Monday, June 25, 2012

The Anatomy Of A Pass, A Quantitative Analysis On Why A VC Passes

Source: TechCrunch
By: Jay Jamison is a partner at BlueRun Ventures.

It is an exciting time for early stage technology company building and venture capital.  Despite some early bumps in Facebook’s recent IPO, we are seeing something of a return in the IPO market, as Facebook, LinkedIn, Groupon, Zynga, Jive and others have gone out.  On the company formation side, founder momentum seems to be surging.  Every week, I learn about about new incubators and startup accelerators getting formed.
Applications are surging to top tier incubators Y Combinator, 500Startups, and TechStars. To be sure, it is an exciting time.
And in this industry, whenever the times are exciting, the storylines and hype cycles start spinning up the siren song that startups are easy.  If all one did was read top tech blogs, you might think that financings materialized out of nowhere, that valuations were getting bid to crazy levels.  And certainly, for some very small number of exceptionally exciting companies, fund-raising happens in a snap.  But it’s not the standard.  The problem with this siren song is simple.  It makes raising money, much less building a company out of nothing, sound easy.
That’s ridonculous.  No matter how robust the current market might be, for the vast majority of early stage companies the core reality is that raising money is hard, if not extremely hard.  And no matter how hard the fund-raising function is, it pales in comparison to the task of actually building a lasting, impactful company.
To support my argument, and ideally more importantly, to serve founding teams planning on fund-raising, I’ve completed a detailed study analyzing every pitch I have heard since the beginning of March 2011.  This analysis attempts to quantify my rationale for why I chose to pass or to invest in a company.
I’m calling this analysis The Anatomy of a Pass, a Quantitative Analysis on Why a VC Passes.  Why this title?  First, the pass is a much more common outcome for any founding team pitching an investor.  Hopefully understanding with some level of quantitative analysis what drives this result will help founders.  Second, I’m specifically relating the title of this work to Brendan Baker’s most excellent and useful “the Anatomy of Seed: An inside look at a $1M seed round.” His work and his thinking are terrific.
A final note: I apologize if this comes across as overly negative.  I’m a venture investor, which means that the glass is always more than half full.  I am insanely fortunate to have a role in this great industry.  I put this together not to critique those who put themselves out there.  It’s meant purely in a spirit of sharing data and analysis.


For my analysis, I considered any company I met with for a pitch in person or by phone from March 1, 2011 through May 31, 2012.  I did not include cold calls, unsolicited business plans, brief meetings with founders looking for advice, or catching up with a founder over a beer, unless we met for a pitch later.  Also I did not include all companies who pitched at Demo Days at incubators or startup competitions, but I did include any company from those pitches where I had follow-up meetings.  This gave me a sample size well above 200.
I then rated each company on a 5 point scale (5 is high, 1 is low) across 5 core dimensions:
  1. Traction
  2. Market
  3. Team
  4. Product
  5. Term Sheet
For information on how I built and defined the grading scale, I’ve posted that here.  (From this link, I’ll also post pointers to much of the raw anonymized data.)
I then ran quantitative analysis on this data, seeking to understand the weighting and interplay of Market, Team, Traction, and Product on the likelihood of receiving a Term Sheet.  As a cross-check, I also forced myself at a qualitative level to summarize in 10 words or less why I made each decision.


Here’s what I found in a first-order analysis of the data:
  • 2% of companies pitching me get an agreement for a term sheet for investment.  Note that a term sheet does not always result in a closed investment from us.  I don’t win them all, sadly.
  • 50% of companies were pitching mobile-centric or mobile-first offerings, which maps to our core focus area as investors at BlueRun.
  • 100% of companies pitching me that received an agreement for a term sheet for investment were pitching mobile-centric or mobile-first offerings.


The table above expresses an equation# that can be rewritten like this:
Likelihood of Receiving Term Sheet = -0.355  + 0.349 (Team) + 0.334 (Market) + 0.222 (Traction) + 0.029 (Product)
What this says, in essence is that if you wanted to predict with some likelihood whether a company was going to get a term sheet, from me at least, you could use this function.
So getting rid of the stats-speak, what’s all this mean?  I think it suggests a few things, though again it’s not definitive…

  • Team and Market are by far the two most important factors in gaining a term sheet.  Investors often say “we invest in teams.”  Certainly, teams are really important.  But I think teams attacking big, ambitious, fire-breathers of a market are even more important.  I think this regression, where the Team and Market coefficients are so much more heavily weighted than the others, reinforces this.  To really drive the likelihood of receiving a term sheet, you want to optimize for Team and Market.  Another point to support this: when I summarize each company pitch that I passed on, the most common response I wrote was “questionable market opportunity,” which again speaks to Market.
  • Traction speaks louder than words.  After Team and Market, Traction is the next most important factor to driving towards a term sheet.  In fact, it’s 7 times more valuable than Product at least in this equation.  My interpretation of this finding is that Traction is a reality-maker.  Great Traction showcases evidence of a great Product. Great Traction also helps validate the Team.  And weak Traction undermines whatever exciting demo or product plans might exist.
  • Investments in pre-product companies happens… with great Teams focused on great Markets.  This is not obvious from looking at the data, but if I look at those companies that scored the highest on Likelihood of Term Sheet, not all had high Product or Traction scores.  Some had nothing more than prototypes or ideas of prototypes, and a Seed investment seemed appropriate.  All however had very high scores on Team and Market.
  • Investor fit matters a lot.  Our firm, BlueRun Ventures, has been deeply focused on mobile for years, and we aspire to be the very best of mobile-centric investors.  We talk a lot about this being our focus. Our actions back up our words: every company I’ve agreed to invest in was also focused on services that were mobile-centric.  Fit matters.
To wrap this up, no matter how hot venture financing gets, fund-raising is and always is pretty hard for most founding teams.  Of the more than 200 companies I analyzed, fewer than 2% scored a term sheet from us.  And keep in mind, those 200 are a small subset of the total number of companies that are trying to get onto the calendar to pitch.  My friend and super entrepreneur, Danny Shader, has a great saying which I’ll cite now: “Welcome to the NFL.”  It’s hard.   And of course, if you think raising money is hard, try building a company.
As an attempt to help demystify what makes fund-raising hard, I am providing this analysis. My hope is that this transparency and open sharing of data can be useful, and for those data geeks among us, entertaining. ☺  Happy hunting, and if the community finds this useful, I’ll be happy to track and update this over time.

Peter Thiel - about cleantech investing

Very good article - check it out!

Alternative energy and cleantech have attracted an enormous amount of investment capital and attention over the last decade. Almost nothing has worked as well as people expected. The cleantech experience can thus be quite instructive.[...]

Monday, June 18, 2012

Global Investment in Renewable Energy Powers to Record $257 Billion

Solar generation surged past wind power to become the renewable energy technology of choice for global investors in 2011.

Solar attracted nearly twice as much investment as wind, driving the renewable energy sector to yet another record-breaking year, albeit one beset with challenges for the industry, according to two new reports on renewable energy trends issued June 11 by the United Nations Environment Programme (UNEP) and the Renewable Energy Policy Network for the 21st Century (REN21).

Global Trends in Renewable Energy Investment 2012 is the fifth edition of the UNEP report, based on data from Bloomberg New Energy Finance, and has become the standard reference for global clean energy investment figures.

This year it shows that despite an increasingly tough competitive landscape for manufacturers, total investment in renewable power and fuels last year increased by 17% to a record $257 billion, a six-fold increase on the 2004 figure and 94% higher than the total in 2007, the year before the world financial crisis.

Although last year's 17% increase was significantly smaller than the 37% growth recorded in 2010, it was achieved at a time of rapidly falling prices for renewable energy equipment and severe pressure on fiscal budgets in the developed world.

The REN21 Renewables 2012 Global Status Report, which has become the most frequently referenced report on renewable energy market, industry and policy developments, notes that during 2011 renewables continued to grow strongly in all end-use sectors -- power, heating and cooling and transport. Renewable sources have grown to supply 16.7 % of global energy consumption. Of that, the share provided by traditional biomass has declined slightly while the share sourced from modern renewable technologies has risen.

In 2011, renewable energy technologies continued to expand into new markets: around 50 countries installed wind power capacity, and solar PV capacity moved rapidly into new regions and countries. Solar hot water collectors are used by more than 200 million households as well as in many public and commercial buildings worldwide.

The two publications were launched jointly by Achim Steiner, UNEP Executive Director, Mohamed El-Ashry, Chairman of REN21, Michael Liebreich, Chief Executive of Bloomberg New Energy Finance, and Professor Dr. Udo Steffens, President and CEO of the Frankfurt School of Finance & Management, host of the Frankfurt School -- UNEP Collaborating Centre for Climate & Sustainable Energy Finance.

Highlights 2011

- Total investment in solar power jumped 52% to $147 billion and featured booming rooftop photovoltaic (PV) installations in Italy and Germany, the rapid spread of small-scale PV to other countries from China to the UK and big investments in large-scale concentrating solar thermal (CSP) power projects in Spain and the US.

- The United States surged back to within an inch of the top of the renewables investment rankings, with a 57% leap to $51 billion, as developers rushed to cash in on three significant incentive programs before they expired during 2011 and 2012. After leading the world for two years, China saw its lead over the US shrink to just $1 billion in 2011, as it recorded renewable energy investment of $52 billion, up 17%.

- India's National Solar Mission helped to spur an impressive 62% increase to $12 billion, the fastest investment expansion of any large renewables market in the world. In Brazil, there was an 8% increase to $7 billion.

- Competitive challenges intensified sharply, leading to sharp drops in prices, especially in the solar market -- a boon to buyers but not to manufacturers, a number of whom went out of business or were forced to restructure.

- Renewable power, excluding large hydro-electric, accounted for 44% of all new generating capacity added worldwide in 2011 (up from 34% in 2010). This accounted for 31% of actual new power generated, due to lower capacity factors for solar and wind capacity.

- Gross investment in fossil-fuel capacity in 2011 was $302 billion, compared to $237 billion for that in renewable energy capacity excluding large hydro.

- The top seven countries for renewable electricity capacity excluding large hydro -- China, the United States, Germany, Spain, Italy, India and Japan -- accounted for about 70% of total non-hydro renewable capacity worldwide. The ranking among these countries was quite different for non-hydro capacity on a per person basis: Germany, Spain, Italy, the US, Japan, China and India. By region, the EU was home to nearly 37% of global non-hydro renewable capacity at the end of 2011, China, India and Brazil accounted for roughly one quarter.

- Renewable technologies are expanding into new markets. In 2011, around 50 countries installed wind capacity; solar PV capacity is rapidly moving into new regions and countries; interest in geothermal power has taken hold in East Africa's Rift Valley and elsewhere; interest in solar heating and cooling is on the rise in countries around the world; and the use of modern biomass for energy purposes is expanding in all regions of the globe.

- In the power sector, renewables accounted for almost half of the estimated 208 gigawatts (GW) of electric capacity added globally during the year. Wind and solar photovoltaic (PV) accounted for almost 40% and 30% of new renewable capacity, respectively, followed by hydropower (nearly 25%). By the end of 2011, total renewable power capacity worldwide exceeded 1,360 GW, up 8% over 2010; renewables comprised more than 25% of total global power-generating capacity (estimated at 5,360 GW in 2011) and supplied an estimated 20.3% of global electricity.

- At least 118 countries, more than half of which are developing countries, had renewable energy targets in place by early 2012, up from 96 one year before, although some slackening of policy support was seen in developed countries. This weakening reflected austerity pressures, particularly in Europe, and legislative deadlock in the US Congress.

- Despite all the additional investments, share prices in the renewable energy sector had a dismal 2011 in the face of overcapacity in the solar and wind manufacturing chains and investor unease about the direction of support policies in both Europe and North America.

"There may be multiple reasons driving investments in renewables, from climate, energy security and the urgency to electrify rural and urban areas in the developing world as one pathway towards eradicating poverty-whatever the drivers the strong and sustained growth of the renewable energy sector is a major factor that is assisting many economies towards a transition to a low carbon, resource efficient Green Economy" says Mr. Steiner.

"This sends yet another strong signal of opportunity to world leaders and delegates meeting later this month at the Rio+20 Summit: namely that transforming sustainable development from patchy progress to a reality for seven billion people is achievable when existing technologies are combined with inspiring policies and decisive leadership," he said.

"It is essential to continue government policies that support and nurture the sector's growth, and to de-escalate damaging trade disputes. Otherwise," he warned, "the low-carbon transition could weaken just at the point when exciting cost reductions are starting to transform the economics."

Says Dr. El-Ashry: "Despite the continuing economic crisis in some key traditional markets, and continuing political uncertainties, more renewable energy was installed last year than ever before. Policies helped to drive renewable energy forward. Policy development and implementation were stimulated by the Fukushima nuclear catastrophe in Japan, along with improvements in renewable energy costs and technologies. As a result, renewable energy is spreading to more countries and regions of the globe. Globally there are more than 5 million jobs in renewable energy industries, and the potential for job creation continues to be a main driver for renewable energy policies."

Bumps in the road

Faced with plunging green energy technology prices and economic austerity measures, many governments slashed their renewable subsidies and allowed other support schemes to expire. The result was a succession of company failures and factory closures in 2011-2012, including five significant solar manufacturers in the US and Germany.

According to Mr. Steiner, "Today's over-capacity situation in some renewables sectors, particularly solar, provides the opportunity to upscale deployment in new markets at costs few thought possible only a few years ago. This is particularly attractive to the many developing countries where much of the population has little or no access to modern energy services."

Says Prof. Dr. Steffens: "Renewables are starting to have a very consequential impact on energy supply, but we're also witnessing many classic symptoms of rapid sectoral growth -- big successes, painful bankruptcies, international trade disputes and more. This is an important moment for strategic policymaking as winners in the new economy form and solidify."

Adds Mr. Liebreich: "We are entering a fascinating period, with clean energy's costs starting to be competitive with fossil fuels. The challenge for policy-makers is to reduce support mechanisms at just the right pace -- too fast and the long-term future of the industry will be harmed. Too slow and you do the world's taxpayers and energy consumers a great disservice."

"Right now we are seeing a lot of pain on the supply-side as prices are being compressed, but it is important to remember than installers, generators and consumers are benefiting. It is all part of the maturing of the sector," he says.

"In 1903, the United States had over 500 car companies, most of which quickly fell by the wayside even as the automobile sector grew into an industrial juggernaut. A century ago, writing off the auto industry based on the failures of weaker firms would have been foolish. Today, the renewable energy sector is experiencing similar growing pains as the sector consolidates."

The industry's image in the investor community has been harmed by a number of high-profile supply-chain company failures, he says. At the same time, he points out, Germany's solar installations hit a new record peak output of 22GW at the end of May -- equivalent to around one quarter of the country's total power demand.

Renewables: an increasingly important contributor to world energy supply

In more and more countries, renewable energy represents a significant and rapidly growing share of total energy supply.

In the United States, renewable energy (including large hydro) provided 12.7% of total domestic electricity in 2011, up from 10.2% in 2010, and 9.3% in 2009. An estimated 39% of electric capacity added in 2011 was from renewable sources, mostly wind power. Renewable energy sources accounted for about 11.8% of U.S. domestic primary energy production, for the first time surpassing the 11.3% from nuclear power).

China again led the world in the installation of wind turbines and was the top hydropower producer and leading manufacturer of PV modules in 2011. Wind power generation increased by more than 48.2% during the year.

In the European Union, renewable energy accounted for more than 71% of total electricity generating capacity additions in 2011, with solar PV alone representing nearly half (46.7%) of new capacity coming on stream.

Germany remained the third biggest market for renewable energy investment. Renewable sources met 12.2% of total final energy consumption and accounted for 20% of electricity consumption (up from 17.2% in 2010 and 16.4% in 2009).

As the world marks the UN "International Year of Sustainable Energy for All," the REN21 Renewables 2012 Global Status Report includes a special focus on rural renewable energy, based on input from local experts working from around the world. Renewable energy is seen increasingly as a means for providing millions of people with a better quality of life through access to modern cooking, heating/cooling and electricity.

The impressive deployment of all renewable energy technologies combined with dramatic cost reductions and significant technology advances in recent years create an important opportunity for rural renewable energy development that points to a brighter future. However, further efforts will be necessary to reach the UN's outlined objectives: annual investment in the rural energy sector needs to increase more than fivefold to provide universal access to modern energy by 2030.

Closing the gap with fossil fuels

The price of all major renewable energy technologies continued to fall in 2011 -- to the point where they are challenging fossil-fuel sources, even before climate, health and other benefits are factored in.

The dominant reason for the price declines was that manufacturer margins were compressed as the industry continued the shift from a period of under-capacity a few years ago, to overcapacity now as growing demand failed to keep up with a surge in supply.

The most spectacular price plunge was in PV cells, whose average price fell from $1.50 per Watt in September 2010, to $1.30 per Watt by January 2011 and $0.60 per Watt by the end of the year, according to the Bloomberg New Energy Finance Solar Price Index. This fed into a fall in PV module prices of nearly 50% between the start of 2011 and the beginning of this year.

Onshore wind turbines showed a similar, although less dramatic, trend. In 2011, prices for turbines to be delivered in the second half of 2013 were 25% lower than for devices delivered in the first half of 2009, according to the Bloomberg New Energy Finance Wind Turbine Price Index.

While 2011 saw significant falls in the costs of generating a MWh of power from onshore wind (down 9%), and from PV technologies (down more than 30%), the cost of electricity generated by fossil-fuel sources changed less in most parts of the world -- despite the sharp falls in US natural gas prices due to the increased use of "fracking," a hotly contested form of resource extraction.

Based on current trends, it is predicted that the average onshore wind project worldwide will be fully competitive with combined-cycle gas turbine generation by 2016 even in the US, as gas prices are expected to rebound to a point where they cover the cost of extraction. At present, this is true only of a minority of wind projects, those that use the most efficient turbines in locations with superior wind resources.

In solar, analysis suggests that the cost of producing power from rooftop PV panels for domestic use is already competitive with the retail (but not the wholesale) daytime electricity price in several countries including Germany, Denmark, Italy and Spain, as well as the state of Hawaii.

Policy environment drives development

REN21's analysis found that stable renewable energy policies continue to be a driving force behind the development of green power capacity.

At least 118 countries -- more than half of them in the developing world -- have now established renewable energy targets. These include shares of total primary energy, total end-use energy, electricity generation (typically 10-30%), heat supply, biofuels as shares of road transport fuels, and total installed capacities for specific technologies.

Support for renewable power generation remains the most popular policy option with at least 65 countries and 27 states now having feed-in-tariffs (FITs).

Most policy activities in 2011 involved revisions to existing FITs, at times under controversy and involving legal disputes.

FIT payments vary widely among technologies and countries but are generally trending downwards, mostly due to lower technology costs than expected.

The reports in full are available at:

Global Trends report:

REN21 Global Status report:


Carbon Is Key for Getting Algae to Pump out More Oil

Overturning two long-held misconceptions about oil production in algae, scientists at the U.S. Department of Energy's Brookhaven National Laboratory show that ramping up the microbes' overall metabolism by feeding them more carbon increases oil production as the organisms continue to grow.

The findings -- published online in the journal Plant and Cell Physiology on May 28, 2012 -- may point to new ways to turn photosynthetic green algae into tiny "green factories" for producing raw materials for alternative fuels.

"We are interested in algae because they grow very quickly and can efficiently convert carbon dioxide into carbon-chain molecules like starch and oils," said Brookhaven biologist Changcheng Xu, the paper's lead author. With eight times the energy density of starch, algal oil in particular could be an ideal raw material for making biodiesel and other renewable fuels.

But there have been some problems turning microscopic algae into oil producing factories.

For one thing, when the tiny microbes take in carbon dioxide for photosynthesis, they preferentially convert the carbon into starch rather than oils. "Normally, algae produce very little oil," Xu said.

Before the current research, the only way scientists knew to tip the balance in favor of oil production was to starve the algae of certain key nutrients, like nitrogen. Oil output would increase, but the algae would stop growing -- not ideal conditions for continuous production.

Another issue was that scientists didn't know much about the details of oil biochemistry in algae. "Much of what we thought we knew was inferred from studies performed on higher plants," said Brookhaven biochemist John Shanklin, a co-author who's conducted extensive research on plant oil production. Recent studies have hinted at big differences between the microbial algae and their more complex photosynthetic relatives.

"Our goal was to learn all we could about the factors that contribute to oil production in algae, including those that control metabolic switching between starch and oil, to see if we could shift the balance to oil production without stopping algae growth," Xu said.

The scientists grew cultures of Chlamydomonas reinhardtii -- the "fruit fly" of algae -- under a variety of nutrient conditions, with and without inhibitors that would limit specific biochemical pathways. They also studied a mutant Chlamydomonas that lacks the capacity to make starch. By comparing how much oil accumulated over time in the two strains across the various conditions, they were able to learn why carbon preferentially partitions into starch rather than oil, and how to affect the process.

The main finding was that feeding the algae more carbon (in the form of acetate) quickly maxed out the production of starch to the point that any additional carbon was channeled into high-gear oil production. And, most significantly, under the excess carbon condition and without nutrient deprivation, the microbes kept growing while producing oil.

"This overturns the previously held dogma that algae growth and increased oil production are mutually exclusive," Xu said.

The detailed studies, conducted mainly by Brookhaven research associates Jilian Fan and Chengshi Yan, showed that the amount of carbon was the key factor determining how much oil was produced: more carbon resulted in more oil; less carbon limited production. This was another surprise because a lot of approaches for increasing oil production have focused on the role of enzymes involved in producing fatty acids and oils. In this study, inhibiting enzyme production had little effect on oil output.

"This is an example of a substantial difference between algae and higher plants," said Shanklin.

In plants, the enzymes directly involved in the oil biosynthetic pathway are the limiting factors in oil production. In algae, the limiting step is not in the oil biosynthesis itself, but further back in central metabolism.

This is not all that different from what we see in human metabolism, Xu points out: Eating more carbon-rich carbohydrates pushes our metabolism to increase oil (fat) production and storage.

"It's kind of surprising that, in some ways, we're more like algae than higher plants are," Xu said, noting that scientists in other fields may be interested in the details of metabolic switching uncovered by this research.

But the next step for the Brookhaven team will be to look more closely at the differences in carbon partitioning in algae and plants. This part of the work will be led by co-author Jorg Schwender, an expert in metabolic flux studies. The team will also work to translate what they've learned in a model algal species into information that can help increase the yield of commercial algal strains for the production of raw materials for biofuels.

This research was funded by the DOE Office of Science and the DOE Office of Energy Efficiency and Renewable Energy.