We’d like to understand a little bit about DFJ’s investments in the cleantech space. What are the key reasons you invested in these startups?
DFJ’s symbol is a globe with a triangle, which simply means, “Change the world”. DFJ prides itself on selecting and investing in companies that are truly embarking on that mission to change the world. All five of our companies in India are doing that in their own way. When you put incredible entrepreneurs with a combination of unbelievable smarts, deep passion about their products and a dream to think really big, that’s an investment scenario that VCs love. DFJ is lucky to have that in the five companies listed below.
Deeya Energy: Quantum leap in energy storage technology, with a no-brainer value proposition in terms of ROI. Initial market is telecom tower operators who are extremely troubled by high diesel costs, pilferage and are looking for ways to improve efficiency and reduce operating expense. Deeya is the solution for them. And that’s just the initial market that Deeya is targeting.
D.Light design: High quality, robust solar lanterns as replacement for kerosene lamps in developing economies where large swaths of population have virtually no access to electricity. This is an unbeatable combination of doing social good but with high margins. The applications for the rural masses in India, Africa and elsewhere are enormous, from lighting, to charging points, to potentially heating, cooking and beyond. Dlight was the winner of the DFJ sponsored business plan competition at Stanford in 2007. The founders, Sam and Ned were so committed to the idea, that they moved to Delhi and Shenzen, respectively to make their dream a reality.
Atterro Recycling: A theme for DFJ in India is to look at large and growing markets that are highly fragmented, and where technology can be leveraged to create brand leadership. Attero is a prime example of just that. E-waste as a category is large and growing not only in India but also globally, but almost the entire E-waste industry is run by mom and pop backyard operations in completely eco-unfriendly and hazardous environment. Nitin and Rohan has just an idea when DFJ and NEA-IUV invested in the company. It was really a “roll of the dice” that the brothers could pull it off, given their passion and tenacity. This was a big bet, since even seed capital in a situation like this is not $250k or $500k, but in the millions. That bet seems to be paying off right now, given the progress the company has made.
Husk Power systems: Husk is yet another winner of the DFJ business plan competition, and in this case it was a global competition that DFJ sponsored along with Cisco. Husk falls in the same category as Dlight, in that it’s serving a real purpose of bringing resource to the electrically disconnected world by using crop husk to generate power for villages. The task is massive and daunting, but here again is a passionate young team with a “change the world” attitude. And that passion, by the way, is very contagious.
Reva electric: Did you know that Reva has more pure electric vehicles on the road today than any other car company in the world? Given the level of activity globally in the past 2-3 years is a testament to the fact that EVs will be the way to transport (and ideally using electricity to power these vehicles that is generated using renewable) in the not so distant future. It’s just that Chetan and the family has been doing this for much longer than the last few years, when the rest of the automotive world seems to have woken up to that need.
Investment criteria typically involves three T’s and 1 M: Team, technology (differentiation), traction and market. All five companies had the teams that got us excited, markets that were large, differentiation in terms of intellectual property, business partnership/relationships was apparent, even if the traction in terms of revenues or profitability were still either small or non-existent. VCs are in the business of taking risk and rolling the dice, and that’s exactly what DFJ has done in the above cases.
In the future, what kind of new cleantech products or services you would like to see in the Indian market?
I think a lot needs to be done in the area of clean water (residential and commercial from drinking water to affluent treatment), distributed power generation, waste to fuel conversion, clean coal, biomass/biocoal concepts, clean financing (which effectively provides financing for renewable commercial and residential deployment without any up front capex for the customer), analytics (around smart power management) and services (becoming the de-facto deployment experts for clean power generation systems for homes and businesses).
Within the cleantech sector, which sub-sectors are the most exciting from a VC perspective?
I think distributed power generation technologies are still a hot topic; clean water (both residential and commercial applications) is getting deserved attention and solar financing coupled with deployment services (installation and maintenance) of PV systems is a potentially large play in India (DFJ has an investment in a similar company in the US called Solar City that does just that).
Cleantech as a sector is still evolving, and time frames for exiting cleantech investments are probably much longer than in most other sectors. Is that a fair statement to make?
The key question and the key risk in most cleantech investments that I see has to do with the potential scale of the business. At a high level, like I have mentioned, the market that Cleantech, as a whole, can address is massive. However, most of the business plans that come across my desk are more “projects” than real “businesses”, and as such, are looking for project financing, not infusion to build large sustainable businesses. Having said that, companies like Attero, Dlight, Husk may seem capital intensive, with large gestation periods, but in reality, have been very capital efficient starting to generate revenue and potentially meaningful revenue in roughly two years from inception. The key again, is scale, and I don’t know if it takes any longer for cleantech investments to scale than others (obviously there are exceptions). Just as a point of reference, venture funded investment in the US, on average, take over seven years to get to liquidity. As long as one keeps that in mind, I don’t know if cleantech investments are going to buck that trend in either direction. Only time and exits will tell.
Ideally, VCs like to invest in teams/entrepreneurs that have prior experience in the sector they are starting up in. But, in fairly new areas like cleantech; a number of entrepreneurs who have no prior experience in clean-tech are springing up. How do you evaluate the capabilities of such entrepreneurs?
See the above answers. In the five cleantech investments that DFJ has in India, only one (Reva) had prior experience in that particular industry due to the fact that Chetan Maini has been building either solar-electric vehicles or pure electric vehicles for over a decade. The rest are really first time cleantech entrepreneurs. VC investing is more an art than a science (I actually call it science enabled art). Especially in early stage investing, typically with first time entrepreneurs not all boxes can be checked. At some point, as a VC you have to bet on the individuals and their vision/tenacity/persistence to make something happen.
From a government policy perspective, what kind of policy changes would you like to see?
I would like to see a lot of talk of initiatives backed up with disciplined programs to actually get capital in the hands of entrepreneurs to make change happen. The US government, for example, has a special program around clean energy where, as part of the overall economic stimulus, virtually billions of dollars were earmarked and actually deployed (to companies large and small) within weeks. DFJ itself has several companies who have benefited from these grants. But the grants also need to have metrics associated with them to ensure that true progress has been made. In India, I don’t think it’s fair to put the burden completely on the government entities, but rather there should be a public private partnership made up of industry, academia, investment and startup communities to put an overall program in place for deploying and monitoring infusion of grants into companies. Government, for its part, is at least announcing initiatives from tax holidays, to power and other subsidies, to catalyze clean entrepreneurship. It’s also up to the private sector to lend a helping hand to the government by proposing solutions whereby clean entrepreneurship can be catalyzed and sustained. I also want to mention that businesses that are based purely on subsidies and government incentives are not sustainable in the long run, but I am all for the government providing the necessary catalyst to get the engine revving.