C T GI N S I G H T S A BI-MONTHLY REVIEW OF KEY TRENDS AND UPDATES, FROM ACROSS OUR GLOBAL INNOVATION COMMUNITY

SEPT 2016

2 F o r W a r d : C o m m i t t i n g t o O u r B i - M o n t h ly S c h e d u l e

4 D I S S O N A N C E & D I S R U P T I O N : T r a n s p o r tat i o n ’ s F u t u r e T o o k S o m e S h a p e t h i s S u m m e r

6 C A P I TA L & s Y N D I C A T I O N m A T T E R S : T h e I n c r e a s i n g R at e o f C o r p o r at e C o - i n v e s t m e n t

9 at T H E C U T T I N G E D G E : A u g m e n t e d R e a l i t y : A l l e y e s o n i n d u s t r i a l a p p l i c at i o n s

1 3 d I G I TA L + i N D U S T R I A L : E n t e r p r i s e D r o n e s : F r o m A g r i C u lt u r e t o m i n i n g

1 6 i N T E R S E C T S : C y b e r S e c u r i t y m e e t s t h e G r i d i n t h e A g e o f t h e I n d u s t r i a l I n t e r n e t

1 9 f R E S H f A C E S : A N e w P at h w ay f o r C a p i ta l i n C l e a n E n e r g y

2 1 E A S T m E E T S W E S T: C h i n a’ s P r o a c t i v e A p p r o a c h t o A d o p t i n g I n n o vat i o n

2 3 f o l l o w t h e l e a d e r s : G l o b a l c l e a n t e c h 1 0 0

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In June we produced a pilot edition of CTG Insights. Now, we are committing to its ongoing publication six times a year for our CTG Monitor subscribers – such was the positive reaction.

In case you missed that first edition, CTG Insights is our way to provide busy people like you a channel through which to highlight trends, players and happenings in the space (amidst all the noise of the daily deal and news flow) that we think you should be paying attention to. It is our bi-monthly answer to the series of questions we are often asked in private meetings or at our Cleantech Forums:

What’s new? Who’s new in our ecosystem that I should know about? What are the big innovation trends? What’s next? What should we make sure our executives are aware of?

CTG Insights is organized around key themes and research streams (see next page) that we think are of high importance. With your help, we will revisit these over time.

Thank you to all those who took the time to write back after June’s Pilot Edition. Beyond the strong thumbs up to the continuation, we have noted and will look for opportunities to evolve over time, in line with some of the feedback – for example, to provide mobile-friendly formats, to call out the key takeaways (for some articles), to shine a reality check where we can (on how companies are really doing, or on the challenges for technologies to progress in a particular industry, for example), and to periodically revisit trends we highlight to assess how they have progressed. One aspect definitely worth addressing is a few people’s desire for more depth. CTG Insights is delib-erately positioned to be a scan across the landscape and to provide summaries of the key trends, com-panies and people to pay attention to. It is there for busy people looking for a digestible read six times a year. It is the purpose of our new service, CTG Intelligence, to provide more depth on narrower and spe-cific subjects.

We much appreciate all your feedback and will continue to encourage you to let us know what you think and what subjects you might wish to hear about in the future – whether by writing directly to me, any CTG team member, or editorial@cleantech.com.

Meantime, enjoy this edition…

COMMITTING TO OUR BI-MONTHLY SCHEDULE

BY RICHARD YOUNGMAN, CEO, CTG

FOREWORD

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Dissonance & Disruption CTG Insights will provide you with a

steady flow of signals we see as interest-ing and important indicators of a changing operating context.

Intersects CTG Insights will highlight examples of impactful and disruptive

intersects occurring between traditional industrial sectors, that not only challenge cleantech’s gravitational core, but also provide glimpses of the future possible.

Digital + Industrial CTG Insights will cover a key intersection – the

digitalization of the physical, industrial world – and the state of change toward truly “smarter” industry.

At the Cutting Edge CTG Insights will keep an eye out, cut through

the hype, and look to bring to your atten-tion early warnings on trends we believe will be important enablers of future inno-vation waves.

Innovators + Incumbents CTG has been active in bringing corporations

and start-ups together. This theme will highlight select strategic partnerships, to illustrate how this important dynamic is playing out in a more open innovation world.

Fresh Faces Recognizing the impor-tance of new arrivals into our inno-

vation ecosystem, we will highlight to you new players – a range of individu-als, investors, multi-national corporations, and new innovation programs to watch out for.

Follow the Leaders Updates and news on our Global Cleantech

100, an annual list of 100 companies from across the breadth of the clean-tech theme, identified by the market as the most likely to make significant impact within a 5-10 year timeframe.

Capital & Syndication Matters CTG Insights will track where capital is

coming from, and how models and syn-dicates are changing over time.

East Meets West For some time we have been expecting to see a grad-

ual rise in deals that exhibit the coming together of western technology/innova-tion with Asian partners, be that finan-cial, industrial or government. As part of our tracking of the global cleantech land-scape, we will highlight examples we see.

THEMES EXPLORE We will continue to explore key themes and research streams, as described below, that we think are of high importance, though not all themes will be included in each edition.

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CTG Insights will provide you with a steady flow of signals we see as interesting and important indicators of a changing operating context.

Are the forces driving the mega-trends of globalization and industrialization, as we have known them over the past decades, weakening and ceding ground to a new normal? I believe so and therefore have CTG focused on charting the emergence of this new future, as it develops in unpredictable ways and with unpredictable timings.

It is my assertion that we are living out the death throes of the 20th century industrial order, in which centralization and own-ership of the means of production created power and a wealth machine that extended for many decades, spread over two cen-turies. Via globalization and free trade opening up new markets, this “machine” tapped into ever-lower labor costs to maximize profits and grow the customer base.

Today’s anemic global GDP growth rates suggest that we are close to a saturation point. The very recent bankruptcy of the world’s 7th largest container shipping company, Korea’s Hanjin, might be another micro-signal of shifting global trade flows.

In the last edition, I touched on the abnormality of the interest rate environment. In this edition, the world of automotive and transportation more broadly is my arena of choice. Through that lens, a few announce-ments in recent weeks amidst the daily noise caught my attention. In aggregate, they add up for me to more significance than just a series of individual storylines. They provide signals of the future.

• Starting this month, Uber – a company that didn’t even exist eight years ago – has launched a pilot program with Volvo and its XC90 that will allow customers to summon self-driving cars from their phones. And with a delicious sense of history, where should this be happening but in Pittsburgh, Carnegie’s Steel City? Talk about full circles. (Note: there will be humans in the driving seats for this trial.)

• In August, Ford committed to 2021 as the year by which it would be making self-driving cars without steering wheels or pedals. “We see autonomous vehicles as having as signifi-cant an impact on society as Ford’s moving assembly line Source: Uber

We see autonomous vehicles as having as significant an impact on society as Ford’s

moving assembly line did 100 years ago.”

- Mark Fields, CEO, Ford

TRANSPORTATION’S FUTURE TOOK SOME SHAPE THIS SUMMERBY RICHARD YOUNGMAN, CEO, CTG

DISSONANCE & DISRUPTION

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did 100 years ago,” said CEO Mark Fields. Volvo, Tesla and Google will also have self-driv-ing cars by around that time, but this felt particularly significant coming from the company that invented the assembly line and mass production, core to the 20th century’s industrial order. Boardrooms in many industries should take note – does calling time (albeit, it will take many years to happen) on your old business give you more control than hanging on in the hope the future doesn’t arrive? Check back in the 2020s!

• Nissan recently published a study that predicted that by 2020 EV charging points in the UK would outnumber fuel sta-tions, based on current rates of growth and decline respec-tively. The report found that there were 8,472 traditional fuel stations in the UK at the end of 2015, compared to the 37,539 recorded in 1970.

• The Dutch government is looking at introducing an out-right ban of new petrol and diesel vehicles by 2025. October 13th has been set as the date for a key meeting on the path towards progressing this proposal into law.

All of these summer announcements come in the same year that General Motors acquired Cruise Automation, a 40-person Silicon Valley start-up that makes sensors and software for self-driving cars, for just over $1 billion – scoring a home run for its venture investors.

Speaking of whom, this summer also saw Fontinalis Partners closing its second fund. Unlike so many venture capital fundraisings that we have tracked in recent years, this fund closed both on the timeline that the GPs had told me in March, and with a total amount raised considerably higher than its first fund ($100m vs $65m). The Limited Partners clearly see something different here.

What is Fontinalis focused on? Next-generation mobility of course, defined as “the efficient movement of goods, people, and services across all modes of transportation (be it road, rail, air, or maritime).”

(Only one data point, but we happen to know of another significant fund announcement coming up in the automotive area next month. Maybe you will see it in a Fresh Faces article in the next CTG Insights?)

Finally, to link back to the Hanjin shipping bankruptcy, it would be a mistake to think that such a differ-ent future is arriving only for a very different looking automotive industry, even though it grabs most of the current attention. Lesser covered in the summer noise was the release of a white paper by the Rolls Royce-led Advanced Autonomous Waterborne Applications Initiative (AAWA). Their year-long work con-cluded that there would likely be remote-controlled ships in commercial use by the end of the decade, offering optimization of ship use and cuts in fuel consumption.

Next generation mobility seems to be arriving fast. Do you agree? And are you prepared?

Source: Sunday Times Driving

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In our 1H16 Quarterly Investment Monitor, we highlighted three of the 29 first-half deals in which we saw two or more corporate investors participate in the same round. This follows the trend since 2012 of a steadily increasing number of corporates investing alongside one another.

Key Takeaways

• An increasing number of start-ups are creating business models at the intersection of multiple industries and leverage both physical and digital capabilities• Business models impacting multiple sectors are attracting investments from increasingly diverse sets of corporate investors• Corporate investors are adapting to the shifting landscape of investment opportunities by behaving more like institutional investors

CTG Insights will track where capital is coming from, and how models and syndicates are changing over time.

THE INCREASING RATE OF CORPORATE CO-INVESTMENTBY KEN-ICHI HINO, DIRECTOR, CTG

CAPITAL & SYNDICATION MATTERS

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Transportation is one sector in particular that the rate of co-investment has increased noticeably over the last five years. Deal counts with co-investment have risen steadily from 4 in 2010 to 22 in 2015. However, there has also been a marked shift in the types of transportation start-ups. 2011 saw a large influx of capital go to capital-intensive electric vehicle and transportation infrastructure companies, such as Better Place, Fisker Automotive, and Smith Electric. However, these start-ups generally stayed within the existing value creation mechanisms of the transportation industry, and the corporate investors they attracted reflect that with names such as GE, Toyota, and BP Ventures.

Since then, there has been a turn towards services in transportation, with a focus on software and Internet of Things applications. This includes well-known start-ups such as Uber, Lyft, and Didi Chuxing, but also includes a broad swath of companies focused on a range of services including route optimization, vehicle-to-vehicle communication, operational data col-lection, and more. These start-ups are creating value in new ways that do not fit cleanly into the existing hierarchy of the transportation industry, and are attracting investment from a diverse set of investors.

One such deal highlighted in CTG’s 1H2016 Quarterly Investment Monitor was Veniam Works’ Series B round. The provider of vehicle-to-vehicle networking solutions secured Series B investments from corporate investors across three separate verticals: Verizon Ventures, Cisco Systems, Yamaha Motor Ventures, Orange Digital Ventures, and institutional inves-tors. This reflects Veniam Works’ ability to create value in the physical realm by leveraging capabilities in the digital realm.

This intersection of the digital and physi-cal is not limited to the transportation sector, and some start-ups are leveraging digital/physical business models that cut across sectors, enabling them to attract invest-ment from a diverse set of corporate inves-tors. PrecisionHawk, a provider of end-to-end enterprise drone services, is one example of a company benefitting from a cross-sec-tor business model. Investors in their most recent funding round were Verizon Ventures, Yamaha Motor Ventures, DuPont Pioneer (a PrecisionHawk customer for agricultural applications), NTT Docomo Ventures, Intel Capital, and USAA.

The rise of such start-ups that sit across industries is accompanied by a shift in corpo-rate venture strategy. Traditionally, corporate

Network

ing Telecom

Transportation

Telecom

Transportation

Food

/Ag

Semiconductors

Financial Services

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strategic investors were just that – strategic. An investment by a corporate business unit or corporate venture capital (CVC) unit implied that that start-up would ultimately either be acquired by the investing strategic or would grant the strategic exclusive licensing rights. However, the “acquire/license” strategy is proving a more uncertain path as start-ups, through their “intersecting” business models, are drawing the interest of a more diverse pool of strategic investors. This has resulted in cooperation among corporates from different industries, but also competition for the ultimate control of intellectual property.

One example of cooperation among corporates can be found in Evok Innovations, a fund launched in 2016 as a partnership between Suncor Energy, Cenovus Energy and the BC Cleantech CEO Alliance. “We combine the best of traditional VC with the best of corporate VC,” said Michiah Prull, Vice President of Business Development for the fund. “Evok is an independent, entrepreneur-led fund and does not stipu-late the kind of strict exclusivity often associated with corporate venture. At the same time, we offer entre-preneurs access to major customers, subject matter experts, and opportunities to pilot and demonstrate their technologies through our corporate partners.”

Mining major Anglo American is another example of cooperative corporate venturing activity. Kevin Eggers, a Principal with the company’s internal investment group, recently discussed changes afoot: “We’ve been seeing enough interest from other corporations in our ecosystem that we and our investment committee are opening up to co-investing,” said Eggers. “Co-investing with other corporations is likely to broaden our investment horizon and gives us financial as well as strategic lenses as we look at deals.”

The competition among corporate investors looks to be heating up as start-ups devise cross-cutting busi-ness models that increasingly link sectors, and the pressure is beginning to impact CVC strategy. We will continue to monitor developments on corporate co-investment and other CVC strategy in the coming quarters.

CTG Intelligence subscribers: Keep an eye out for our upcoming Opportunity Brief on the rise of co-invest-ment and the evolution of CVC strategy.

If you are an investor with a progressive approach, or have suggestions on trends to profile, we welcome your feedback and comments to editorial@cleantech.com.

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Our At the Cutting Edge series will keep an eye out, cut through the hype, and give early warnings on trends we believe will be important enablers of future innovation waves. Expect articles and interviews on topics like 5G, gene editing, virtual reality, artificial intelligence and more.

Key Takeaways

• AR is making its way into logistics, maintenance, manufacturing and energy applications;• Both hardware and software are seeing tremendous innovation;• Some interesting investing opportunities are still untapped.

Three months into the release of Pokémon Go, there is a good chance you have bumped into one of its 100 million players. The game’s hype may be short-lived, but there is no denying that it has taken the world by storm. What is less commented on is that this represents the first major consumer breakthrough for augmented reality (AR). Indeed, one of the game’s innovations is to layer fictional characters on top of the reality captured by your smartphone camera.

For all the talk of fully-immersive virtual reality (VR) technology and the release of the Oculus and HTC’s headsets this year, AR just showed its ability to reach a wider audience. This is explained by the fact that AR does not block your vision, and can be used in more situations. Also, our smartphones and tablets already have AR capability, as has been demonstrated by Pokémon Go. While many AR use cases still require headsets or smart glasses, some are feasible with the devices we already have in our pockets.

Back in our real world of cleantech and resource efficiency, we are noticing an increasing use of aug-mented reality in industrial settings. In most cases, AR is a cost efficiency play, helping the workforce complete their tasks faster, with less errors and more accountability. This article aims to highlight some of the opportunities that AR presents, using three examples:

• Augmented Logistics, or how AR is getting deployed in warehouses and deliveries;• The Augmented Assembly Line, especially in heavy industries like automotive manufacturing;• Energy applications, such as remote inspection.

We will identify opportunities created by better and cheaper AR technology, and showcase some of the most innovative hardware and software companies in the field.

AUGMENTED REALITY: ALL EYES ON INDUSTRIAL APPLICATIONSBY JULES BESNAINOU, DIRECTOR, CTG

AND SIMONE LIANO, SUMMER ANALYST, CTG AT THE CUTTING EDGE

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The Augmented Warehouse

On most warehouse floors, workers still use paper checklists and handheld scanners to keep track of orders to be picked. Locating items in large, complex warehouses and transporting them to the correct loading docks is a time-consuming and inefficient process that makes for 55 to 65% of warehouse costs (or 11 to 13% of total logistics costs, according to a report by DHL). Logistics companies have tried making this process more efficient using pick-to-light, or voice-directed systems. However, these are costly, as they require large hardware installations, and the pay-back time can be long. AR could prove a much better alternative, with the only hardware being the warehouse worker’s headset.

A young company from Belgium, Evolar, is breaking into this market. Working off smart glasses hardware from Vuzix and Epsom, the company has built SmartPick, an application that allows warehouse workers to locate objects to be picked, hands-free, and to sort piles of packages into different bins. With 15 deployments to date, including with TNT, it is gaining interesting traction. A larger competitor, Germany-based Ubimax, has been developing similar solutions for DHL.

When manually assembling a product, flipping through paper manuals for instructions is time-consum-ing, and often diagrams in manuals do not provide an accurate representation of the task at hand. AR can layer on real-time instructions for assembly, and superimpose digital models over the physical pieces that workers are handling. Instructions can be accessed through headsets, which leave employees’ hands free to continue working. ScopeAR, a Canadian company developing AR tools for the assembly line, con-ducted a trial comparing the time to assemble a spring-loaded hatch (a 30-step process) using 3D AR instructions versus paper instructions. Workers who used the augmented instructions were 30% faster and three times more accurate, according to a case study put out by the company.

Along the assembly line, AR can also help with error detection. The recall of manufactured goods due to defects is a serious problem, especially when those defects influence safety. Error detection using the human eye is time-consuming and flawed. AR devices, including smart glasses, can scan objects on an assembly line for errors. This is done by superimposing an image of what the object should be onto the actual object and looking for misalignment. Boeing’s partnership with AR start-up NGRAIN, for instance, is aimed at lowering error rates with this process.

The Augmented Assembly Line

Energy Applications

Both at the oil rig and the electrical substation, AR represents an opportunity to improve inspection, enhance communication and increase safety.

As technicians inspect any industrial equipment, smart glasses can assist them by pinpointing abnormal-ities with high precision. Additionally, staff can access instruction materials and checklists from headsets instead of clipboards, enhancing safety by freeing workers’ hands in environments where falling off-bal-ance can have disastrous and costly results. DAQRI’s smart helmet, for example, uses Intel technology to recognize and map objects, as well as generate virtual checklists and instructions. Meanwhile, Atheer, a Mountain View-based start-up, has collaborated with Duke Energy and the Electric Power Research Institute (EPRI) to test its AiR Glasses and AiR Suite application, providing real-time instructions during maintenance tasks.

Remote guidance is also a strong use case for energy, in which a maintenance worker resolving a crisis can stream a live view of an equipment malfunction to a distant colleague, who then annotates the view with instructions to fix the problem (like buttons to press or valves to turn). Remote monitoring means that fewer regular staff are needed on-site.

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Our View on the Ecosystem

Select Investors Select Clients

Our Top Pick of

Innovators

Energy/Utilities

Logistics

Manufacturing

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This is a promising and fast-moving space. Smart glasses hardware is becoming cheaper and more avail-able. For instance, Vuzix and Epsom sell their glasses at between $1,200-$3,000 a pair. Coding for those platforms is getting easier too, as they typically run on Android. As a result, many software companies are emerging and building applications for specific use cases, such as the ones described in this article. While some hardware innovators such as DAQRI, Atheer or Magic Leap are getting much attention and funding, software opportunities may also be just as interesting plays for industry-oriented investors.

You can find and follow our full sector and company coverage (60 start-ups and growing) at i3connect.com/tag/augmented-virtual-reality. We’d be glad to hear from you as you consider this space. Feel free to email editorial@cleantech.com with any comments or questions.

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Charting the Future, Connecting the Globe continues to be at the core of what the forum offers. Cleantech Forum San Francisco remains the annual gathering of the global innovation community, offering a com-prehensive, multi-day program with exclusive opportunities to learn, network, and get deals done.

Registration is now open: bit.ly/CFSF17reg

CTG INSIGHTS | SEPTEMBER 2016

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With $240 million deployed over 33 deals, 2016 is already a record investment year for drones. This wave of fresh capital is pushing drone companies to look for new commercial opportunities, and many are looking to sell their services to new verticals. While the first financings we tracked in 2013-14 aimed at breaking into the precision agriculture market, start-ups are now targeting heavier industries such as energy and mining.

This high level of activity raised some questions for us. Does the increase in financing reflect commercial growth? Is the prominent revenue model in the industry still hardware sales? What are some typical use cases and value proposition for drones in industrial environments?

To answer these – and illustrate the renewed interest in industrial drones – we talked to three of the top innovators in the field: PrecisionHawk (a Global Cleantech 100 company), Kespry (a leader in the mining/aggregates vertical) and Flyability (a rising star, and the latest investment from our friends at ETF Partners). Here is what we took away from these conversations.

CTG Insights will cover a key intersection – the digitalization of the physical, industrial world – and the state of change toward truly “smarter” industry.

PrecisionHawk: Moving toward an appstore model

In a webinar we hosted in November of 2014, COO Pat Lohman walked us through how PrecisionHawk was helping farmers acquire real-time information about their fields, and make data-driven decisions to maximize crop yields. At the time, the company had already raised more than $10 million in funding, employed 50 employees and was starting to sell to other verticals.

Today, aggregates, energy and insurance bring more revenue to the company than agriculture, according to Thomas Haunt,

Key Takeaways

• Drone innovators increasingly targeting energy and extractive industries;• Revenue model moving toward subscription;• Hardware differentiation still valuable for complex use cases.

Source: PrecisionHawk’s DataMapper software

ENTERPRISE DRONES: FROM AGRICULTURE TO MININGBY JULES BESNAINOU, DIRECTOR, CTG

DIGITAL + INDUSTRIAL

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EVP at the company. This is explained by strong market pull in these verticals. For instance, mining service providers are increasingly measuring stockpiles with drones instead of ground surveys. Flying a drone above a mine or quarry is more precise, cost-efficient and safer. To meet the strong demand, PrecisionHawk has partnered with manufacturer DJI to create a turnkey package costing less than $10,000, including a DJI Matrice copter drone, a visual sensor and basic software to fly the drone and analyze the data.

In addition to offering third party hardware, the company is moving toward a subscription business model. After buying the initial hardware package, users can connect to an appstore called “Algo Market,” and subscribe to higher-value applications. In mining, these apps could include calculating slopes and angles, or help with 3D map processing. This ecosystem is also open for third-party developers, mainly from the company’s university partners.

PrecisionHawk raised $18 million in growth equity in April, and now employs more than 150 people, mostly geoscientists and developers bringing new analytics to market. What’s next? Haunt says coming closer to urban environments, now that US regulation allows it, to meet new use cases in construction, insurance and building management.

Kespry: The aggregates specialist

Founded in 2013, Kespry is taking a different route to conquering the aggregates market. First, the company is building its own hardware, purpose-built for industrial and mining conditions. Second, it targets miners directly, instead of mining services companies. To do that, the company offers a plug-and-play solution including hardware, flight software and data analysis, bypassing the need for a service company.

Kespry bundles a hardware lease, software and services into an annual subscription, priced at around $30,000/year. Large mining customers – such as Lehigh Hanson or Colas – will typically take on one subscription per site. According to Paul Doersch, Kespry’s CEO, some clients have up to 20 systems running at different sites. Interestingly enough, Doersch explained that he consid-ered the legacy survey services companies as his real competitors. He has not come across other drone inno-vators, such as PrecisionHawk, in his latest sales.

Kespry is showing impressive growth. After its commer-cial launch in May 2015, it has doubled its headcount in the last 12 months, now at 54 employees. With this success in the aggregates space, Kespry raised a $16 million series B round in June, from Series A inves-tor Lightspeed Venture Partners and 5 new investors. The financing will help the company ramp up man-ufacturing and respond to growing traction in construction and insurance – the two other verticals it is tar-geting. According to Paul, insurance is the fastest growing market at the moment. An example use case is helping insurance companies assess damages after natural disasters in a safer and more efficient way.

Flyability: Opening up confined environments

As drone innovators increasingly bet on software and data analytics to gain a competitive edge, Flyability is standing out with an intriguing hardware play. Mimicking insects rather than birds, the Switzerland-based team has built a copter drone enveloped in a carbon fiber protective structure. This allows Elios

Source: Kespry

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(the curious flying ball’s name) to bounce off obstacles and access environments where other drones and humans can’t operate safely. The company just closed a $4.3 million Series A round led by ETF Partners. We spoke to Remy de Tonnac, who led the firm’s investment, to learn more.

Utilities are a key customer segment for Flyability. The main use case is inspecting large boilers, heat recovery steam genera-tors, and other tube-like structures. Thanks to its protective shell, Elios can travel at ease where other drones would crash, or where humans would suffer harsh conditions. This means significant effi-ciency and cost savings for inspection companies and utilities, and shorter maintenance downtime. Other applications include pipelines and tanks for the oil & gas industry, as well as machin-ery inspection in vessels and other costly and risky maintenance operations. Remy also mentioned security and defense deploy-ments. Flyability’s client list already includes Chevron, GE and ConEdison.

The company’s revenue model is hardware sales – to date, it has sold around 100 Elios drones. The team has found a sweet spot with inspection companies that are already using drones – they quickly under-stand Elios’ hardware advantage. According to Remy, the company is on track to generate $2 million in revenue in 2016, with a goal of 10x growth in 2017. Created in 2014, Flyability already employs 30 people. A company to watch!

Source: Flyability

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CTG Insights will highlight examples of impactful and disruptive intersects occurring between traditional industrial sectors, that not only challenge cleantech’s gravitational core, but also provide glimpses of the future possible.

Cyber-attacks have become commonplace in the private sector in the past two-plus years – no longer strictly the domain of cloak-and-dagger espionage operations among nation-states. From retail giants like Target and Home Depot to manufacturing majors like Sony, big balance sheets and equally large stock-piles of customer and transactional data seem to constitute the recipe for a cyber-target.

Yes, it’s this new era of big data and the coming connected-everything world that’s gotten us into trouble. But what of the vulnerabilities beyond identity theft and bank accounts? What about the critical infrastruc-ture and resource industries upon which our modern economy and daily comforts rely? As more “things” that make up the traditional electricity, transport, and water systems that we take for granted are given IP addresses, what new threats are those networks exposed to? We’ve begun a stream of research into the unique vulnerabilities and levels of preparedness of these industries against cyber-attacks, beginning with the electricity grid.

Defining the threat

Utilities face many of the same IT security challenges – and collect the same customer and transac-tional data – that many other industries do. The increasing penetration of third-party cloud services into the industry to manage that data means that utilities also face many of the same cyber risks. The threat we intend to discuss here, however, is the one that manifests as a power blackout to an entire regional or continental electric grid due to a cyber-attacker’s exploitation of now-networked and vulnerable devices, such as a simple relay at a power substation.

As the Internet of Things proliferates, the shift of historically analog operational technology (OT) in the field to behave more like information technology is referred to in the cyber security space as IT-OT Convergence. The exploitation of such newly-connected OT as relays, single-point controllers and

Key Takeaways

• Proliferation of industrial internet of things exposing vulnerability of now-networked grid infrastructure to cyber attack• Today’s solutions come from awkward mix of grid hardware and IT software partnerships• Signals from regulators, large number of start-ups make this an innovation area to watch

CYBER SECURITY MEETS THE GRID IN THE AGE OF THE INDUSTRIAL INTERNET BY TROY AULT, DIRECTOR OF RESEARCH, CTG

INTERSECTS

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distributed control systems, as well as the SCADA systems that have been adapted to this new normal, is an existential threat.

The rub is that, because OT devices on the grid face physical constraints and cost pressures to employ only the bare essential computational and memory resources, they’re more vulnerable. The implementa-tion of sophisticated, computation-heavy cryptography is much more difficult with these field assets.

Who serves utilities and independent power producers (IPPs) today?

Cyber security in the utility industry is primarily the domain of major IT vendors like Oracle, SAP, and Intel’s recently offloaded McAfee. To address the IT-OT Convergence, a patchwork of partnerships for imbedded security features have formed between these vendors and the major grid hardware suppliers like General Electric, Siemens, Schneider Electric and ABB. Whether this patchwork is the optimal way to address the IT-OT Convergence remains unclear. The likely evolution would seem to be that the tradi-tional hardware or OT vendors will acquire or adapt their own internal security capabilities and products over time. If those capabilities are to be acquired, they could come from any number of start-ups that are already biting at the edges of the pie, and innovating against new and evolving niche threats.

The start-up and venture capital segment of the utility cyber security ecosystem is made up both of IoT start-ups like Mocana and C3 IoT that have security features core to their offerings, as well as pure cyber security software start-ups like mPrest and CyberX. The latter category is a highly-saturated space with hundreds of companies and hundreds of millions of dollars in annual venture capital flows. Our research, however, suggests that only 15-25 percent of these pure cyber security software companies – which tend to focus more on lucrative high-threat segments like financial institutions and large retailers – target the utility industry as a core vertical. What the presence of so many start-ups in the ecosystem makes clear, however, is that some combination of the efficiency, efficacy, or cost of existing solutions can be improved.

2016

$5.6M S

eries B

$66M G

rowth

Aquired

$100M G

rowth

$9M S

eries A

$70M G

rowth

$6M

Ser

ies

B

$7M

Ser

ies

A

$1.2

M S

eed

$20M

Ser

ies

A

$4M Seed

Recent Activity

CTG INSIGHTS | SEPTEMBER 2016

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Today, utilities and IPPs are piloting start-ups’ services, partially to keep their existing software vendors and OEMs on their toes. We spoke with one US utility R&D representative working with university researchers and leveraging National Science Foundation grant money to demonstrate the unique vulnera-bilities of power substation relays and controllers in the field. She acknowledged the need to work simulta-neously with their existing suppliers, however. “Aspects of existing products are lacking, so it’s necessary to be out testing in these research projects,” she said. “[I’m] not sure the manufacturers would adopt [new technology] without that market signal/validation.”

Perhaps another market signal will help speed adoption – that which is slowly but surely coming as a push from regulators, with 2016 looking to be a watershed year.

Regulatory action

In the fall of 2013, Janet Napolitano, the then-outgoing US Secretary of Homeland Security admonished her still-unnamed successor that a downed power grid due to cyber-attack was a matter of “when not if.” Well, Secretary Napolitano’s successors are taking action. In the US, the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC), an organization of US electrical grid operators, have recently put in place compliance requirements specifically for elec-tric utilities. This is a progression from what had been voluntary compliance with standards set in 2014. Meanwhile, the European Union looks set to adopt a new General Data Protection Regulation (GDPR) across industries including electric utilities.

Looking forward

Cyber security is a crowded space, and the electric utility industry is only one among many target markets with high attack rates and high avoided-cost bases for pricing. Meanwhile, the increasing proliferation of IoT connectivity into our critical infrastructure is sure to expose vulnerabilities. With strong signals from regulators, a large addressable market, and so much at stake, innovators, utilities and IPPs, and existing software and hardware vendors must meet the challenge. We’ll keep you updated with opportunities we see arising, as well as who’s seizing them.

CTG Intelligence subscribers will receive our September 2016 Opportunity Brief with more in-depth cover-age of the Grid Security space.

CTG INSIGHTS | SEPTEMBER 2016

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Recognizing the importance of new arrivals into our innovation ecosystem, we will highlight to you new players – a range of individuals, investors, multi-national corporations, and new innovation programs to watch out for. This edition’s commentary highlights a new investment platform democratizing renewable project investment.

CleanCapital is a financial technology company that makes it easy to invest in clean energy. CleanCapital allows investors - institutional investors, family offices, investment funds, and individuals - to invest in secure and diversified clean energy projects.

The company has secured an exclusive pipeline of more than $100M and has more than 10,000 subscrib-ers. The team members served in Iraq, built exceptional software, worked in the White House, and have led over $1 billion of clean energy financings. We caught up with the company’s CEO, Thomas Byrne:

CTG: Thom – what types of projects can investors expect to find through CleanCapital’s platform, and why are you focusing on those?

TB: We accommodate both equity and debt invest-ments. Our platform can ultimately serve any size clean energy project, but at the outset we’ve focused on operating solar projects of less than 10 megawatts. This segment of the market pro-vides a unique opportunity. These are good, cash-flowing assets that are generally overlooked by larger investors, given size constraints and the inef-ficient acquisition process. In addition to impeding access to investments, this inefficiency also limits many project owners who seek liquidity in order to move onto the next project. We are solving that inefficiency by bundling these assets and partner-ing with longer term investors who are attracted to the predictable cash flows. Longer term, we envi-sion our platform serving multiple segments - utility scale, construction projects, other clean energy sources - as we believe everyone can benefit from a more efficient finance process. This small scale operating solar market is a good place to start.

CTG: So, where exactly does CleanCapital’s model fit within this world of crowdfunding? How are you different?

TB: Well, the crowdsourced model solves a lot of problems, from avoiding traffic to investing in start-ups. But we’re quite distinct and don’t really compare ourselves to crowdfunding despite the technology association. We embrace technology to provide a better investor experience and simplify capital sourcing. But CleanCapital is foremost a project originator, screener, and manager for inves-tors that lack access to this market. Technology pro-vides solutions to all parties.

CTG: And on the platform – have you just boot-strapped development of the software to this

A NEW PATHWAY FOR CAPITAL IN CLEAN ENERGYBY TROY AULT, DIRECTOR, CTG

FRESH FACES

CTG INSIGHTS | SEPTEMBER 2016

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CTG: Yes – congrats on that $21 million John Hancock deal. Very cool to have a huge, well-known institution like that, but one we might not expect to see at the top of the list for renewable project investors. What’s the next milestone for CleanCapital – and what will you spend proceeds of this equity fundraise doing?

TB: We will continue to close deals, develop cutting edge software, and grow clean energy investment participation (and not just for CleanCapital). We have a huge pipeline of projects, but we are limited due to bandwidth and resources. This next capital round will fix that.

Thomas Byrne can be reached at tbyrne@clean-capital.com.

point? What about the company’s own corporate capitalization?

TB: We brought in some capital to get started, but it is a very lean operation so far. After all, we believe this financing segment is inefficient and ripe for disruption. So we need to be hyper-efficient our-selves to deliver lower cost investing options. We just closed a $21 million transaction with invest-ment from John Hancock, family offices, and even some individuals. With this clear market validation, we actually just last month started a new capital raise. So we are on the road speaking to investors interested not just in the projects we originate and validate, but in our company as well.

Save the date for our 13th annual Cleantech Forum Europe, hosted next year in Helsinki!

Join us for a gathering of the leading upstarts, investors and incumbent corporations from across all sectors of sustainable innovation. Create connections, get out of your everyday silos, and enjoy the annual Forum Awards dinner in ever more glamorous settings!

CTG INSIGHTS | SEPTEMBER 2016

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CHINA’S PROACTIVE APPROACH TO ADOPTING INNOVATIONBY LEO ZHANG, SENIOR ANALYST, CTG

EAST MEETS WEST For some time we have been expecting to see a gradual rise in deals that exhibit the coming together of western technology/innovation with Asian partners, be that financial, industrial or government. As part of our tracking of the global cleantech landscape, CTG Insights will highlight examples we see.

During the G20 Summit in Hangzhou, China, the host country and the United States announced their formal ratification of the Paris Climate Agreement. The ratification represents a significant milestone, as the two countries make up the world’s two largest greenhouse gas emitters, and are paving the way to a complete ratification by other committed countries.

We have already witnessed significant Chinese initiatives in tackling climate change – ranging from the establishment of a cap-and-trade program to the deployment of renewable energy. The country led the world in new solar and wind farms in 2015, at 15GW and 30.5GW respectively. The Eastern superpower has shown the world that it is getting serious about climate change. As evidenced by China’s 13th Five Year Plan (FYP), stricter environmental targets and a push for innovation are two priorities outlined by the central government through 2020.

China’s initial movements in adopting innovative technology have thus far mostly taken the form of acqui-sitions of foreign technology companies, oftentimes when they are in distress. This must be viewed as a reactive and opportunistic approach. High profile cases, such as the acquisition of A123 by Wanxiang Group and Hanergy’s acquisition of MiaSole, certainly showed China’s bullishness, but also its shrewd nature in fulfilling its technology gap.

The picture has changed dramatically over the past few years, as we have started to see more funds aimed at investing and building long-term strate-gic relationships with foreign companies. To illustrate such a point, we start with the recent $22 million Series D equity financing raised by FRX Polymers (a Global Cleantech 100 company), in which China’s CITIC Capital served as the lead investor. With China as the fastest growing market for FRX Polymers, this deal will support the company’s next growth phase in China

and the rest of Asia. Given China’s increasingly stricter environmental standards, the country’s electronics and construction industries can benefit from FRX Polymers’ environmentally friendly flame retardants.

From a strategic point of view, Ballard Power Systems’ recent equity invest-ment deal with China’s Broad-Ocean highlights the country’s commitment to building long-term strategic partnerships. Through a strategic partner-ship agreement, Broad-Ocean has made a $28.3 million equity investment in Ballard, and more importantly, included major collaboration agreements for

CTG INSIGHTS | SEPTEMBER 2016

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market development, licensing, and supply chain integration. This particular deal also demonstrated both sides’ deliberate approach to a long-term commitment with an Investor Rights Agreement – in essence, preventing a Broad-Ocean hostile takeover of Ballard, while also inhibiting Ballard from diluting Broad-Ocean’s current 9.9% ownership.

We are also witnessing the emergence of dedicated corporate venture capital entities by Chinese multinational corporations. Shanghai Automotive Industrial Corporation (a state-owned enterprise), has recently created a corporate venture capital (CVC) unit, SAIC Capital, and adopted a strategic investment approach to invest in US-based companies. The broader mobility theme currently seeing so much inno-

vation in the US, with recent financings like Quanergy’s latest $90 million round and Velodyne LiDAR’s $150 million mega round, clearly has strategic relevance to SAIC’s core automotive business. SAIC Capital’s existing portfolio companies include SolidEnergy, a developer of lithium-metal battery electrodes and electrolytes, and SDCmaterials, a developer of nano-enhanced catalytic materials for the automotive industry. SAIC has established its CVC unit in Menlo Park, California, as well as a research center in San Jose, California. Recognizing the importance of global collaboration, we expect more cross-border activities to emerge in the coming years, especially as China takes a more proactive approach to adopting innovation. As more western innovators mature and look for bigger markets abroad, particularly in China and Asia, we hope to see success stories follow suit.

Interested in learning more about China’s cleantech ecosystem, or wish to help your portfolio companies enter the Chinese market? Consider joining CTG’s 5th Cleantech Tour of China, March 20-23, 2017.

CTG INSIGHTS | SEPTEMBER 2016

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Updates and news on our Global Cleantech 100, an annual list of 100 companies from across the breadth of the cleantech theme, identified by the market as the most likely to make significant impact within a 5-10 year timeframe.

Q3 has experienced an increase (as of September 14) in the total dollar and deal count figures for venture capital investment in our GCT100 alumni companies compared to 2Q16. (Venture capital investment refers to Seed, Series A, Series B, and Growth Equity investments <$350m.) This success was com-plimented by an interesting selection of M&A activity. Looking past the headline-generating news of the Tesla/SolarCity merger, we saw a European 8-figure exit, a reverse merger, two of our alumni land their first strategic acquisitions, and a further strategic acquisition from Uber.

Wärtsilä acquired Eniram in a deal worth $48.5 million. Based in Finland, Eniram is a developer of mari-time energy management technologies. The move ensures Wärtsilä remains at the forefront of the digita-lization of marine technology. Eniram’s marine technology enables a level of predictability, and real-time analytics, which is proving to increase efficiencies across the transportation sector.

Sungevity, a GCT100 company since 2013, went public through a reverse merger with Easterly Acquisition Corporation. The deal valued Sungevity at $357 million. This deal follows in the steps of SolarCity and Sunrun - all three companies having exited within 12 months of each other - as solar instal-lation companies mature, diversify, or require a level of financing that is more easily accessed in public markets.

Renovate America and Space-Time Insight made their first acquisitions this quarter. Renovate America bought Cake Systems to provide their efficiency platform with energy auditing and demand side man-agement capabilities. Space-Time Insight acquired GoFactory to use their cloud service to capture and analyze data from connected asset, systems, and people in real-time.

Taking these deals into consideration - as well as Uber’s recent acquisition of Otto Motors - there seems to be an increasing number of cleantech companies seeking growth through acquisitions. In recent years, market conditions have precipitated a lull in the more traditional exit routes such as an IPO. Instead, we are seeing higher-value private rounds, leading to the highest private company valuation in history (Uber at $62.5 billion). Along with the higher-value rounds, the M&A deals point to more unconventional growth strategies, such as consolidation, for private companies. The question is if the recent deals are anoma-lies, or are start-ups looking for alternative options?

Key M&A Deals

Introduction

FOLLOW THE LEADERSBY CHRIS SWORDER, ANALYST, CTG

GLOBAL CLEANTECH 100

CTG INSIGHTS | SEPTEMBER 2016

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KEY STATS (all figures include Seed/Series A/Series B/Growth Equity rounds <$350m)

• 19 deals for a total of $552M venture capital invested in Q3

• 45 deals giving a total of $1,25B of venture capital investment in alumni in 2016YTD

• 26 deals giving a total of $684M invested in 2015 GCT 100 companies in 2016YTD

The Solar sector was two-thirds of the total dollars invested for the quarter. Mosaic, Off Grid Electric, and GeoStellar closed successful fundraising rounds. The overall total raised by solar companies in Q3 is impressive, given that it does not include project finance. For example, Mosaic raised a $220 million equity finance round, which is similar - or larger - than amounts raised by other top solar installers just before they went public (Sunrun - $150 million; Sungevity - $50 million).

The Smart Grid sector had four interesting deals in Q3, with Power Plus Communications, Varentec, C3 IoT, and Geli all raising financing. This set of companies showcase a diverse mix of technologies - from software that manages energy storage systems (Geli) to voltage control technology (Varentec) - that fall under the smart grid theme. It is clear that innovation and investment are both occurring at many points along the “grid edge.”

Top Sectors

0 50 100 150 200 250

water &wastewater

energystorage

advancedmaterials

agriculture &food

conventionalfuels

biofuels &biochemicals

energyefficiency

smart grid

solar

Dollars Invested Millions

Dollars invested in GCT100 Companies by sector in Q3 2016

CTG INSIGHTS | SEPTEMBER 2016

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The following deal table shows all venture equity and non-dilutive funding events for GCT100 alumni compa-nies in the third quarter to September 21, 2016. Our 8th Global Cleantech 100 will be released on January 23rd at the 2017 Cleantech Forum San Francisco.

Recipient Company GCT100 Year SectorInvestment

TypeAmount Investors

2013 2015 Other cleantech Growth Equity $850M -

2010 2012 Solar Project Finance $345M -

2013, 2014 Solar Growth Equity $220M Warburg Pincus, Core Innovation Capital, Obvious Ventures

2015 Energy Storage Project Finance $200M Macquarie Group

2011 Solar

Growth Equity $46.8M Innogy SE, Engie, BASF, BNP Paribas, 6 others

Structured Debt $22.3M -

Grant $20.1M -

Loan $22.3M European Investment Bank

2014, 2015 Energy Storage Project Finance $100M Starwood Energy Group

2014 Smart Grid Growth Equity $70M TPG Growth, Sutter Hill Ventures,Interwest Partners

2012 2014 Conventional Fuels Growth Equity $45M Alujain Corporation, Air Liquide, Maire Tecnimont

2012 Biofuels & Biochemicals Growth Equity $31.2M -

CTG INSIGHTS | SEPTEMBER 2016

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Deal table continued...

Recipient Company GCT100 Year SectorInvestment

TypeAmount Investors

2013 2015 Energy Efficiency Growth Equity $30MGGV Capital, Lookout Capital,

Eastwood Capital, Venrock & 4 others

2013 2015 Energy Efficiency Growth Equity $23.5M

Osceola Capital Management , Claremont Creek

Ventures , TPG Capital , GM Ventures

2012, 2014, 2015 Advanced Materials Growth Equity $22.6M CITIC Capital, Evonik Venture Capital

2010 Solar Growth Equity $22MKawasaki Ventures, Shell

Foundation, USAID, UNCDF, EAV, 4 others

2015 Agriculture & Food Growth Equity $20M Acre Venture Partners, KPCB, GV, DBL Investors

2013 Agriculture & Food Growth Equity $18MPangaea Ventures, Anterra

Capital, Cultivian Sandbox, Open Prairie Ventures

2015 Energy Storage Growth Equity $14.5MFirstFloor Capital, Up Invest, Harju

Elekter

2012Biofuels &

BiochemicalsGrowth Equity $14M Bill Gates, Total

2011, 2015 Advanced Materials Loan $13.5M European Investment Bank

2011, 2015 Advanced Materials Growth Equity $11.2M Inventure Capital, Infosto

2015 Solar Growth Equity $10M Helios Investment Partners

2015 Solar Structured Debt $8M responsAbility

CTG INSIGHTS | SEPTEMBER 2016

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Deal table continued...

Recipient Company GCT100 Year SectorInvestment

TypeAmount Investors

2011, 2012 Water & Wastewater Growth Equity $6M Anterra Capital, Rabobank, ETF,

Unilever

2012 2015 Biofuels & Biochemicals Growth Equity $3M

Braemar Energy Ventures, Zygote Ventures, East West Capital, P2

Brasil

2015 Smart Grid Growth Equity $3M Southern Cross Venture Partners

2009, 2010 Biofuels & Biochemicals PIPE $2.9M -

2014 Water & Wastewater Series B $2M -

2012 Solar Growth Equity $1.8M Valentis Capital

2011 2015 Energy Storage Structured Debt $1.6M -

2012 Solar Growth Equity $850,000 Valentis Capital

2012 Smart Grid Growth Equity - Adaxia Capital, Kalorimeta

2014 Smart Grid Growth Equity - 3M New Ventures, Bill Gates, Khosla Ventures

2013 2015 Smart Grid Growth Equity - Total Energy Ventures

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