) • Southern Europe ($212M) • US : Southeast ($107M) • Western Canada ($104M) • Eastern China ($100M) • US : Midwest ($85M) The top ten regions accounted for 3.40B out of 3.65B for Q1 – Q3 2007, or 93%. Source: CleanTech Venture Network

  45. Issues Affecting CleanTech Investments • U.S. Climate Policy/Global Carbon Prices • Linkages among entire financial value chain (Debt/Project Finance-VC-Later Equity- Emission Credits) • Fiscal Incentives/Tax and Pollution Credits • Emerging economies – especially India & China • Research, Development and Customer Adoption –”Culture Change”

  46. Critical Success Factors for Venture Investing • Ability to grow value and achieve exit in a strategic acquisition or IPO – requires technology packaged in business model with real customers • Investing at stage of growth that balances risk and value • Team with value-added partners • Work with government but do not rely on government

  47. Partnerships that Help Companies Succeed • Successful CleanTech firms must partner with government, NGOs and other private firms • Partners must enhance ability to grow market share and conserve cash • A country’s economic and policy environment must create right incentives to take risks (capital gain taxes, investment and R&D tax credits, stock options, IP laws, incentives for customer adoption of new technologies, exits)

  48. Areas of Potential Collaboration between Taiwan and Other Investors • Electricity – grid management; efficient delivery and storage of power (Island strategy) • Renewable power and waste to energy • Transportation – new electric vehicles and cost-effective, long-life storage technologies • Green buildings – effective building management • Water management and monitoring • Chemical alternatives & new materials

  49. SAILinto the future • Build sector-leading returns • Fully deploy Partners’ collective skill sets and global relationships • Add value across spectrum of business needs • Deliver economic value and measurable environmental improvement • Create the leading CleanTech venture platformcombining domain mastery with passion for results • Partner with great companies and governments … like Taiwan

  50. Questions? Thank you! hhabicht@sailvc.com

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