Expansion beats target

Expansion Capital Partners closed $102 million in commitments for its second growth stage, cleantech-focused fund.

The firm has been working on raising the fund since January 2005. It held a first close of $55 million last summer and expected to close the fund at $80 million at the end of 2006, General Partner Mark Donohue told VCJ last summer.

Expansion decided to exceed its initial target due to investor interest and robust dealflow, General Partner Bernardo Llovera says. The fund-raising took a long time because most of the team was focused on doing deals rather than hitting up potential LPs, Llovera says.

Although this is the firm’s second fund, it is its first to include institutional limited partners. That made fund-raising harder, Llovera says. “At the time we started marketing this, there was less acceptance of cleantech as a venture sector, so there was more of an education going on,” he says. “That lengthened the sales cycle.”

Expansion counts several high-profile investors as its limited partners, including Henry Corning, whose family helped launch Greylock Partners’ first fund in 1965. Other LPs include Piper Jaffray’s CleanTech Fund of Funds, the Merck Family Fund, ASN and Georgieff Capital.

At the time we started marketing this, there was less acceptance of cleantech as a venture sector. That lengthened the sales cycle.

Bernardo Llovera, General Partner, Expansion Capital Partners

The firm, which has three general partners and two principals, invests in a variety of cleantech sectors, but focuses on improving the efficiency of manufacturing. It has already made at least half a dozen investments from its new fund. It participated in a $4.4 million round for digital motor control manufacturer Agile Systems, a $6.2 million round for air analysis system maker Tiger Optics, a $7.1 million round for energy response company Powerit Holdings, a $3.5 million round for fiber-optic sensor maker SensorTran, a $3.4 million investment for bio-filtration system maker Biorem Technologies (TSX.V: BRM), and two investment rounds totaling $8.7 million for World Energy Labs, which develops diagnostic technologies for energy storage and conversion.

One of Expansion’s portfolio companies is in registration to go public: Orion Energy Systems, which sells high-intensity lighting retrofits. Expansion invested $4.5 million in the company in August 2006.

Venture investors pumped nearly $1.9 billion in cleantech deals during the first half of 2007 in North America and Europe, compared to $1.73 billion invested during the same period last year, according to the Cleantech Venture Network.

Some cleantech investments are already paying dividends, as 17 companies raised $1.7 billion from the public markets with IPOs during the second quarter. That’s up from nine IPOs during the first quarter, according to the Cleantech Venture Network. A large portion of the venture capital dollars invested in cleantech deals have gone to startups looking to make energy. That is one sector Expansion Partners hasn’t touched.

“We’re looking more at energy savings and efficiency,” Llovera says. “We’re completely staying away from that. It’s not that we don’t see it as attractive, but it’s just not been part of our business model.”—Alexander Haislip