Skystream Markets Launches Pioneering Platform for REC Trading

Sometimes innovations at the edges of clean tech (such as software) make more of an impact than those at the center (such as generation technologies). One example of this is the recently launched innovation RECstream, an over-the-counter transaction platform for renewable energy credits (RECs) developed by Skystream Markets, a Connecticut Innovations portfolio company. This platform creates a verifiable market price for RECs that traders can act on without moving the market. This feature was missing from the market until now, and is key for institutions that need to accurately value their REC portfolio.

Being able to accurately price RECs  is important because entities such as banks have to routinely evaluate their assets (mark to market), to ensure they are within their risk allocation limits for various securities. When these institutions can accurately price their REC assets, their risk is reduced and institutions will be willing to hold more RECs, thereby increasing the scope and scale of the REC market. Because RECs are a key part of any renewable generation project’s pro forma, anything that helps strengthen the REC market will improve the economics of clean generation and, in the end, enable more clean generation projects to get funded.

Read more about the RECstream platform in Skystream Markets’ recent press release.

Patrick O’Neill
Director, Investments
Connecticut Innovations

CI and Portfolio Companies Participate in Stamford Event

Patrick O’Neill, director of investments for Connecticut Innovations, is pictured third from left on the venture capital panel.

There were entrepreneurs from more than 60 companies seeking various stages of funding and networking at the recent FundingPost event held at the Stamford Innovation Center on September 6. Two of Connecticut Innovations’ portfolio companies, deets Inc. and Medical Device Logistics LLC (MDL), were among those present. It was apparent that entrepreneurship is thriving in Connecticut, and there was no shortage of seasoned entrepreneurs and angel and VC investors willing to guide and share their insights, and ultimately perhaps invest.

After welcoming remarks by Joe Rubin, executive director of FundingPost, Greg Slamowitz, founder and co-CEO of Ambrose Employer Group LLC, took the stage and delivered the keynote presentation. He enthusiastically shared his experience on the importance of building a business that is client oriented and with leaders and employees who are “engaged, aligned, empowered and on fire.”

The event also included two panel discussions. The first was on crowd funding, wherein industry experts shared their views on pros and cons of crowd funding. There was no doubt that entrepreneurs who traditionally have had a difficult time raising capital could benefit from crowd funding. However, it certainly was not a solution for every business model.

Before the second panel discussion, on venture capital, a time was set aside for startups to offer pitches. Entrepreneurs from more than 10 companies, mostly IT and software-related, pitched their business plans to investors.

One of the speakers on the venture capital panel was CI’s own Patrick O’Neill, director of investments. Angel and VC investors shared their thoughts and advice on the dos and don’ts of getting a startup funded.

The event ended with a networking reception for entrepreneurs and investors. Events like this bring startups and investors together, giving entrepreneurs a chance to network with investors and investors an opportunity to learn about startups, in a less formal setting. Overall, it was a win-win combination.

Lillian Mu
Investment Associate

Clean Tech and Strategic Funds

Last week I was at the New England Venture Summit in Boston, and along with seeing a number of great companies and panels, I participated on a panel that discussed the trends in clean tech investing. My main takeaway from this event: reality has started to set in on clean tech investments, and finding cash for clean tech investments is getting difficult.

When the clean tech wave started to grow back in 2006, many were hoping for a clean tech “bubble” to rival the IT bubble and carry us to the next wave of macroeconomic growth. To a small degree, a bubble did occur and the economics were pushing all of this forward. Oil at $147 a barrel was making for an interesting gold rush in which people thought they could reinvent the cold, hard sciences around energy, transportation and industry, much like IT reinvented how we work, play and communicate. We saw a lot of time, money and talent go to companies with no real value proposition, either due to violations of the first law of thermodynamics or the laws of supply and demand. This is usually one sure sign of a bubble – dumb money. Now we are starting to see some of the “fruits” of those early investments: additional capital needs, delayed schedules and performance not matching up to predictions. It is a heady brew that does not make investors happy. 

On the talent side, a couple of years ago every tech university was touting its green credentials, and every professor was dusting off his or her old/odd ideas, which had been on the back shelf since grad school. Now the talent and the investors have come to the same conclusion: clean tech is hard. It is capital intensive, the value proposition can be challenging, and the timeline is very long compared with that for IT companies. One cannot fix a wind mill by sending a patch over the Internet. 

Unfortunately, many clean tech ideas are replacements for existing, working and in most cases economically efficient solutions. Oil and natural gas may be limited in quantity and carry real environmental concerns, but the fact remains that these resources are currently plentiful and technologically advanced enough to provide the reliability and convenience that consumers are looking for. So, how do you make a clean tech company/product that investors and consumers will want? Create a strong value proposition. If you are replacing an existing product with something less useful and more expensive than the existing product, you will need the government to subsidize its production and mandate its use (think ethanol). Otherwise, it will fail. Now, if you come up with a product that is better, cheaper and cleaner than existing products, you will generate sales and profits and win the attention of investors. 

So let’s assume you have a great idea, which is cheaper, better and smarter. You have proven it out, and now you need capital to make it a commercial success. Where do you go for money? The good news is that, for young companies, there are numerous avenues for early-stage funding in the $100k area. Angel investors and smaller funds dedicated to startups, such as CI’s Pre-Seed Fund, help bring companies from conception to operation. From there, finding the bigger dollars gets harder as more and more VCs are moving down the capital trail and are only interested in companies with trailing revenues. Luckily, there are still VCs like Connecticut Innovations that have funds making Series A and expansion investments.

Patrick O’Neill
Investment Associate

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Going Green East 2010

After sitting through two days of panels and discussions at the Going Green East 2010 conference in Boston this week, I noted that there seems to be a consensus that the federal government is going to have to play a major role in stimulating clean tech if the industry is going to grow as its constituents would like. Several panelists, including all participating in the last panel, “The future of Clean Tech,” were asked to choose which mechanism would produce a better outcome for clean tech in the U.S.: the Waxman-Markey cap-and-trade bill, currently languishing in the Senate, or a new, third federal stimulus package, which would reward certain companies at the expense of others. Unfortunately, the best choice, relying on market forces to drive demand, was not allowed as an alternative.

Relying on the government to set the direction of your industry/sector/company is rife with trouble. First, if your company relies on regulation to be profitable, then the corollary must be true: without said regulation your business is not profitable. Thus the survival of your company is based on the belief that once the government passes a regulation that benefits your company, it will never be revised other than to make it more beneficial to your company. 

Second, if your company relies on the “kindness of strangers” (my respects to Tennessee Williams) in Washington to steer stimulus dollars your direction, then what happens when that kindness runs dry? Answer:  Same as above… your company is in deep trouble.

In short, building a company or, worse, an industry on the shifting sands of government largess is a fool’s errand and bound to collapse when political winds turn. We can see the start of this today. As federal deficits are hovering at historically high levels of 10% of GDP, most political watches are predicting significant gains for fiscal conservatives in the November elections. I do not see how more stimulus funding, resulting in higher debt and deficits, squares with the current mood of the populace, which wants to see the government reduce its spending. 

The good news is that clean tech can be profitable without stimulus support. The key is to build up companies and technologies that do not rely on government intervention, but rather on well tested market principles which allows customers to get more benefit from using fewer resources. That is the right path forward for the clean tech industry and I hope it is the one it follows for a sustainable future.

Patrick O’Neill
Investment Associate

 

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Investors Receptive to Clean Tech

On Wednesday, CI’s president and executive director, Peter Longo, was on a panel sponsored by the Connecticut Venture Group (CVG) and the Connecticut Chapter of the Association for Corporate Growth (ACG Connecticut), titled “Investing in Alternative Energy.” Also on the panel were three companies working in the alternative energy arena: Fuel Cell Energy, Connecticut’s premier fuel cell company; Reflexite, a diversified optics company with ties to the solar thermal and solar PV markets; and FlowDesign Wind Turbine Inc., the newcomer, which will close on a Series B round in excess of $35 million. 

In general, the mood around clean tech investing was upbeat. FlowDesign’s ability to attract investors signals that the market’s interest in clean tech is strong; market investors are following up their words with money. Additionally, Peter Longo pointed to another recent event that he believes bodes well for clean tech companies. A123, an eight-year-old battery company located in Watertown, Massachusetts, had its IPO in September. The significance is that A123 was losing money, yet the market was still interested, and to date the stock is doing fairly well. Also of note is that there are several other clean tech companies looking to go public, and if the market continues to stay strong, clean tech could provide what so many other sectors cannot seem to find lately: an exit. 

Patrick O’Neill
Investment Associate

 

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VC Rebound Theories Voiced at NVCA Meeting

The New England/National Venture Capital Association Luncheon, held in Boston on October 16, gave representatives from CI a chance to interact with other members of the VC community and take in a distinguished panel discussion. The general consensus of the meeting was that the industry is currently in the trough period of a 15-17 year recurring cycle and will experience a rebound from here that should last several years. When that turn will come and what will fuel the rebound are still open to debate. Telecom and IT were the drivers for the past two VC rebounds, and some suspect that cleantech/energy will propel the next one. LPs on the panel openly discussed the expectations of current investments in venture capital and LBOs (hoping for a simple return of capital from both) and the deep discounts in the secondary market.   

So how do you get a recovery without creating the next bubble? As we believe here at CI, recovery will be achieved by investing in good teams and companies with solid value propositions and products that people will be willing to open their wallets to purchase or acquire. CI continues to be one of the most active investors in the Northeast, as we strive to fund and grow high-tech firms in IT, life sciences and cleantech.

Patrick O’Neill
Investment Associate

Daniel Wagner
Investment Associate

 

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Wind Solution on the Horizon for Low and Moderate Wind Areas

Connecticut Innovations recently announced a $1 million investment in Optiwind Corp. of Torrington, Connecticut, through the Connecticut Clean Tech Fund, a partnership between CI, the Department of Economic and Community Development and the Connecticut Clean Energy Fund.

Optiwind will use this funding to further refine and demonstrate its wind acceleration turbine system. A successful demonstration of Optiwind’s wind turbine product will open up the mid-sized wind market not only in the U.S. but also in Europe. If the company hits its aggressive cost AND performance targets, it will prove that the product can be an economically viable solution anywhere there are high utility rates and Class II winds or better – i.e. locations such as Connecticut. 

Read more about the Connecticut Clean Tech Fund’s investment in Optiwind here.

Patrick O’Neill
Investment Associate

 

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Will the Fiscal Stimulus Plan Work – For Clean Tech? For the Economy?

Over the past three weeks I have been able to attend two conferences and listen in on some fascinating discussions about green technology and the economic stimulus currently underway at the federal level.  At the Going Green Conference in Boston, the attendees were very excited about the prospects of significant increases in federal spending in all things clean tech.  The general consensus in the room was that this spending would not only further stimulate the clean tech sector and help build on the momentum created by soaring energy prices last year, but would also provide the impetus to launch the country out of its current recession.

At a conference hosted by the Council on Foreign Affairs, entitled A Second Look at the Great Depression, many noted economists were much more circumspect on prospects of the fiscal stimulus proposed by the federal government to lift the U.S. out of recession.  Two doubters in particular stood out: Robert E. Lucas, Jr., the 1995 Nobel Laureate in Economic Sciences, and Anne J. Schwartz, an economist with the National Bureau of Economic Research.  Neither could find an economic justification for fiscal stimulus (an increase in government spending), instead favoring monetary stimulus (an increase in the money supply).

I personally favor a loose monetary policy approach because the resultant increase in the money supply will decrease the costs of acquiring up-front capital for all projects including clean tech projects.  Conversely, targeted fiscal stimulus will create a feast for selected projects and technologies, which in turn makes for big winners and losers regardless of their true economic value.  This occurs by removing the market forces that would normally value a project and replacing them with legislative forces, which historically are empowered more by lobbyists than economics. 

Patrick O’Neill
Investment Associate
Which do you favor?  Fiscal stimulus or monetary stimulus?

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A Key to the Recovery…

Doom and gloom have been filling the media lately as banks, equities and real estate investments all go south.  The economy is crashing, free enterprise is failing, the sky is falling.  To all this I say, “Bah, humbug.”  To paraphrase Joe Paterno, “Things are never as good or as bad as people make them out to be.” 

So a few key points…

Don’t believe all of the hype.  Keep in mind that media outlets get paid based on the number of viewers.  The more eyes on the page, TV or monitor, the more they can charge for advertisement.  So the worse they can paint the picture, the better to terrify viewers and keep them watching after the commercial break. 

This is nowhere near as bad as the Great Depression.  The most dramatic statistic of the Great Depression was an unemployment rate of 25%, and recall in those times it was more common to have only one breadwinner in a household, so that meant that at 25% unemployment, approximately 20% of U.S. households were without a breadwinner (accounting for the small percent of married women working outside the home and adult children living at home and working).  Imagine one out of every five households nationwide without a breadwinner.  Compared to today, where ~54% of U.S. households are dual income (per the U.S. Department of Labor), the equivalent unemployment rate required to have nearly 20% of households without any breadwinner would be over 40%.  I am not saying these are not tough times, but the sky is not falling.

This too shall pass.  During the 1990s we were told that we were in a “New Economy” where all of the old rules for valuations and business cycles no longer applied.  Stock markets soared and real estate values enjoyed 10% gains year over year.  No one wanted to hear that those good times would not roll on forever, and that perhaps these markets were bubbles, but the bubbles popped anyway.  So here we are in a recession.  Unemployment is around 7% and some predict it could go as high as 10%.  Major companies once thought of as the bulwarks of the U.S. economy are in danger of collapse or have collapsed (automotive companies, banks, etc.).   

One area that is not in a recession is innovation.  Innovation is impervious to business cycles and bad economic times.  If someone has a great idea that they think can revolutionize a market and make them a lot of money in the process, they will pursue it.  In hard times, successful companies will develop new products and services that meet the needs of a changing environment.
 
At Connecticut Innovations, we are looking for these innovations and have what these innovators need most:  funds to invest in their ideas and the expertise to help them realize their goals.  Our recently unveiled Clean Tech Fund is looking for disruptive technologies that will help decrease our dependence on fossil fuels or improve our environment, and our Eli Whitney Fund is looking for innovation in any high tech field. 

Connecticut Innovations is a key to the recovery in Connecticut.  CI is uniquely positioned to help turn around our state’s economy.  We have the funds and the expertise to help along early-stage companies which are the engines of growth in the U.S. economy.  So, if your company is looking for investors, contact Connecticut Innovations.  We can help. 

 
Patrick O’Neill
Investment Associate

 

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