Accel Partners has been wary of cleantech investing, but this appears ready to change.
The Palo Alto, Calif.-based firm says it is preparing to boost its participation, even as speculation grows that other firms—Kleiner Perkins Caufield & Byers, for one—are backing off from the sector.
The reason the firm is focusing on cleantech is because it is finally seeing investments it likes. A sign of this is the firm’s decision in November to co-lead the $50 million Series C funding of OPower Inc., which Accel says could make history as the first mass market software-as-a-service (SaaS) company.
Peter Wagner, one of the Accel partners leading the charge, says that the firm has been interested in cleantech for a while, examining startups and looking for opportunities.
“I think we’re probably more encouraged by what we’re seeing now than we have been previously,” he says.
In an interview with VCJ, Wagner spoke about the market and Accel’s strategy. Here are edited excerpts from the discussion:
Q: Accel has 10 cleantech investments listed on its website. Is it fair to say the firm has taken a measured approach to cleantech?
A: We certainly have taken a measured approach with regard to actually committing capital. We have been very active in terms of sourcing potential investments, meeting with companies and trying to form opinions. [This] has not resulted in as many investments as [some] other firms because we have not found that many that we like.
Q: In December, you published your second white paper on cleantech. Does this suggest you will become more active?
A: We’ve fine-tuned our targeting criteria over the years. I’m hopeful, and I think we are already seeing signs of this—that were going to find more projects that actually make sense to us. I expect that the number of investments and the amount of capital actually committed will in fact increase.
Q: How many investments has Accel made in cleantech? I count 10 on the website.
A: It’s in the range of 10 to 15. [The others]are stealth companies.
Q: Do you have a target number of investments you hope to make this year?
Q: What categories of the cleantech sector interest you the most?
OPower has a unique aspect about it. It has the ability to scale to millions of seats and as a result we have the opportunity to build one of the first, maybe the first, mass market SaaS businesses. It happens to be in the energy space.
Peter Wagner, Partner, Accel Partners
A: The whole world of enterprise demand management is an area we’re really interested in. You have solutions at the most basic level that offer monitoring and reporting on energy consumption, and from there move to energy automation and control. Beyond that you get into optimization—balancing different priorities and needs to achieve some optimized result. The fourth and maybe most sophisticated level is monetization, where you take some of these capabilities and use energy market structures to achieve not just savings but a new revenue stream.
Q: Are you worried about the sector becoming overheated?
A: Yeah. I’m always worried about that. As is always the case, good ideas attract a crowd. But there is still opportunity if you do it right and find the better ones and work more effectively.
Q: What will differentiate companies in the space?
A: The types of businesses we see [that are] most interesting are typically SaaS-based businesses. These are IT companies at their core. These are enterprise IT SaaS companies using cloud computing technologies and networking technologies.
Q: One SaaS company in the related space of consumer energy efficiency is OPower. Why is OPower a good investment?
A: OPower is a SaaS business and it is unusual among SaaS businesses because it has the ability to achieve very large scale. Most SaaS businesses are targeting enterprises where you may be able to deploy a specific number of seats and then get paid on a monthly basis. That has proven to be a good business for companies such as Salesforce.com Inc.
Q: And OPower?
A: OPower has a unique aspect about it. It has the ability to scale to millions of seats and as a result we have the opportunity to build one of the first, maybe the first, mass market SaaS businesses. It happens to be in the energy space.
Q: In your white paper you say you see a new generation of smart grid companies. What is taking place?
A: The first wave of smart grid investment was about getting the infrastructure put together. And some interesting companies will come out of that or have already. Silver Spring Networks is the obvious name to be mentioned. The next wave of smart grid investing, we think, will focus on the applications that are deployed on top of the smart grid platform. The enterprise demand management space is an example of an application that will run on top of the smart grid.
Q: Investors have been focused on smart grid applications for a while. Are you late to the party?
A: I don’t think so. The customer urgency around this issue is only now beginning to boil. Previously we would have been early.
I feel like our timing is good.