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we're meeting today with Andrew Chung
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who is a partner with kosla Ventures
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which is a venture capital company that
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invests in clean tech thank for joining
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us at knowledge of Wharton today thanks
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very much for having me tell us what
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clean tech is I think I have a pretty
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broad definition of clean tech I think
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it's any technology or service that
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enables the delivery of scarce resources
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to in a renewable or sustainable in a
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more efficient way than uh what's out
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there currently so it can include things
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like solar biofuel wind energy storage
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Energy Efficiency smart grid but then
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also new techniques for farming or
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agriculture uh water purification
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and a whole range of other types of
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technologies that uh enable the delivery
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of those types of resources so a big
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chunk of it is oriented toward energy
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but there are other facets corre to it
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okay uh right now about 20% of venture
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capital funding is going into clean tech
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which is which is a pretty big number
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yeah um and was it always like that it
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wasn't always like that from what I
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understand it was only 3% just just five
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or six years ago so that's growing
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rapidly um at the same time the uh
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renewable energy that's supplied
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globally Global capacity is still only
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2% but that is that during the last year
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half of all the new capacity energy
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generating capacity add it globally was
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from renewable energy which is pretty
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remarkable I think right so on on the
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one hand it's still very small part of
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the pi 2% on the other hand it was a big
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part last year in growth what's that
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look like going forward will those
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numbers develop well I think the uh the
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the problem at hand is a massive one
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it's how do you deliver scarce resources
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whether it's energy food electricity
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water to 5 billion plus people in the
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developing world so that they can have
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the types of lives that 500 million
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people in the developed world have and
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that's a massive problem right so right
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now um with only 2% of the overall
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energy equation coming from Renewables
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there's a massive Headroom for us to
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expand that number over time uh and I
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think that the early numbers around the
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capacity growing mostly from these
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renewable sources it's a good sign but
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it's a signal that uh we still have a
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long way to go so that 16% or 20% uh of
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venture investing going into Renewables
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could still potentially have room to
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grow and is Venture
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Capital the main driving force um to the
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growth in in Renewables U I think it's
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one of multiple sources so if you're
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talking about for example the growth of
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wind capacity um which has been going
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Growing Up by uh you know tens of gws uh
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every year for for several years now um
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a lot of that is driven by later stage
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financing sources like project Finance
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um different sources of debt from
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governments outside of governments uh
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and so that is less driven by venture
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capital I think where venture capital is
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really uh the key player is around the
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early stages of innovation so how do we
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identify and develop the technologies
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that are going to have the
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transformative effects 5 to 10 years
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from now to really take that 2% number
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and explode that into a 20% number or
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Beyond so solar has seen a lot of
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venture capital investment biofuel has
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seen a lot of venture capital investment
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uh a lot of the more recent Energy
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Efficiency companies have seen a lot of
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venture investment um so those are more
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around um being able to create the the
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types of technologies that really can
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expand uh the the the percentage share
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of Renewables and um more efficient use
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of the energy that we already have today
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so in the in in the Venture Capital
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world and in the clean tech sector I
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understand there's a phrase that's
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called the valley of death and what it
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refers to is u a lot of these uh
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renewable uh companies and and startups
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are getting funding from Venture Capital
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they get a leg up they show some good
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results they reach a certain level of
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success but in order to commercialize an
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idea or get to the next level they need
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a lot more Capital than Venture Capital
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sources can provide they need upwards of
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they need $100 million or more and it
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turns out that in the US there there's a
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gap in that funding that funding is hard
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to come by hence the the Valley of Death
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metaphor but around the world that's not
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the case in Europe in China in in many
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other areas of Asia governments are
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filling that Gap they're providing a lot
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of subsidies uh which would seem to put
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the us at at something of a disadvantage
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what how could the US fill that Gap um
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through government or otherwise and and
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what's the future look like for that
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Valley of Death problem sure well I'll
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take it I'll take it backwards your your
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questions here um if you look at the
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number of dollars that the Chinese
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government has pledged towards
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sustainable Technologies Green Tech and
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so forth uh it looks something on the
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order of 80 billion uh for each of the
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next 10 years right um and that is
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probably more than double of what the US
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government put into clean tech last year
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and and and more recently uh and with
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some of the the recent hubub around the
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Press around whether they're doing the
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right things uh it potentially could
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change as well so China has clearly put
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a strong commitment behind investing in
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these types of Technologies other parts
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of the world have as well uh and I think
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in in the us we really need to make sure
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that that type of support continues uh
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otherwise I think we could fall behind
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um the valy of death that you referred
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to earlier is is definitely an issue
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that Venture capitalists will keep an
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eye on because for a lot of these types
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of Technologies while um there are some
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on the Energy Efficiency side and and
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software side and so forth that can be
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scaled up very Capital efficiently
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in a way like uh you know some of the
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other uh it related companies might be
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able to scale up um but then there are
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others that will require plant building
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you have to build manufacturing you have
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to spend several hundred million to
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build a biofuel plant or a solar plant
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uh and not too different from the old
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semiconductor plants from before I mean
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they're all sort of in the same vein so
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um in order to to raise that type of
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capital there are a lot of companies
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that if their technology is has not
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gotten to the point where financiers are
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willing to take a bet on those
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Technologies it can become a very
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difficult situation for them to raise
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that next slug of capital uh one of the
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things that uh that we've done at
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Coastal Ventures and and um and I've
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done in some of my investments prior uh
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has been to look at Capital flexible
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companies where you're not dependent on
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raising 100 or 200 million yourself
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every time to build up a a plant
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manufacturing capability uh so for
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example uh some of our biofuel companies
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have partnered up with companies like
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you know shell Chevron some of these
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large mon lithic conglomerates that need
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to have renewable sources of fuel and
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partnered up with them to leverage their
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balance sheet and leverage their Capital
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capability in order to build plants uh
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in other cases a company called ST which
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is in the Solar manufacturing area again
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the point was not for them to
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necessarily build up their own uh
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manufacturing capability but leverage uh
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capital from the outside like the state
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of Mississippi and other sources in
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order to build up their manufacturing
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capability so across the board I think
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the the order of the day is to try to
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get to a nominal level of production
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with as little Capital as possible and
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be very Capital efficient in getting
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there and then leverage other folks
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capital in order to get to the 100
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megawatts or 100 million gallons per
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year of plant capacity so it's about the
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creativity necessary to get there so um
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so you mentioned the state of
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Mississippi there so that's some
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government money state money in that
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case and presumably some federal money
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for some of these projects uh everyone's
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pretty aware of some of the recent um
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high-profile failures that we've had
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recently cindr on gu is is is number one
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out there but there there were a couple
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two or three solar firms that that
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failed towards the end of the summer of
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2011 um is is that just the inevitable
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weeding out process and should people
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not be overreacting to these things or
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what's your view of that yeah I think so
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I think if you talked to any folks in
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the uh many of the the folks in the
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Venture industry um I think they would
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say that for a number of years um some
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of the challeng es associated with these
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companies and their failures has been
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has been generally talked about and
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understood from an inside baseball
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standpoint right from a broader public
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you know perhaps not uh and so I think
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it it is the inevitable weeding out
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process of uh a broad range of companies
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where some of them are just not going to
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work and unfortunately in the cylindra
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case uh it was such a high-profile
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incident because of some of the you know
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some of the key political figures who
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were involved and just the sheer size of
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the dollars that went into that project
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uh it's unfortunate for the industry U
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but does that mean that um companies in
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the clean tech area aren't able to
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generate significant returns and so
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forth uh that's not the case at coasta
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ventures just over the past 12 months
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we've had three public offerings and
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three biofuel companies uh Kor amoris
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and jvo that have generated over a
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billion of profits for the firm uh so it
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is possible uh if you pick in the right
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areas and and and pick enough of them
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that some of them will come out as
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winners but uh as a matter of practice
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in the venture capital business uh you
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know you you you invest in 10 companies
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there are going to be some that that
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aren't going to make it it also seems
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that as the as the projects get bigger I
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mean maybe 10 years ago uh the you were
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building a renewable project that might
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power a couple of hot water heaters and
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now we're talking about maybe 50,000
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houses so the projects are bigger bigger
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they're not all going to succeed so the
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failures are going to be bigger failures
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in in terms of dollars right yeah what
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we're talking about is really
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Reinventing society's infrastructure
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right we're we're existing on an
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electricity generation infrastructure
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and a transportation fuel infrastructure
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that's been around for 50 years and what
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some of the newer um folks in Venture
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Capital are really trying to do is
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reinvent and change that uh and redefine
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the Paradigm there so it's going to take
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some time and there are going to be some
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uh some failures along the way but out
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of the failures hopefully will come some
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successes that will radically change the
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landscape for energy infrastructure tell
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us a little bit more about the companies
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that that your firm has been investing
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in you mentioned a few briefly back
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there that sound pretty interesting some
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of the the successes and um and some of
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the new Ventures that you're embarking
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on sure um well there's a broad range of
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companies in the uh coasta Ventures
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portfolio uh about 60 or 70 companies on
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the clean tech side another 50 or 60 on
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the information technology side uh and
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those companies span a very broad range
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of the various clean tech sectors it's
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it's uh it um
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it's exciting for me to be involved with
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so many of these companies because they
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really touch every aspect of being able
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to solve that problem that I mentioned
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earlier which is how do you bring these
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scarce resources and renewable resources
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to the five billion developing country
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folks and move them into the realm of uh
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of developing country right um and so we
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have investments in uh LED lighting um
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including a company called sora uh which
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has developed a new type of LED lighting
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Source that's significantly um cheaper
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and higher performance than the existing
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LED technology that's out there so they
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have a great shot when they get into
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production of being able to displace the
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incandescent and the fluorescent light
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bulbs out there uh in terms of cost and
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performance uh we have companies that
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are in the biofuel space that I
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mentioned earlier um that have leveraged
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Advanced Techniques in synthetic biology
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uh to create microorganisms that can
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convert sugars into a whole range of
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fuel and chemical Alternatives uh at
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very compelling economic uh rates of
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production um we have a company that I
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mentioned in the Solar space ST which is
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developing the high highest efficiency
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thin film uh materials in order to
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dramatically lower the installed cost of
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production for uh solar manufacturing
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and and and PV material how the the the
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interesting measure there is always cost
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per kilowatt hour and how that compares
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to a conventional generating plant and
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we always hear about how solar is
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getting closer and closer but of course
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it depends on oil prices closer and
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closer in in in in cost of production
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per kilowatt hour so the the thin films
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that you're talking about just give us
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some sense of scale of of of what kind
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of a difference that could make so the
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key thing there is the traditional way
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of making solar modules the kind that
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you would have had on your your your
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solar calculator you know back in back
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in high school um that is made with a
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type of material that's called Crystal
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and silicon and it's a very age-old
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method for the past 35 years they've
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been making it with uh a very
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complicated and costly process that over
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time they've been able to reduce the
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costs of significantly um the way of
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making thin films is intrinsically uh a
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cheaper production process um fewer
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steps uh cheaper materials and a shorter
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process as well so the the pro the the
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way of actually making this material and
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Manufacturing it is going to be cheaper
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than crystall and silicon the
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traditional methods the problem in the
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past has been that these thin films are
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usually much lower efficiency than the
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Crystal and silicon alternative and so
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even though you can make the panel
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cheaper you need more of the panels in
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order to get the same amount of power
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output on your rooftop or in a larger U
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solar farm installation and so what our
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company has been able to do is to create
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a type of material and innovate on that
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material's design so that you can get
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efficiencies that are approaching if not
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exceeding that of Crystal and silicon so
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you you get the best of both worlds you
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get the lower manufacturing cost because
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it's thin film and then you also are
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able to put fewer of them on the
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rooftops and so that your overall
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installed cost ends up being the best in
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the industry so something like that near
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commercialization is that project soon
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to be commercialized or they're
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manufacturing product today and they're
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building a plan in Mississippi right now
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oh I see that's the one okay perfect um
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that's that that brings me back to this
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other problem with um historically
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there's been this cyclical rise and full
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of oil prices and when the pric is up
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Renewables look very attractive and a
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lot of money rushes in and invests in
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them prices fall and it seems that a lot
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of those projects and companies wither
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away because they can't be as
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competitive um but I I get the sense
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that things have changed there's peak
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oil for example which may uh eliminate
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those days when when prices really go
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back down significantly uh compared to
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today's prices and also an increasing
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concern about climate change which gives
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people another incentive to invest in
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these Renewables what's your what's your
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view on that that and what do you see
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going forward yeah I think there's a
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couple of different things that'll
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contribute to a perfect storm going
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forward so um for the first time in many
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of these industries histories you're
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reaching a cost performance level that
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is getting close if not reaching parody
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with traditional sources of of of energy
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or whatnot um so solar again you're
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you're getting close to that magic
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dollar per watt number that folks have
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been talking out for years um in the
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battery industry you're getting close to
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a cost per kilowatt hour that you know
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can be very competitive um in other
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sectors like biofuels and and wind and
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so forth again we're at Cost parity in
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certain regions of the world already and
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in some cases uh we're getting very
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close and so if you look at this energy
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crisis versus what we had 30 years ago
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it's no comparison just because the cost
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levels are just fundamentally orders of
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magnitude different from where they were
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before um so I think we're just close
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enough that if you take the other
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elements of the equation which is still
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a lot of Technology Headroom for these
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Technologies to improve so they're going
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to continue dropping the costs over time
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um you have a lot more social uh
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corporate and government imperative
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around making these things happen um so
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whether it's the corporates that are
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investing dollars into um supporting
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renewable and sustainable Technologies
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making themselves lead certified and
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actually investing in these Technologies
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um to uh the governments around the
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world uh including China and the US who
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are trying to put money into helping
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building manufacturing capacity out
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there where um renewable portfolio
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standards Renewable Fuel standards other
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things that are contributing to um uh um
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moving customers towards making the
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easier decision to use these renewable
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sources when you fractor all those types
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of things in you know from the economics
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to the technology Headroom to all of the
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the government social and and and
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corporate imperative around this I feel
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like there's still um an absolute
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opportunity um over the next 5 to 10
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years for that 2% of Renewables
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penetration to grow significantly we're
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probably in the second inning of an
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Extra Inning game uh when it comes to
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clean tech and sustainability so let's
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say 10 years from now what percentage of
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energy generation capacity will
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Renewables take up what is that 2021
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well at Coastal Adventures we always
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talk about how forcasting tends to be uh
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uh very difficult and often meaningless
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uh um and and you know one of the jokes
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that we have around the office is uh um
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you know the projections on wind
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capacity development you mentioned that
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there was a lot of wind capacity that
00:17:27
came online uh you know some of the
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authorities in Wind um changed their
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predictions five times over the last
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five years uh and it's gone up you know
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tenfold from where they thought it was
00:17:38
going to be back in 2005 so uh it's hard
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for me to make a forecast but uh if you
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if you forc me to make a number I'd say
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probably closer to 10 10% 10 to
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15% and are you erroring on the ER
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making an error on the side of being
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conservative also you think we tend to
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be very optimistic yeah okay thanks very
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much for joining us great thanks so much
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[Music]
