Private Investments in Private Investments in New Environmental New Environmental

TechnologiesTechnologiesPresentation to the Presentation to the

Triple Bottom Line Investing Conference Triple Bottom Line Investing Conference Bangkok, ThailandBangkok, Thailand

May 24, 2007May 24, 2007

Jay Shepherd, Shibley Righton LLP

Presentation RoadmapPresentation Roadmap• Investing Issues

– Philosophies– Startup Investing– Environmental Technologies

• Case Studies– Frozen Sun Inc.– Iogen Inc.– Group IV Semiconductor Inc.

InvestingInvestingIssuesIssues

The Philosophical DebateThe Philosophical Debate• Profit vs. SRI Goals

– SRI as charitable donations– SRI for indirect benefits– SRI as sound long term fundamentals– Is there a free ride for TBLI?

• Investing in “SRI” Startups– Some investors – profit maximization– Other investors – non-profit motives– Trick is integrating the two

Investing in Technology Investing in Technology StartupsStartups

TechnologyTechnology• Does it Work?• Is it Unique?

– Can it be Replicated?– Barriers to Entry?– Ownership and

Protection

• Can it be Scaled Up?

PeoplePeople• Management Team

– Entrepreneur

– CEO, CFO

• Scientific Team– Inventor– Development group

• Recruitment

Risk MinimizationRisk Minimization

TechnologyTechnology• Standard Due Diligence

– Patents– Literature Review– Demo

• Startup Specials– Peer Review– Critical Path Analysis

• “Showstoppers” List

– Scenario Analysis• Alternate Revenue Streams

Risk MinimizationRisk Minimization

PeoplePeople• Existing Personnel

– “Founderitis”• Earnbacks and other Vesting Tests

• Investor controls

– Management vs. Technical Strengths– Stock Options/Performance Compensation

• Recruitment– Detailed Needs Analysis – Investor Assisted Additions– Attractiveness of technology and team

Environmental TechnologiesEnvironmental TechnologiesWhat’s Different?What’s Different?

• Investor Motivations

• Government Funding

• Entrepreneur’s Attitude

• Recruitment

Environmental TechnologiesEnvironmental Technologies

Investor MotivationsInvestor Motivations

• Good Deeds– Altruistic– Cocktail party advantage

• Public Relations• Hedging

– Technology/product– Regulatory

Environmental TechnologiesEnvironmental Technologies

Government FundingGovernment Funding

• Expanded List of Sources– eg. Climate Change, Air Quality

• Funding Life Cycle– Relationship to Technology Window– Corporate Culture (Patience)

• Strings Attached– Intellectual Property Rights– Location/Hiring, etc.

Environmental TechnologiesEnvironmental Technologies

Entrepreneur’s AttitudeEntrepreneur’s Attitude

• Business Management– Management as “bloodsport”– Dedication to profit motive

• The Righteous Executive– Can she/he make the hard decisions?– How clear are the corporate goals?– A special kind of “founderitis”

Environmental TechnologiesEnvironmental Technologies

RecruitmentRecruitment

• Who Can You Attract?– “First round draft choices” – Mid to late career success stories

• What about the Money?– Personal goals of “young stars”– Importance of stock options for true

believers

CaseCaseStudiesStudies

Frozen Sun Inc.Frozen Sun Inc.

ResultResult• Ran out of money

– Investors lost 100%– Entrepreneur moved on

to new ventures

• Technology never finished– Patents never filed– Never commercialized

TechnologyTechnology• Solar cooling rooms

– Food storage for rural villages

– No moving parts

• Potential customers– Development agencies– NGOs and foundations– Private corporations

Frozen Sun Inc.Frozen Sun Inc.

What Did They Do Wrong?What Did They Do Wrong?• Wrong Board of Directors

– Good CVs, lack of business experience– Politicians, true believers, etc.

• Scientist CEO– Inexperienced in business– No “hardass” to create urgency in R&D program

• Underfunded– Needed more focus on financial plan– A strong CFO or CEO would have seen need for

more funding earlier

Iogen Inc.Iogen Inc.

ResultResult• Pilot Plant

– Fully operational

• Commercial facilities– In planning stages– $80 million DOE grant

• Prospects– Will be multi-billion

company in 5 years

TechnologyTechnology• Cellulose ethanol

– Enzymes– Proprietary process

• Large Market– Superior to corn

ethanol– Even if competition,

market large enough

Iogen Inc.Iogen Inc.

What Did They Do Right?What Did They Do Right?

• Technology Decisions– Seek a near-term revenue stream from core

technology early, but– Focus development team on long-term goal– Entrepreneur scientist steps back

• Personnel Decisions– Build a top development team and let them run it– Recruit top executives early– Use advantage of environmentally positive business

model

Iogen Inc.Iogen Inc.

What Did They Do Right?What Did They Do Right?• Financial Decisions

– Strategic relationships with oil companies seeking• Public relations advantages

• Hedging an environmentally negative portfolio

– Aggressive use of government funding• Location in Canada’s national capital

• Early hire of experienced government relations exec.

• Patience and understanding of government agenda

• High risk approach paid off - $80 million US DOE

– Independent Revenue Stream• Spinoff applications of core technology

• Allowed corporation to skip VC funding

Group IV Semiconductor Inc.Group IV Semiconductor Inc.

ResultResult• Well financed

– Angels and VCs– High quality investors

• Prototypes performing better than LEDs– Multiple technology

platforms– Main products by 2008/9– Niche products earlier

TechnologyTechnology• Solid state lighting

– Uses inexpensive materials, e.g silicon

– Incandescent costs, but 10-15% energy use

• Massive markets– General illumination– LCD backlighting– Many niche apps

Group IV Semiconductor Inc.Group IV Semiconductor Inc.

What Did They Do Right?What Did They Do Right?• Inventor/Businessman Partnership

– Inventor sought experienced businessman as CEO– CEO runs company, inventor has specialized role

• Recruitment– Sold on business, not environmental benefits– Emphasis on product development experience

• Board of Directors– Business acumen the selection criterion– Three successful technology CEOs included– World class Chairman of the Board

Group IV Semiconductor Inc.Group IV Semiconductor Inc.

What Did They Do Right?What Did They Do Right?• Solid conventional financing plan

– Early angel funding and solid seed round investors– Top calibre A Round financing – attracts others– Relentless program, plus reliance on great board

– Paid strong attention to Cleantech, etc.

• Alternative financing program– Government sources

• Tie-in to universities – problems, but worth it

• Heavy use of milestone-driven financing

– Conventional energy sector• Mainly public relations driven

Private Investments in Private Investments in New Environmental New Environmental

TechnologiesTechnologiesPresentation to the Presentation to the

Triple Bottom Line Investing Conference Triple Bottom Line Investing Conference Bangkok, ThailandBangkok, Thailand

May 24, 2007May 24, 2007

Jay Shepherd, Shibley Righton LLP