Most clean-tech, renewable-energy and alternative-energy technologies have one thing in common: They need a long funding “runway” before they can get off the ground. This is a problem that they share with pharma and biotech startups. Thus, the question is how to accelerate the development of these companies so they can reduce the amount of time to market.
A new startup accelerator, based at the Rutgers EcoComplex (Bordentown), wants to help these companies. To raise awareness of the resources available to clean-tech startups, Sirpil Guran, director of the EcoComplex, organized the Rutgers EcoIgnite Meetup, where company founders can pitch their energy startup ideas and those interested can learn from experts.
The first meetup took place on November 15 and featured a panel of angel investors, including Mario Casabona, Mike Halsey and Benjamin D. Novak. The panel discussed the problems facing entrepreneurs in general, and specifically those in the clean-energy tech space.
Asked by Guran to tell the audience about the obstacles startups face along their paths towards commercialization, Casabona, who founded the accelerator TechLaunch (Kinnelon), said that everyone thinks the biggest problem is money, that if you could raise a lot of money, all of your problems would go away. “The biggest problem a startup has is really creating a cohesive hard-working, smart, dedicated team,” he said. “When I invest, the first thing I look at is the team. Do they have experience in the industry? If I know more about the market than they do, there’s something wrong.”
Halsey, who sold his business, Atlantic Transformer Services, and later became an angel investor, advised the founders in the room to hire smart people. “Whenever I did something, or if I was involved in some challenge, I never wanted to be the smartest guy there. I always wanted to hang with the smart people.”
Novak, who by day is a venture capital attorney with Morgan Lewis (Princeton) and by night an angel investor, said that he agreed with both Casabona and Halsey. He then said, “I believe that your time is your most limited resource. And how you choose to spend your time often decides your fate. So, resource management, time management is a big thing. … Some entrepreneurs always do what they are good at, which isn’t necessarily what they should be doing.” He noted that CEOs often do everything from running board meetings to taking out the trash, and to make sure everything gets done, they need to build a team with complementary skills, staffing the right people at the right time.
Guran noted that she had heard that venture capitalists (VCs) and angel investors weren’t keen to take on clean energy projects, and she wanted to know more about that. Casabona answered that, when founders take on angel money, and eventually VC money, the investors want to see a return on their investments, and quickly. “So, they are pushing you for a three- to five-year exit. If you are in the environmental business” it may take a longer time before an exit. The alternative is bootstrapping, when a founder uses his/her own money or money from friends and family to start a business, and then grows the business using its profits. Casabona noted that bootstrapping worked well for him when he started and ran an earlier business of his, Electro-Radiation Inc. (Fairfield). “If we had been in a financing deal, I probably would have been out in ten years. I was out in 23 years. The other difference is that I owned 92 percent of the company when I sold it. Not 5 percent, 10 percent or 15 percent.”
Halsey had also bootstrapped his company, and he noted that one way to remain cash-positive was to build your own equipment. “I knew a lot about the industry I was going into. In this industry, one piece of equipment at that time cost half a million dollars. I didn’t have half a million dollars. But I ran generating stations with pumps and vacuum pumps, and I decided to make my own breaker. And I made it for about $100,000.” It wasn’t as pretty as the ones on the market, he added, but it worked. It also featured an innovative design, he told the group.
If you are going the traditional route to obtaining funding, find VCs or angels that finance your kind of deal, Novak said. “Do your homework and focus on fit. A lot of it really comes down to finding the right partners. Your hit rate will go up significantly when you’re talking to the right people. … Most professional investors, most investor groups have some sort of sweet spot. Knowing the stage of companies that group invests in, the industries they invest in, the subindustries they invest in, where they have connections, where their portfolio companies fit in the ecosystem of your industry … will help you find the right people. I think you’ll find that, once you are in the sweet spot, people will be happy to call you back and give you meetings.”
In response to a question from NJTechWeekly.com about whether members of the panel were actually seeing clean-energy-technology deals in New Jersey, Casabona answered that five or six years ago there was a lot of activity in the area, but “I don’t see that much activity nowadays.” It might be because the solar photovoltaics market is well defined, he said. Also, it’s very difficult to finance a windmill or turbine, as it’s not a matter of $2 million or $3 million. “You need $100 million. It’s very capital-intensive.”
Where tech startups can play a part, he said, is in energy technology. “If you look at PSE&G, I’m sure they can use technology to solve some of their problems.” He urged the founders in the audience to find those opportunities.
Members of the audience chimed in on possible funding sources, noting that federal Small Business Innovation Research (SBIR) grants are available for clean-tech projects, and can go a long way towards funding startups in their early days. Also, panelists said that sometimes a startup’s customers who really need the technology will help fund research and commercialization efforts, either by making advanced payments or by becoming the startup’s partner.