The Three Phases of LED Investing

Analog to digital transformations have sparked the consumer tech renaissance of the past decade or two.

Think music and photography. Vinyl and tape became iTunes digital distribution. Digital photographs closed the shutter on film.

Why not lighting? Digital LEDs will one day outshine incandescents and compact fluorescents in the market place. Efficiency, cost and flexibility will be the reasons why.

This coming transformation is a key investment thesis for Marc van den Berg, a managing director at VantagePoint Capital Partners.

“It is pretty clear to us light should go that way, too,” he says of the analog to digital revolution. “When that happens, a whole set of creative juices begin to flow.”

Van den Berg sees three phases to LED investing, the second of which is just beginning. He is believer that plenty of money will be made.

Yet it is safe to say LED lighting is an area that the VC crowds have yet to discover.

“I would think the venture community is under serving this space,” van den Berg said during a recent interview.

VantagePoint, so far an unflinching cleantech investor in an age of skepticism, has seven investments in LED lighting companies, including Bridgelux, Switch Lighting, Adura Technologies and iWatt.

More are on the way. Van den Berg says the firm is likely to invest another $100 million in the LED space over the next five years or so.

The key is to know how to take advantage of the advances that continue in the core technological building blocks, he says. That means anticipating the applications that will follow.

For instance, what if the light sockets in your home could provide or enhance WiFi connections, monitor carbon monoxide levels or detect smoke? What about matching the rich varied spectrum of sunlight indoors? This is just a start, according to van den Berg.

VCJ Senior Editor Mark Boslet recently had the opportunity to ask van den Berg about the three phases of LED investing. Here is an edited transcript of the conversation:

Q: You talk about three phases of LED investing. What is Phase I?

A: Phase I is the technology deployment or technology development phase. It includes the LEDs, thermal substrates, optics, phosphors, materials and capital equipment.

Q: When did it start and when will it end?

A: From a venture perspective, 2005 to 2011.

Q: What is Phase II?

A: Phase two is what we call the consumer functionality or ‘product-ization’ phase. That’s where the performance and cost of the technology phase delivers the building blocks to the product guys and gals to build systems around LEDs and bulbs and lamps and fixtures to do more than just light.

Q: More than just light?

A: To add consumer functions like smoke detection, carbon monoxide monitoring or enhancing your WiFi. Or having a bulb become smart enough to report its consumption to your smart meter.

Q: What do you see as its duration?

A: That phase really kicks in now and goes to the middle of this decade, say 2015.

Q: Then comes Phase III?

A: Now that we have all the technology tools in our toolbox, and we have people who make a variety of products, we want those products to be spectrally competent. We want them to produce light spectrums to match the requirement of the occupant.

Q: What do you mean ‘the requirements of the occupant’?

A: The occupant might be someone on a submarine who’s not going to see daylight for weeks at a time. The occupant could be a strawberry plant. It could be someone flying in a 787. It could be a Scandinavian resident who is not going to see sunlight all winter. Those occupants all have different needs for their light spectrum.

Q: What are those requirements?

A: The requirement we might want is the duplication of nature sunlight. Or perhaps there is a spectrum that would match up against a strawberry’s growth better?

Q: When will Phase III take off?

A: From an investment perspective, I think 2012, 2013 and 2014 can be the time to invest in early plays. I think the science and research is kicking in now. Then by 2015, I think you’ll start to see those capabilities flow into the products.

Q: What business ideas do you see from early stage Phase II companies coming in your door?

A: They want to combine wireless capability with light bulbs. They want to provide communications between lights and smart meters. They want to have lights detect ambient light and automatically dim based on how much light is coming through the window.

Q: Lights that respond to the environment?

A: They want to have light bulbs that talk to the other consumer appliances to effect changes, say, on a television screen. If the TV has a contrast and you open the window shade, it will change the contrast on the TV based on the lights in the room and the light coming through the window. These are the sorts of value propositions that consumers can get behind.

Q: Where do you see innovation going?

A: I anticipate that our lights will become intelligent enough to know—based on the occupants in a room, the season, the time of day, and to some extent the health and well being of the occupants—how to modulate light to improve health and well being.

Q: How does a light improve health?

A: Let’s say the lights in the room are intelligent lights, and they detect that you and I are using Kleenex to blow our noses and that it is wintertime. It might expect we have colds. Because the vitamin D synthesis that we get in the summer time from ultraviolet light from the sun is mitigated in the winter because of the lack of outdoor exposure, it would pump up non-visible, ultraviolet light out of the bulb.

Q: Is there’s a lot of money to be made from Phase II and III?

A: We’re confident that just like in the transistor era or just like in the creation of the technology behind audio file that there will be a lot of value created in the technology and product phases.

Q: What do you mean when you talk about the spectral capabilities of LEDs?

A: Were on the cusp of producing a white light spectrum from an LED that matches what we are used to as incandescent light consumers. People talk about color rendering index, and they talk about color temperature and amount of lumens. We can give you an LED that looks just like an incandescent light bulb. But to make LED systems that produce the spectrum of the sun and have it change throughout the day means you need more than that one color.

Q: How do you do that?

A: What we do today is take a blue LED and we take yellow phosphor material and make white light. What we’ll want to do is to take a blue LED, a red LED, a green LED and maybe an amber and begin to manipulate them to create the various colors of the spectrum.

Q: Do see any companies dappling in phase III?

A: I have one investment that is bordering on Phase III. It is called Light-Based Technologies. It’s up in Vancouver, and we’ve done it with Chrysalix Energy Venture Capital. The company is building a semiconductor device that can drive five different colored LEDs.