Cleantech and Hairball Deals

Sandra P. Knox’s Korean-born “Tiger Mom” relentlessly and successfully molded her child into a violin virtuoso. Knox, the eldest of four daughters, concedes she no longer plays.

But her proficiency in straddling two cultures has proven surprisingly useful in her legal career.

Knox specializes in cross-border deals, particularly in cleantech, as a member of Sidley Austin’s emerging companies and venture capital practice. Based in the Palo Alto, Calif.-based office, she works closely with startups and finds “hairball deals” downright irresistible.

Knox is in the thick of her busiest year in nearly a decade, since the giddy days of the tech boom. She’s fielding many inquiries about IPOs as “lots of pent-up capital is eager to get out.” The economic uncertainty has affected investors, but not inventors, who are perpetually creating, tinkering and refining their ideas and looking for funding. So she sees plenty of available deals.

Internationally, she’s looking to Asia for action, where she is in the midst of negotiations on her biggest deal to date. She can’t name the parties, but when it wraps up, they’ll have inked a $100 million package to create a joint venture in China for an established U.S.-based cleantech company and a Chinese business to finance global expansion.

“There’s so much capital sloshing around China, and it wants to come onshore here,” Knox says.

Cross-Border Challenges

U.S.-based startups and smaller businesses remain wary of selling to China because they fear the Chinese government cannot protect their valuable intellectual property. Without those critical IP protection guarantees, entrepreneurs remain resistant, holding tight to their talent and rights.

But strategic investors, including a large number of those in China, are hungry for captive technology they can use at home.

“The value is going to come from having technology that is deployable at scale in the China market and around the world,” Knox says.

When the Chinese government and businesses figure out how to reassure jittery American innovators that their intellectual property is safe, Knox anticipates seeing what she calls a “gold rush” of cross-border deals. One promising sign is that larger companies, such as GE and Intel, appear to have overcome their apprehension and are doing business with China.

She advises entrepreneurs who want to thrive in China to hire native speakers to work on site and represent their employer’s interests.

“For people looking to invest in China, it’s not a cookie-cutter deal,” Knox says. “You have to understand why a client makes an investment and their goals.”

Untangling Hairballs

Knox’s quickest deal was “an ugly down-round financing” that closed in a mere 11 days.

Her China deals are on the other end of the spectrum. A China deal she began negotiating in mid-spring isn’t expected to wrap up until the fall.

A Korean company’s strategic investment last year in a Silicon Valley tech company took 11 months to complete. The deal, worth tens of millions of dollars, involved a complex technology transfer agreement, requiring Knox to painstakingly unbundle the rights in the technology license. Some of those assets had been invented using funding from the U.S. government and had restrictions on their transfer. That snag pulled federal government attorneys into the mix. Some rights were exclusive. Others were not. Some were worldwide, and some were restricted by country.

Knox fondly calls these cross-border complex transactions “hairball deals.” She relishes picking apart their intertwined strands and tackling logistics, “which I take a perverse joy in dealing with.”

Cleantech Grows Up

“With certain tech startups, you can be two guys in a dorm room,” Knox says. But a cleantech company developing a biofuel needs a significant amount of funding for sophisticated scientific research, knowledge of the fuel industry, real estate and a huge technical staff.

Much like the life sciences industry, companies in the cleantech sector take longer to reach an IPO and have greater capital needs.

Rather than a $25 million Series C round, some cleantech ventures require a $250 million round to continue development. With the exception of software-driven cleantech enterprises, companies need longer financings, too. Investors have been justifiably leery of committing.

“Venture has struggled over the past few years with what their role is in this space,” Knox says.

Actually, VCs are likely to turn down cleantech businesses, she says, in part because their model for financing is unfamiliar to many VCs. Cleantech ventures may need government funding and a strategy for interacting with utilities, which have their own procurement systems for power.

She urges VCs in the cleantech arena not to shy away from these bigger deals, but instead get creative, perhaps working more closely with bigger, atypical lenders, including banks.

My Kind of Town

For innovative cleantech ideas, Knox looks to Chicago.

The Windy City is the home of Sidley’s largest office as well as Clean Urban Energy. The company develops software for energy pricing arbitrage. It analyzes the thermal mass of buildings and fluctuating utility rates to minimize costs for heating, cooling and lighting.

Knox recently brokered the company’s $7.5 million Series A round of funding, led by Battery Ventures and Rho Capital Partners.

Knox also provides pro bono work for the Illinois-based Clean Energy Trust, which promotes cleantech in the Midwest. She recently helped judge the Clean Energy Trust Business Plan Competition.

The Midwest is ripe for cleantech development, thanks to its vibrant universities and funding from sources including the Ewing Marion Kauffman Foundation, based in Kansas City, Mo.

Knox expects to see more traditional sources of funding moving into the cleantech sphere as well.

Teamwork

Knox’s mentor, Thomas C. DeFilipps, managing partner in the Palo Alto-based office of Sidley, provides her with sage advice and a sounding board. So does Deborah A. Marshall, co-chair of Sidley’s emerging companies and VC practice.

Knox consults Sidley partner Sharon R. Flanagan on M&A deals and capital markets transactions.

June D. Bell is a San Francisco Bay Area-based legal affairs reporter. She can be reached at junebell@aol.com.Attorney at a GlanceSandra P. KnoxAge: 42

Hometown: Los Angeles

Education: Undergraduate degree from Stanford University in 1991; law degree from Georgetown University Law Center in 1995

Career: Knox changed her plans to attend medical school after an environmental science and technology course at Stanford captivated her attention. But once she became a lawyer, she found environmental regulations work and litigation didn’t appeal to her. She joined Wilson Sonsini in 1999 and became hooked on arranging financing deals for tech companies. She spent a year as senior corporate counsel for Electronics for Imaging Inc. in Foster City, Ca., and joined Sidley Austin in 2010.

Hobbies: Running, cooking and baking, reading, and spending time with her 6-year-old twins and 4-year-old son

On her night table: “Seal Team Six: Memoirs of an Elite Navy Seal Sniper,” by Howard E. Wasdin and Stephen Templin; current issues of The Economist for a nuanced analysis of international markets