Enhancing the Flow of Private Capital to Early Stage ... Introduction.pdf · – Worked with public & private sectors in Senegal, Ghana, Brasil & China February 8, 2017 Insert Presentation

Enhancing the Flow of Private Capital to Early Stage Energy Technologies

John R Tuttle, Ph.D. Senior Commercialization Advisor

Michael deSa, D.M. Kristen Brown, Ph.D. Michele Coates ARPA-E ARPA-E BAH

Nov 28, 2016

DayStar – A Solar PV Startup

1 Insert Presentation Name February 8, 2017

‣  Innova&on:Flexiblethin-filmsolarcelltosubs&tutefor/replacex-talSi

‣  SecondaryInnova&on:Concentra&ngPVandspacesolarcells

5-Sun Concentration

Sunlight In

Solar Cell

ElectricitySuperstrate / Optics

Capital Soup

‣  1995-2008–DayStarTechnologies,Inc.–  Received(andrejected)first$3MTerm-Sheetpre-companyforma&onbyVentureCapitalfirm

(1995)–  Firstcapitaliza&on-$200kFriends&Familyfunds(1996)–  Raised$218kfromCorporateStrategicPartner(InterfaceCorp)(1997)–  Received$5.9Mtenderoffer(M&A)fromAmocoEnronSolar(AES)PowerDevelopment.Deal

wasshelved(1998)–  Ini&allyu&lizedNRELlab&officespaceascompanyHQ.U&lizedNRELandUniversityofHawaii

labspaceforR&Defforts.(1999).–  Awarded$300KDOE/NRELcontract&$1.27MDoD/NASASBIR(1999-2000)–  Received$85Ksalescontracttodeliverspacecellstonon-domes&cpartner(2000)–  RelocatedandexpandedHQ/labspacetoCA.Receivedin-kind$150Kinvestmentfrom

strategicpartnerintheformofmanufacturingtools(2002)–  ExecutedLOIforFirmUnderwriYenPublicOffering,leadingto$750kbridgeloantothepublic

offering.Recons&tutedBoardofDirectors,revisedcapitalstructure,andassembledini&alManagementTeam(2003)

–  Successfullyexecuted$10.5millionIPOwithanaddi&onal$65Minassociatedwarrants.ListedonNasdaqNa&onalMarketasDSTI.@peak,9.5XROItoSeedinvestorsaeer9years

–  Raisedaddi&onal$115millionwithpublicequity(2004-2008)–  Acquisi&onoffer@2Xmarket-cap(2008)–Boardvotedagainst

2 February 8, 2017

Outline

ARPA-E

Framing the Workshop

The Workshop


About the Speaker ‣  SeniorCommercializaFonAdvisor(“T2M”)–ARPA-E(2013-present)

–  Programdevelopmentandmarket-facingexecu&on–  Enhancingcapitalacumen

‣  Technologist–  ~30yrsinsemiconductors(includingµ-electronics)–  ~30yrsinsolar-PV(11yrs@NREL,10yrsasCTO)–CIGSTechnology–  ~7yrsconsul&ngtocompanieslargeandsmall–  ~3yrsfocusingonStorage,(other)DistributedGen,Efficiency

‣  SerialEntrepreneur/ExecuFve(~20yrs)–  FoundedDayStarTechnologies,Inc–(1996)

•  BuiltR&D,pilot-produc&onandequipmentdevelopmentfacili&es(NY,CA2004-2007)

•  3rdpure-playsolarcompanytogopublic(Nasdaq:DSTI)•  Companyraised~$125million–>fellshortof1stproduc&onfacility

–  FoundedSkypointSolar,Inc.-(2008)•  $500Mfactoryconstruc&onproject/LOI’sforfactoriesinChina

–  Consultedforseveralearly-stagestartups–  Workedwithpublic&privatesectorsinSenegal,Ghana,Brasil&China


ARPA-E Mission

5

6 February 8, 2017

Energy Sources, Uses & Losses 60% Lost

82% Carbon

25.8 67%

79% 21.4

Energy Sources Energy Outputs

Evolution of ARPA-E

7

2007

Rising Above the Gathering Storm Published

America COMPETES Act Signed

2009

American Recovery & Reinvestment Act Signed

2011 2012 2013 2014 2010

1

37

7 12

16 20

23

Programs To Date

Awards Announced

2015

32

America COMPETES Reauthorization Signed

$400 Million (Recovery Act)

$180 Million (FY2011)





500+

2016

40


“Investment” Modalities

8

FocusedProgram(PorWolioApproach)

•  ~$20-30M/prog.,6-8newprogs/yr

•  Thema&c–suchasFuelcells,Naturalgasmonitoring,ornewbaYerychemistries

•  Carveout”whitespace”–aresearchfocusthatishigh-risk,high-reward

•  Subdividechallengesinto2-3complimentaryfocusareas

•  Fund~10-15%ofapplicants

•  “Tune”awardeestatement-of-worktocomplimentotherProgramawardees

•  Down-selecttosuccesses

•  Prepareforfollow-onfunding

“OPEN”Program(ShotgunApproach)

•  $100-125Mevery3rdyr(‘09,‘12,‘15)

•  Non-thema&c–anythinggoes

•  Fund~1-2%ofapplicants

•  1,2,&3-yrprojects

•  Down-selecttosuccesses

•  Prepareforfollow-onfunding

Focused Program Portfolio

9

ELECTRICITY GENERATION

ELECTRICAL GRID & STORAGE

EFFICIENCY &

EMISSIONS

TRANSPORTATION & STORAGE

2010 - 2012

ALPHA

ARID

DELTA

FOCUS

METALS

MONITOR

CHARGES

RANGE

REMOTE

SWITCHES

TERRA

GENSETS REBELS

NODES

MOSAIC

TRANSNET

2013-2014 2015 2016

GRID DATA

IONICS

SHIELD ENLITENED

REFUEL

ROOTS

NEXTCAR

ADEPT

AMPED BEEST

BEETIT

ELECTROFUELS

GENI

GRIDS HEATS

IMPACCT

MOVE PETRO

REACT

SOLAR ADEPT

time

cost

/ pe

rfor

man

ce

existing learning curve

new learning curve

tipping point

transformational

transformational & disruptive

TransformaFve&DisrupFveTechnologies

Steam-powered Cugnot (1769)

Benz Motorwagen (1885)

Ford Model T (1914)

FOA VISION

11 February 8, 2017

Innovative & Disruptive?

AtwhatpointsdoesT2Mengage?

13 February 8, 2017

““IIff iitt WWoorrkkss,, DDooeess IItt MMaatttteerr??””

14 February 8, 2017

Technology to Market

““IIff iitt WWoorrkkss,, DDooeess IItt MMaatttteerr??””

!$500%

$500%

$1,500%

$2,500%

$3,500%

$4,500%

$5,500%

$6,500%

20% 30% 40% 50% 60%

Break&even

)CAP

EX)

Engine)Efficiency)

10!yr%(6%mos.)%

5!yr%(12!mos)%

5!yr%(6%mos.)%

5!yr%(Elec%Only)%

2!yr%(6%mos.)%

Capital Cost vs Device Efficiency (η)

Break-even CAPEX increases • w/ η (fixed lifetime) • w/ lifetime (fixed η)

• w/ heating mos. (0 -> 12 mos.) Break-even Payback Period

Heating Months

Gas: $10/Mcf Elec: $0.11/kWh

A (gas:elec) cost combo establishes an η below which it costs more to have engine than grid, even if engine is free.

Higher $/kWh / Lower $/Mcf

Lower $/kWh / Higher $/tcf

Messaging:))Market)Engagement))Ge#ng&past&the&Standard&Interac1on&

Interes0ng!)Hey)4)check)out)my)new)Fuel)Cell)that)can)solve)all)

your)Problems!))

I’m&trying&to&be&polite.&&Actually,&you&haven’t&told&me&enough&to&have&any&clue&

of&how&interes1ng&this&is&for&me.&&

What&they&really&mean:&

Lab)Researcher) Strategic&Partner&/&&Investor&

Hey&check&out&my&superFexpensive,&unreliable&gadget&that&we&cooked&up&in&lab&and&have&no&

idea&what&to&do&with!&

What&they&hear:&


Universities (42%)

Performers

FFRDC’s (8%)

Small Companies

(32%)

Lg Co’s (14%)

Non-Profit (4%)

NewCo’s

Commercializing Entities

Small Companies (Non-Alums)

Small Companies

(Alums)

Lg Co’s (Alums)

Lg Co’s (Non-Alums)

External $

External $

External $

PR

OD

UC

T

Licensing + Entrepreneur + $$

Licensing Licensing

Corporate Capital / Strategic Partnership

-> Acquisition Private Equity Capital

(VC, Angel, Crowd, IPO)

Self-Funded IR&D

Gov

t Pro

gram

$$

Internal $

Internal $

VariousPathwaystoFollow-OnFunding

FRAMINGTHEWORKSHOP


The Backstory ‣  Crea&ngasustainableenergyfutureisaTrillion$$opportunity

–  Innova&onand/or–  Deployment

‣  Publicsector$$supportsearlyinnova&onandfillsValleysofDeath–  (thoughU.S.Energyislowrela=vetootherDepartmentsandotherCountries)


The Backstory ‣  Privatesector$$movetechnologiestothemarket‣  Privatesectorinvestmentinearly-stageenergy(“VC”)hasbeenwaning

–  VC’s(ortheirLP’s)prefercapitallightinmarket-pullsectors-ENERGYisneither

‣  Whatothercapitalresourcesareavailable?


Source: Bloomberg New Energy Finance

0

2

4

6

8

10

12

14

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Ann

ual0Investment07USD

0billion

Global0Annual0VC/PE0Investment0in0Clean0Energy0


§  Shi>ingfromCentraltoDistributedGeneraEon§  GridIntegra=on/Crea=ngMicro-

grids§  Regional/LocalIslanding(grid

independence)§  (µ-)CHP(residen=al,commercial,

community)

§  EnergyStorage–abroadspectrumofdesiredsoluEons§  Grid-level(T&DInvestment

deferral,RenewablesIntegra=on)§  AsaDistributedEnergyResource

(transformIntermiXenttodispatchable)

§  Transporta=on

EnergyTechnologyChallenges(newbusinessopportuniEes)

§  ElectricVehicles§  RangeImprovement§  SmartCharging

§  RenewableFuels§  Loweringcostofproduc=on§  FoodvsFuel

§  ImprovedextracEon&useofNaturalGas§  Well-headmonitoring&capture

§  Controls§  DERgridintegra=on§  Behind-the-meteru=lityinterface§  Energyefficiency

Nomenclature (as it relates to Risk)

‣ Capital=Funding‣ “HardTech”(vs.Soetech)

–  Hardwarew/oManufacturingRisk•  Generators/vehicles/electronics

–  Hardwarew/ManufacturingRisk•  Thin-film&crystallineSolarPV/baYeries/fuels&chemicals

‣ “EarlyStage”


IDEATION

Idea / Theory

Proof of Principle

Technology Prototype

R & D

Scaled Prototype Manufacturing design

Product design Cost / TEA

Customer / Supply chain

Pre-Commercial

Prototype Product Pilot Production Productization Field Testing

First Sale

Commercial

1st Factory Copy Exact

TRL 1-3 TRL 4-5 TRL 6-7 TRL 8-9

Funding Sources

‣ “EarlyStage”


IDEATION

Idea / Theory

Proof of Principle

Technology Prototype

R & D

Scaled Prototype Manufacturing design

Product design Cost / TEA

Customer / Supply chain

Pre-Commercial

Prototype Product Pilot Production Productization Field Testing

First Sale

Commercial

1st Factory Copy Exact

TRL 1-3 TRL 4-5 TRL 6-7 TRL 8-9

100%

Government

Equity

Debt

Funding

0%

NSF / BES ARPA-E

EERE

Funding Challenge - The Valley’s of Death


§  Gapsinfundingthatoccurwhenasubstan&alamountofcapitalisneededtomoveatechnologytothenextlevel§  PostGovt.research/pre-scaling§  Postrevenue/pre-profitability


(-)>50%ofawardselecEonsgotonon-corporateenEEes•  AnEntrepreneurandforma&onofaCorporateen&tyisrequired

(-)LiTleornoGovt.fundingforProductDemo/PilotManufacturingphase

•  Scalingofproductprototypeand/ordemonstra&onofmanufacturabilitycri&calfortradi&onalVCfunding

(+)Technology-to-Marketprogramde-risksmarketinaddiEontotechnology

•  ARPA-EProjectTeamsarewellpreparedtohavesubstan&veconversa&onswithcapitalsources

Follow-onFundingATributesUniquetoARPA-E


§  IntroducingnewenergyproductsisaMarket“Push”§  Displacinglegacyinfrastructure(electricity,fuels)isdifficult§  Energymarkets,whilevast,areoeenlowmarginorhighlyvola&le

§  Non-levelplayingfieldwithtradi&onalhydro-carbontechnologies(nocurrentmone=za=onofcarbonaXributes)

§  EnergyisapoliEcalissue§  Regulatoryreform,policychangestoencouragecleanenergyareabsent

§  “Hardtech”Energytechnologiesarenottypically“capitallight”asInvestor’sprefer§  Inves&nginmanufacturingdevelopmentisnotcheap

FundingChallengesUniquetoCleanTech/Energy

$100K $1000K $10M $100M H/W; w/o Manuf. Risk

$10K $100K $1M $10M Softech

$1000K $10,000K $100M $1000M H/W; w/ Manuf. Risk

Idea% Innova)on% Prototype% Introduc)on% Growth% Maturity%

% %%

% % %%

%

%

% % %

% %% % %

% % %% % %

%%

% %%

%

%%%

Technical, Financial Risk High Low

Who Gets Funded?


Hig

h im

pact

te

chno

logy

Hig

h im

pact

te

chno

logy

ARPA-E

100%

Government

Equity

Debt

Funding

0%

Who Gets Funded?


Hig

h im

pact

te

chno

logy

Hig

h im

pact

te

chno

logy

ARPA-E


Improve Team, etc.

Reduce Financial Risk

Hig

h im

pact

te

chno

logy

100%

Government

Equity

Debt

Funding

0%

Hig

h im

pact

te

chno

logy

Hig

h im

pact

te

chno

logy

ARPA-E


Increase Equity Pool

Goal -> Increase the # of funded entities!

Intermediaries / Instruments

Capital Sources, Flow & Structures


TOTAL POOL of CAPITAL Trillion

Billion

Million

Thousand

VC

Wealthy Individuals

Family Offices LP’s

Small Private Companies (illiquid) $1-10M

Institutions

Public Companies (liquid)

Crowd Funding

Public Equity

Banks

Tax Credit Credit

Enhancement

PE

Sources Vehicles

Individuals

Angels

Private Capital Flow / Barriers

‣  Privatecapitalflows(ordoesn’t)intocompaniesbasedon:–  Desiredrateofreturnonequityordebt–  Liquidityofinvestment–  Risk–  Marketdynamicsofproductorservice–  Taxbenefits/Laworpolicy–  Emo&onalfactorssuchassocialbenefit–  Alterna&veop&ons(bonds,CD’s)–  Companymaturity–  ManagementTeam

‣  CleantechandCleanenergy,especiallyearlystage,offerLOWERperformancemetrics,butpoten&allyHIGHsocialbenefitandpolicysupport

‣  Fewmechanismsexistthatfacilitatetheflowofcapitalintoearly-stageenergy

31 February 8, 2017

Workshop Premise ‣  Assumption: Increasing the pool of capital for early-stage energy would

increase the availability, competitiveness and market share of clean energy technologies

‣  Questions we would like to discuss –  How does increasing “early-stage” capital impact up and down-stream

capacity? –  How would the additional capital be deployed?

•  Quantity vs Quality (the ”bar”) of deals –  What new financial structures can bridge the gap?

‣  Questions we want to avoid –  How much is enough? 2X or 10X? –  If we just improve business models, then… –  If we just improve the companies, then…


Workshop Approach ‣  Goal

–  To stimulate conversations that will catalyze increased capital flow to early-stage energy technology via new financial structures and improved understanding of opportunity and risk.

‣  Methodology

–  Convene a broad spectrum of financial, technology and entrepreneurial acumen to bridge gaps of knowledge and encourage cross-disciplinary problem solving

–  Provide real-world scenarios to engage participants in substantive conversations regarding capital flow challenges and potential solutions

–  Distill strategies for enhance capital and technology capacity

–  Present distilled discussion to broader groups for further debate


Who is here? ‣  Capital Sources

–  Traditional Venture Capital –  Corporate Venture –  Other venture / other equity –  Family Offices –  Philanthropy –  Corporate strategics –  Angels –  Asset managers –  Commercial banking

‣  Intermediaries / Financial structures –  Insurance –  Credit enhancement –  Structured Finance –  Tax equity –  Transaction legal –  Incubators –  Policy


‣  Innovator/User –  Entrepreneurs / Execs –  National Lab –  Academia –  Utility –  Govt. – domestic and International

Workshop Elements ‣  Framework

–  State of the Industry (BNEF) –  Foundational – “Mini Presentations” –  Foundational – Sarah Kearney (Prime Coalition) –  Case Studies – 2 Company Scenarios

•  Investment journey & technology journey •  Purpose: Getting Innovators & Investors on the same page

–  Breakout #1 •  Innovators (2 groups) - Define the Technology Challenge & Related Mitigation •  Investors (3 groups) - Define the Investment Challenge & Related Innovation

–  Breakout #2 - Linking Investor & Innovator Perspectives •  Fuse Innovators & Investors - Seeking mechanisms to mitigate the gap risk

–  Breakout #3 - Deploying 10X Capital •  Institutionalize Capital Structures •  Institutionalize Technology Capacity •  Align Policy Makers


Public Equity ‣  Is public equity an option for early-stage energy (entrance rather than exit)?

–  Advantages •  Enhanced liquidity (dependent on trading volume) •  Accessible to individual investors •  With sufficient market cap, accessible to institutional investors •  Public stock can be used as currency instead of cash

–  Disadvantages •  Requires additional reporting, internal controls etc. ($$) •  Raising capital has more hurdles based on % of Market Cap

–  Either or Or •  Different Board constituency (Independent Directors vs Investors) •  Earlier liquidity for Mgmt. Team

‣  Why not more often? –  Securities trading increment changed from 1/8 to 1/16 in 1997 and then to decimal

$0.01 in 2001. •  Reduced the liquidity in less-active stocks and the incentive for market-makers in

micro-cap ($50-300M) listings


THANK YOU

John R Tuttle, Ph.D. Senior Commercialization Advisor

[email protected] [email protected]

Documents

Enhancing the Flow of Private Capital to Early Stage ... Introduction.pdf · – Worked with public & private sectors in Senegal, Ghana, Brasil & China February 8, 2017 Insert Presentation