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The Governor’s Conference on Energy
Where Does the Money Come From? – Raising Capital
Wednesday, October 13th
3:30pm – 5:00pmRichmond, Virginia
The Governor’s Conference on Energy
Bob SleddSenior Economic Advisor to the
Governor
Where Does the Money Come From? – Raising Capital
Scott ParsonsExecutive Director of the VSBFA
Where Does the Money Come From?
• Presently Virginia has three financing assistance programs at the Dept. of Business Assistance that can be used for energy related projects. Energy projects would include those that create quality employment opportunities and that:– Reduce energy use; or– Increase energy efficiency; or– Increase the use of alternative/renewable energy source
• The Virginia Business One Stop provides a single place to accelerate new business formation by the McDonnell Administration. It is also a one stop for information resources and regulatory/permitting requirements for start-ups and existing Virginia businesses.
Contact:Scott Parsons, Virginia Small
Business Financing
Authority at DBA
804-371-8208
BOS.VIRGINIA.GOV
Where Does the Money Come From?
• Through the programs of the Small Business Financing Authority at the Department of Business Assistance, energy projects could get public support through
– VIRGINIA CAPITAL ACCESS PROGRAMLoan loss reserve pools
– LOAN GUARANTY PROGRAMLoan guaranties
– ECONOMIC DEVELOPMENT LOAN FUND
Direct loans providing “gap” financing
Contact:Scott Parsons, Virginia Small
Business Financing
Authority at DBA
804-371-8208
BOS.VIRGINIA.GOV
Where Does the Money Come From? – Raising Capital
Stephen WalzDirector, Virginia Department of Mines,
Minerals and Energy
Where Does the Money Come from?Raising the capital for energy business development
• Direct Grants• Tax Credits• Market Building• Business Support
Direct Grants - State• DMME Economic Development
Grants– Energy businesses; $12million
• DMME Biomass and WTE Grants– Private and public projects; $10
million• Biofuels Production Grant• Solar-PV Manufacturers
Incentive Grant (SMIG)
Direct Grants - State
• Virginia Economic Development Partnership (VEDP) – Governor’s Opportunity Fund
(GOF)• Tobacco Commission• Virginia’s Center for Innovative
Technology (CIT)
Direct Grants - Federal• Department of Energy (DOE)
– Small Business Innovation Research (SBIR)– Small Business Technology Transfer (STTR)– Advanced Research Projects Agency –
Energy (ARPA-E)– Carbon Capture and Storage– Technology specific
• USDA– Renewable Energy/Energy Efficiency
Improvement Program (REEP)– Rural Economic Development Grants
(REDG)– Rural Economic Development Loans (REDL)
Tax Credits
• Virginia Green Jobs• Virginia Energy Star Sales Tax
Holiday• Biofuels production• Federal Tax Credits
– Manufacturing Energy Products– Investment Tax Credit (ITC)– Production Tax Credit (PTC)– ARRA Grant in Lieu of ITC
Market Building
• Weatherization Innovation ($4 m)• Regional Energy Alliances (REA)
– $2.7m – Competitive/Loan Loss• Virginia Energy Sense• State and Local EE Investments
– Energy Services Company (ESCO)
Market Building
• American Recovery and Reinvestment Act (ARRA)– Energy Efficiency (EE) Rebates– Renewable Energy (RE) Rebates– State, local and education project support
• Weatherization Assistance Program (WAP)
• Virginia Department of Agriculture and Consumer Services (VDACS)
Market Building
• Energy Savings Performance Contract (ESPC) – $300 million in State Buildings
• Clean Cities Program– Electric Vehicle (EV) Preparedness– Propane– Diesel Replacements
• Utility Energy Efficiency Programs
Business Support• Department of Business Assistance (DBA)• Business One Stops• Virginia Community College System (VCCS)
Training– HVAC– Utility workers– Wind Technician Training
• University R&D Partnerships and Centers– Virginia Center for Coal and Energy Research
(VCCER)– Virginia Coastal Energy Research Consortium
(VCERC)– JMU – small wind test and training facility
• Virginia Offshore Wind Development Authority (VOWDA)
Where Does the Money Come From? – Raising Capital
Stephanie HamlettExecutive Director, Virginia Resources
Authority
Where Does the Money Come From? – Raising Capital
Virginia Tobacco Commission R&D Fund
Bob Bailey, Executive DirectorCenter for Advanced Engineering and
Research
The Tobacco Indemnification and Community Revitalization Commission is a 31-member body created by the 1999
General Assembly. Its mission is the promotion of economic growth and development in tobacco-dependent communities,
using proceeds of the national tobacco settlement.
Primary Strategies• Building technology infrastructure• Building human infrastructure• Building conditions for innovation• Building regional development
capacity
Overview of R&D FundProgram is intended to attract entities who propose to:• engage in applied research that is post proof-of-concept• pursue commercialization within 36 months• invent and/or improve products, processes, or services that
originate and remain in the Region (highest priority), or whose value is substantially increased in the Region (lower priority)
• provide to the Commission, or its designee, intellectual property rights (“IP”) commensurate with its contribution to the project.
• conduct research and development in the following areas:Energy (of primary interest to the Commission)Biomedical and Health CareInformation TechnologyChemical and MaterialsEnvironmental
Key Requirements• Minimum matching funding of at least 1:1• Applications will only be accepted from
entities located within and/or serving the “Tobacco Region”
• Applications that propose to expend Commission resources outside of that Region, either directly or indirectly, will receive limited consideration.
• Research performed within the Region whose ultimate benefit is likely to be commercialized outside the Region without majority economic benefit to the Region will receive limited consideration.
Eligible Applicants• The governing body of a Virginia city,
county, town or industrial development authority.
• A private, non-profit entity, properly constituted in Virginia under IRS 501(c).
• An education or training institution physically located in Virginia.
• Entities not constituted in Virginia but with significant, enduring investments in the Region.
• A for-profit entity may apply if joined by a non-profit or governmental entity as co-applicant AND the for-profit entity enters into an agreement with the Commission to create jobs and investments in the Region.
Submittal and Review Process
• Submittals accepted at any time• Proposals will be batched quarterly (may go
to 3 times per year in 2011)• Initial review by staff and R&D Committee
for compliance with guidelines• Second review by an independent technical
advisory committee to assess scientific content and commercialization potential
Full application guidelines available on Tobacco
Commission web site at www.tic.virginia.gov
Technical Review CriteriaScientific Track Evaluation/Scoring
Elements:• Adequacy of Proof of Concept.• Stage of Technical Development.• Technical experience/credentials of the R &
D team.• Are there competing technologies which are
more likely to achieve the same or greater commercial outcomes?
• Did the applicant team define sufficiently the project milestones and is there adequate evidence of resources (financial and human) to achieve these milestones?
Technical Review CriteriaCommercialization Track Evaluation/Scoring
Elements:• Is this technical solution sufficiently scalable to achieve
the stated outcomes in economic impact (transformative to the region and job creation potential).
• Is the IP portfolio adequate and is there a clear commercialization pathway from inventor to commercialization partner?
• Is the declared market for this technical solution developed and sufficiently robust to support the pro forma growth predictions?
• Is the proposed management team adequately experienced to achieve the declared outcomes?
• Is the specific value proposition defensible and powerful enough to achieved the declared outcomes?
Technical Review Milestones• Grant Applicants advised of process; • Grant Applications with full supporting detail posted
for VEDP Review Panel Team Leaders + Reviewers.• Team leaders submit scores and detailed
commentaries to VEDP.• All scorings posted for Team Leaders; Grant
Applicants given detailed focus/content guidance for face-to-face presentations.
• Face to Face Grant Applicant Presentations to Review Panel Team Leaders, for final lock down scoring.
• VEDP submits final scoring grids to TIC Executive Staff with Science and Commercialization Commentaries.
• R & D Committee acts on scoring recommendations.
Terms and Conditions• Grantee articulates a promise to the TICRC
– Promise articulated as Exhibit A to the contract– Promises should be clear, definitive, measurable, within
the mission of the TICRC, and worth the amount of the investment
• TICRC holds a lien on grant funded equipment or on IP generated with grant funds– Not an IP ownership position
• Lien is released when the promise if fulfilled• Refund due if promise is not fulfilled• Penalty due to TICRC if IP generated with
grant funds is commercialized outside the Tobacco Region (unless the promise if fulfilled)
Where Does the Money Come From? – Raising Capital
Introduction to CIT GAP Funds
Tom WeithmanVice President & Managing Director
CIT GAP Funds
Virginia VC v Virginia VC v State CompsComps
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree(tm) Report
Venture Investments in Companies by State
VA
MD
NC
MA
5-yeartotal
$2.7B
$2.1B
$14.4B
$2.1B
2008GSP
$273.3B
$400.2B
$364.9B
$397.0B
Virginia should be able to at least perform Virginia should be able to at least perform on the MD scale and needs to set MA as on the MD scale and needs to set MA as the target of opportunitythe target of opportunity
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
2007-3 2007-4 2008-1 2008-2 2008-3 2008-4 2009-1 2009-2 2009-3 2009-4 2010-1 2010-2
(M)
MAMDNCVA
CIT GAP Funds Overview
• Family of Seed-Stage Venture Funds
• Virginia Investment Focus
• Convertible Debt Fund
• Spin-Outs from Virginia Research Institutions
• “Double-Bottom Line” Fund
• Deep Engagement with Portfolio Companies
Investment StageInvestment Stage
RESEARCHPROOF OFCONCEPT
ORINVENTION
EARLYSTAGE
DEVELOPMENT
PRODUCTDEVELOPMENT PRODUCTION
SBIR Funding
Translational ResearchNewCo
license
GAP Fund
Adapted from Department of Commerce
Venture Capital
• “Near-Equity” Instrument
• Initiates as Debt - Downstream Conversion to Equity at CIT Option
• Streamlined Deal-Making
• Balances Interests of Investor and Entrepreneur
Convertible Debt Fund
Investment Criteria
Management Team / FounderFull-Time CommitmentIntegrityPassionCoach-abilityCreativityRecord of High Achievement
Investment StageExclusive Seed Stage Focus12-36 Months Prior to Series-A Pre-prototype – Pre-Launch Technologies
Investment Range< $100K Alone; <$500K Syndication< $500K Previous Financing Follow-On Investment Option
Proprietary AdvantageUnique Technology Defensible IP PositionDifficult-to-Replicate Business Model
ScalabilityMarkets with Big Buying PowerPotential for Dominant Market Position Large-Scale Production and Delivery Economies
IndustriesTechnology BioLife
Geographic FocusVirginia-Only
GAP Tech Fund Fund Size: $1.8M
Vintage 2007
CIT GAP Funds Evolution
GAP Fund I Fund Size: $2.2M
Vintage 2005
Current GAP Results• 39 Investments• $52M+ Private Funds Attracted• 13 Series A Investments• 5 Portfolio Exits
GAP BioLife FundFund Size: $1.8M
Vintage 2007
GAP Energy FundFund Size: $2.0M
4Q10 Launch (projected)
Investment Committee
• New Enterprise Associates• Grotech• Intersouth Partners• HIG Ventures• Johnson & Johnson• Tall Oaks Capital• Carilion Biomedical Institute• Valhalla Venture Partners• New Vantage Associates• Cashed-Out Entrepreneurs
GAP Funds Portfolio GAP Funds Portfolio –– PrePre--Series ASeries A
December 23, 2005
Optical sensors for low-voltage power use
April 3, 2007
Electrical apparatus manufacturing
April 18, 2007
Renewable resourcesRenewable resources
September 13, 2007
Anti-infective small molecule drug discovery
and development
December 13, 2007
Stream live video via mobile
November 26, 2007
Business Grade IP Services, offering SIP Trunking and Audio
Conferencing
June 30, 2008
Mobile voice authentication
May 30, 2008
Automates construction process payments
May 30, 2008
Blood testing for cancer
May 8, 2008
Forensic monitoring of electronic records
OTraces
April 2, 2009
Data management
May 4, 2009
Referral service
July 9, 2008
Power management
December 8, 2009
Care management technology
March 26, 2010
Situational dashboard technology
June 23, 2010
Drug discoveryJune 26, 2010
Influence Intelligence
May 9, 2007
Interconnection material
December 6, 2005
Enterprise technology roll-out management
software
Series A 7/17/06
November 8, 2006
SAS platform for lead generation
Series A 4/13/07
September 7, 2006
Secondary electronics distributer
Series A 9/27/07
October 6, 2006
Cell culturing hardware and growth media
Series A 4/22/08
April 28, 2005
Technology solutions for mobile gaming vendors
Series A 9/10/08
November 14, 2008
Interactive communications platform
Series A 11/14/08
December 22, 2005
Tumor-based cancer treatment
Series A 10/19/07
July 22, 2005
Location based messaging solutions
Series A 12/17/07
December 21, 2006
SAS platform for distributed workforce
management
Series A 2/4/09
GAP Funds Portfolio GAP Funds Portfolio –– Series ASeries A
March 12, 2009
Internet clean-room
Series A 3/12/09
April 15, 2008
Soft tissue regeneration of ACL
Series A 6/30/09
GAP Funds – Leverage Value
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
Q3 FY05
Q1 FY06
Q3 FY06
Q1 FY07
Q3 FY07
Q1 FY08
Q3 FY08
Q1 FY09
Q3 FY09
Q1 FY10
Q3 FY10
CIT Investment: Q3 - $4.00; Q4 - $4.1M
3rd-Party Investment: Q3 - $50.97; Q4: $55.3
13.5x13.5x
CIT GAP Funds Contribution
0
10
20
30
40
50
60
2004 2005 2006 2007 2008 2009
# of
Dea
ls
MA
MD
NC
VA
VA w/oGAP
Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree(tm) Report
Seed/Early Stage Deals Investments – State Comps
Track Record
• Transferring and Commercializing IP• Forming New Companies• Securing “Next-Round” Financing• Exiting Portfolio Companies• Creating Value
EntrepreneursCo-InvestorsCommonwealth of Virginia
• “Top 100 Venture Fund”2005-2008,
CONTACT:
www.citgapfunds.org
Where Does the Money Come From? – Raising Capital
Henry H. Berling, Managing Director Ewing Bemiss & Co
Ewing Bemiss maintains a high level of energy industry expertise through proactive market research and on-going contact with strategic and financial buyers and investors.
EB&Co Energy Group
Select EB&Co Energy Transaction History
has acquired
MMA Renewable Ventures
from
Multitrade Biomass Holdings, LLC
has secured an investment in its subsidiary
Multitrade Telogia, LLCfrom
has sold the gas rights to three landfills in the Southwest
a subsidiary of
to
York Haven Power, LLC
has completed a $15 Million Senior Debt Recapitalization of
Senior Debt Provided by
Has been acquired by
Beacon Landfill Gas Holdings LLC
Ridgewood Maine Hydro Partners, L.P.
and subsidiaries of Ridgewood US Hydro
Corporation
has sold
to affiliates of
through its portfolio companyMowood, LLC
has sold
to
to
Greenville Steam Company
Gallop Power Greenville, LLC
has sold
Private Capital Formation for 9.4MW
Solar PV Project
StrategicAdvisor
PrincipalInvestment
StrategicAdvisor
Private Capital & Tax Equity Formation
has been acquired by
and
Toro Partners, L.P.
a subsidiary of
Certain assets of
Have been acquired by and undisclosed buyer
Private Placementof Equity led by
Sterling Venture PartnersCordova Ventures
Private Placementof Equity led by
Sterling Venture PartnersCordova Ventures
Placement of Preferred Stock
has sold its LFG assets
to
GRSGas Recovery Systems
Private Placementof Debt led by
Private Placementof Debt led by
has sold its subsidiary
to
has sold its gas rights at King County’s Cedar Hills
Landfill to
has been recapitalized by
to
and
KANSAS CITY LFG, LLCJOHNSON COUNTY
Landfill Gas Project
has sold its
US RENEWABLES GROUP
has received an Equity Capital Investment from
and
Northwest Geothermal Company
Newberry Geothermal Project
Multitrade Biomass Holdings, LLC
has secured an investment in its subsidiary
Multitrade Rabun Gap, LLCfrom
has been recapitalized by
ENERGY SERVICES, INC.
have sold
and
Indeck Maine Energy, LLCtoAcquisition of
Minority Stake
has been acquired by
Upstate Energy Inc.,a subsidiary of
Placement of Equity and Debt
Select EB&Co Energy Transaction History (cont.)
Capital Still Being Invested in Renewable Energy
• The past 5 years have seen enormous growth in renewable energy• Growing number of investors and capital entering market• Asset finance has been the primary vehicle for investment in the sector• Investment in China has grown dramatically to offset decline in EU and slowly
rebounding U.S. market• Recent growth in U.S. private equity and venture funding
– VC funding heavily weighted to U.S. firms
-
2,000
4,000
6,000
8,000
10,000
12,000
Q1
04Q
2 04
Q3
04Q
4 04
Q1
05Q
2 05
Q3
05Q
4 05
Q1
06Q
2 06
Q3
06Q
4 06
Q1
07Q
2 07
Q3
07Q
4 07
Q1
08Q
2 08
Q3
08Q
4 08
Q1
09Q
2 09
Q3
09Q
4 09
Q1
10Q
2 10
Asset Finance Public Markets VC/PE
Total Renewable Energy Investment in U.S. ($millions)
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
Q1
04Q
2 04
Q3
04Q
4 04
Q1
05Q
2 05
Q3
05Q
4 05
Q1
06Q
2 06
Q3
06Q
4 06
Q1
07Q
2 07
Q3
07Q
4 07
Q1
08Q
2 08
Q3
08Q
4 08
Q1
09Q
2 09
Q3
09Q
4 09
Q1
10Q
2 10
US China EU All Other
Total Renewable Energy Asset Investment ($millions)
Source: New Energy Finance
Cleantech US IPO and Private Equity Activity
Source: New Energy Finance, Capital IQ and Wall Street Research
-
50
100
150
200
250
300
-
1,000
2,000
3,000
4,000
5,000
6,000
2007 2008 2009 2010 Annualized
Ave
rage
Cap
ital
Rai
se S
ize
($ in
mill
ions
)
Tot
al F
unds
Rai
sed
($ in
mill
ions
)
Total Funds Raised Through IPOs Total Private Equity Investment
Average IPO Size Average Placement Size
Cleantech IPO Volumes Drop; Private Capital is Steady
Who is Investing in Private Equity?
• Venture Capital• Strategics• Family Offices• Private Equity Funds• “Survivors”
• Venture Capital• Strategics• Family Offices• Private Equity Funds• “Survivors”
Now
• Venture Capital• Hedge Funds• Bank Proprietary Groups• Non-US Pension Funds• Insurance Companies
• Venture Capital• Hedge Funds• Bank Proprietary Groups• Non-US Pension Funds• Insurance Companies
Then
What Do Private Equity Investors Look For?
• Risk Mitigation:– Realistic valuations– Fully financed business plans / limited capital intensity– Limited technology or market development risk– Structured securities with seniority in capital structure
• A validating investment from a strategic or a deeply experiencedVC
• Strong management teams with proven execution track records• Continued financial and business support from existing investors• A realistic exit plan which includes strategic acquirers
Global Investment in Renewables by Product Type
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2005 2006 2007 2008 2009 2010 YTD
Tra
nsac
tion
Val
ue (
$ in
mill
ions
)
Bank Bond Equity Tax Equity Cash Grant Mezzanine Debt Other
-
2,500
5,000
7,500
10,000
12,500
15,000
17,500
20,000
22,500
2005 2006 2007 2008 2009 2010 YTD
Tra
nsac
tion
Val
ue (
$ in
mill
ions
)
Bank Bond Equity Tax Equity Cash Grant Mezzanine Debt Other
US & CanadaGlobal
Source: New Energy Finance, Infrastructure Journal and Wall Street Research
Global Investment in Renewables by Technology Type
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
2005 2006 2007 2008 2009 2010 YTD
Tra
nsac
tion
Val
ue (
$ in
mill
ions
)
Wind Biomass & Biofuels Solar PV
Solar Thermal Geothermal Hydro
Waste-to-Energy
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2005 2006 2007 2008 2009 2010 YTD
Tra
nsac
tion
Val
ue (
$ in
mill
ions
)
Wind Biomass & Biofuels Solar PV
Solar Thermal Geothermal Hydro
Waste-to-Energy
Global US & Canada
Source: New Energy Finance, Infrastructure Journal and Wall Street Research
Global Renewable Energy Debt Markets
Financial Close Project CountryTerm Loan
(USD in MM)Tenor
(Years) Price (bps)(1)
8/30/2010 North Battleford Energy Center Canada $552.0 C+7 +2508/20/2010 199.5MW Larego Wind Ridge US $348.0 12 +275-3507/27/2010 81MW Larego Wind Ridge US $140.0 C+15 +275-3257/14/2010 Alta Wind (Terra-gen) Pass Through Cert. US $580.0 25 7% fixed (L+313 equiv)6/9/2010 Beech Ridge Wind US $46.0 10 +300-4255/24/2010 Duke Energy Wind US $325.0 15 +250-3505/13/2010 Hudson Ranch Power US $205.0 7 +3254/23/2010 Fuente Alamo PV Spain $39.0 18 Euribor+3004/15/2010 NextEra Central States US $255.0 17 +250-3753/26/2010 Cellino 43MW PV Italy $120.0 18 Euribor+310-3353/24/2010 Eolia Wind Portfolio Spain $114.0 18 Euribor+270-3003/10/2010 150MW Cedro Hill US $135.0 15 +300-3753/3/2010 150MW Alta Wind I US $254.0 7 +275-3252/18/2010 192MW Waubra Wind Australia $273.0 5 +340
(1) All prices are spread over LIBOR unless stated otherwise
Source: Infrastructure Journal
Existing RPS Mandates Provide for Real Growth
• If no other climate legislation is passed and the state-specific RPSs remain the only U.S. environmental requirements, there would still be a considerable amount of renewable energy investment needed
– Current RPS legislation mandates a 5% CAGR for the next 15 years• Over 25 million MWhs of renewable energy will need to be added each year over the next 10 years• Potential national RPS could be a boon to development in the Southeast
Note: Assumes no energy growth over time and straight-line adoption of RPS standards for simplicity. Includes voluntary programs.
RPS Mandated Renewable Growth
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2007 2015 2020 2025+
% R
enew
able
Mw
hs (0
00s)
MWh of Renewable Energy % of Power from Renwables
RPS Legislation by State
Mandatory RPS States
Voluntary Utility Commitment States
25% by 2025
15% by 2020
33% by 2020
25% by 2025
15% by 2015
20% by 2025
15% by 2025 20% by
2020
30% by 2020
10% by 2010
10% by 2015
20% by 2020
5,880 MW by 2015
15% by 2021
105 MW
25% by 2025
10% by 2015
25% by 2025
12.5% by 2025
10% by 2015
25% by
2025
12.5% by 2021
18% by 2020
ME: 30% by 2010
40% by 2030
VT: 20% by 2017
NH: 24% by 2025
NY: 30% by 2015
NJ: 22.5% by 2021
DE: 25% by 2025
DC: 20% by 2020
MD: 20% by 2022
VA: 15%by 2025
CT: 27% by 2020
MA: 15% by 2020
RI: 16% by 2019
15% by 2015
The Governor’s Conference on Energy
Where Does the Money Come From? – Raising Capital
Wednesday, October 13th
3:30pm – 5:00pmRichmond, Virginia