The Art of Investing in Cleantech Start-ups. March 2012 Bart Markus, General Partner Wellington Partners

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1 The Art of Investing in Cleantech Start-ups March 2012 Bart Markus, General Partner Wellington Partners

2 The art of what we really do seems quite simple 1. We pick companies and invest in them 2. We wave our magic wand and make them successful 3. We get someone to believe all this is true and sell them Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 2

3 But in practice is hard to make work 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% % Median Net to LPs (%) Upper Quartile Net to LPs(%) Lower Quartile Net to LPs (%) Source Cambridge Associates Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 3

4 Why is this so hard - especially for Cleantech Urban Myths: Europe has no real entrepreneurs especially in Cleantech Cleantech is way too capital intensive It takes far too long for a company in Cleantech to develop Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 4

5 Well, actually there have been GREAT European entrepreneurs also in cleantech! Digital Media Cleantech Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 5

6 And this is increasingly the case Digital Media Cleantech Music Advertising Online Payment Solar BOS LED Biomass Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 6

7 Capital intensity can be dealt with properly Funding to Milestones a.k.a Old-Fashioned Venture Capital Idea is Feasible Technology Works A Customer Buys Valuation Risk (ß) Capital & time Seed Funding R&D Capital Go-to-Market Captial Expansion Captial 2 Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 7

8 But don t get yourself in the Solyndra conundrum The Fully Funded Folly Idea is Feasible Technology Works A Customer Buys Valuation Risk (ß) Fully Fund (.pray.) IPO Capital & time 3 Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 8

9 And yes, Venture takes forever ALL Venture does The average period between first money in and exit for all historic US Venture exits above $100M is 6.5 years For IPOs that number is 9 years ü Yes, that includes Google, Netscape, Juniper Networks, ebay and Linked-in Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 9

10 So how DO we make it work? 1. We pick companies and invest in them 2. We wave our magic wand and make them successful 3. We get someone to believe all this is true and sell them Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 10

11 What we are looking for in a company Disruptive change in big markets Top entrepreneurial and management talent Customer-centric thinking Sustainable competitive advantage Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 11

12 Cleantech markets provide rapidly growing new opportunities Wind Market Size in $ billions Solar PV Market Size in $ billions LED Market in $ billions Grid Storage Market in $ billions Source: World wind association, Bloomberg New Energy Finance, European PV Association, Strategies Unlimited, Lux Research Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 12

13 A large market to address So you can mobilize significant resources and still have a great return Large market enables large exit Case example: GLO Nanowire LED Technology September 2010 Investment We were tracking the company since they pitched for their series A in 2008 LED is $12Bn market, growing at 35% CAGR and that is without mainstream adoption in general lighting The result: Company raised $60M to date should get them to first product samples Will need another $50M to volume production but then there is a $ multi-bn market to grab Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 13

14 Top Entrepreneurial and management talent Previous experience (serial entrepreneur) is a big + Willingness to sacrifice for the sake of the company Willingness to learn from and bring in people with relevant experience Case example: Enecsys Microinverter company May 2009 Investment CEO and VP Mkt ex Intel, Cadence VP Ops ex Cisco, went through 0-200M ramp 2 times VP Sales EU and NA from sector (Xantrex, Solyndra) VP Engineering ex Flex The result: One of 2 DC/AC Microinverter companies with significant product traction in market US launch big success on the back of deep integration with Facebook Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 14

15 Customer centric thinking A true customer problem (keeping the customer awake at night) A solution, not a technology, which solves the entirety of this problem Some evidence of the above Case example: Enocean Wireless, Batteryless sensor networks Feb 2002 Investment Replacing sensor systems with wireless technology, eliminating cabling needs, without adding the need to change batteries through energy harvesting The result: Market leader in energy harvesting sensor networks Central positioning in upcoming smart home market Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 15

16 Sustainable competitive advantage First in the market advantage IP Competition? Case example: Heliatek Organic PV without the lifetime and efficiency issues of other solutions August 2007 Investment We actively sourced the deal through research in the space 17 patents granted, 20 applications in process The result: More than unlikely that someone else will come up with the same solution High IP (=trade sale) value embedded Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 16

17 So how DO we make it work? 1. We pick companies and invest in them 2. We wave our magic wand and make them successful 3. We get someone to believe all this is true and sell them Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 17

18 Ceterim censeo The 4-Genome DNA of a hypergrowth start-up At any given point in time, have the dream-team on all key positions in the company (and keep challenging this) Have the right Clock-frequency (days, not months) Have a long-term (3-4Y) Strategy, broken down into manageable short-term (1-2Q) targets Have a Bang for the Buck culture; money is a finite resource, and the moving variable is in where it is spent Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 18 1

19 So how DO we make it work? 1. We pick companies and invest in them 2. We wave our magic wand and make them successful 3. We get someone to believe all this is true and sell them Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 19

20 Incorporations of successful startups constant over time Incorporations of companies with subsequent $100 m + Exits INCORPORATIONS Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 20

21 Exits, however, are highly volatile Incorporations of companies with subsequent $100 m + Exits INCORPORATIONS EXITS Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 21

22 ... as they are closely correlated to the stock markets Incorporations of companies with subsequent $100 m + Exits INCORPORATIONS EXITS NASDAQ Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 22

23 The good news it is happening again Wellington Partners Technology Fund London / Munich / Zurich / Palo Alto Page 23

24 Thank you London / Munich / Zurich / Palo Alto