Pat Sapinsley is a member of the Venture Capital team at Good Energies, a global investment firm focusing on renewable energy and energy efficiency industries. Based in New York, she is also the president of Build Efficiently, to launch officially by early 2012, which will help companies scale their energy-saving efforts and advise them on the green-building market. Trained as an architect and versed in the world of start-up financing, Sapinsley understands what clean-energy innovations are likely to work both as building-related technologies and as viable businesses.
I asked her to share some of her observations on how entrepreneurs fail to impress during meetings with VCs, as well as what works. We also discussed how her background in design has given her an advantage as an investor, and her opinions on the subject of biomimicry. It's one of the hottest topics in design today, especially in the context of risk management for investors, corporations, and start-ups alike, given that biomimetic products have billions of years of proven R & D -- nature -- behind them.
Here's our exchange.
What is the biggest mistake that a start-up can make during a pitch to venture capitalists?
Lengthy, meandering presentations with too many slides put the VC team to sleep. We see lots of these. Power Point presentations can be really boring. A maximum of 10 slides and a pithy presentation shows clarity of mind and an understanding of marketing and a demonstrated ability to excite an audience. I would also say that an entrepreneur needs to demonstrate that they understand the market forces and competition and have thought through a strategy to move their product, especially in a conservative industry ( like construction) in difficult economic times.
I have also seen entrepreneurs comically shoot themselves in the foot by becoming too testy and defensive when the challenging questions are asked. Not only are we measuring the ideas in the presentation, we are measuring our ability to work with the management team that is presenting. We have to want to spend several years of our lives working intimately with the management team. Showing an ability to play nicely is a smart thing to do.
More and more technologists and designers are turning toward the field of biomimicry for research and inspiration. Given that many sustainable designs found in nature have a "track record" of billions of years of environmental success (in terms of zero waste, for instance), do you consider start-ups working on biomimetic products to be potentially safer bets than others?
Biomimicry is a wonderful starting point, but a healthy caution and skepticism is the hallmark of a good VC. Let me first state that the jury is still out on biomimicry. It is an excellent starting point, hopefully both logical and sustainable, but will man’s attempts to mimic nature ever be as efficient as nature itself? We shall see… Really excellent work is being done now at Harvard’s Wyss Institute for Biologically Inspired Engineering. I was a participant recently in their symposium on Adaptive Architecture organized by Chuck Hoberman and Joanna Aizenberg, where I was privileged to tour the facility and see the fascinating cross disciplinary work that is being done there.
Technologies are being developed that could be self-healing, self-assembling, could manage heat transfer, etc., with applications for architects, medicine, robotics… Some of the medical applications use nano materials or semiconductors to mimic organ functions or to tell DNA how to assemble itself to divert cancer cells from forming. It is very promising, exciting work. The challenge will be to scale these things up commercially.
The most successful VCs invest in good businesses, not just good technologies. Very often, the best technology doesn’t win in the numbers game. I would say that a great technology is the first thing you look for and comprises about 20% of the measure of a successful investment. If the technology isn’t good, you don’t proceed. A great team that can execute is the next 20%. Market issues, such as market acceptance, readiness and channels to market are the next 20%. Not even the best ideas can succeed if the market is closed to the idea. The remainder of the issues are right pricing, magnitude of capital needs going forward, competitors, margins and a whole host of other issues. Biomimicry is a great starting point but won’t carry the day, alone.
Would you say that mission-centered investing is a highly efficient business strategy and not just an ethical one?
We have made some very successful investments. The strategy can prove to be a bit too narrow for VC, though. There are real challenges when venture sits within too narrow a silo, and our mission was quite narrow. It could be that biomimicry is a wider silo than renewables and energy efficiency. It touches on medicine, robotics, information technology, potentially everything. It could be a very interesting and productive sector.
Regarding our mission, in its earliest days, the company was only investing in solar. Wise minds decided to diversify to energy efficiency and wind. Since throwing power literally out the window makes no sense, energy efficiency was seen as both a diversification and an enabling technology for solar. A larger proportion of the energy needs of a building are served if that building is energy efficient. Wind was also seen as a diversification from the exposure of being a purely solar company.
Unfortunately, these diversifications were not broad enough. As the years passed more and more externalities came to bear. The market changed, and with it the pull back on European incentives. The price of silicon came down. China’s products kept getting better and cheaper, due in large part to generous Chinese government programs. In addition, the adoption of energy efficiency technologies, especially in the U.S., is very slow.
With a conservative and wounded construction industry and low coal, oil and gas prices, energy efficiency is just not producing venture capital-style returns. Energy efficiency might be a 10-year horizon, which is an eternity in the VC world. The project development side of the business has developed into the stronger business right now. We have recently announced a very large wind project in Nevada and the Atlantic Wind Connection project is a very exciting one. [Good Energies partnered with Google to fund the latter.]
How has your design background helped Good Energies make more informed investment decisions?
From the beginning, every day was like being in graduate school. The team was a terrific one. We had two materials scientists in our Swiss office who were had seen everything in solar, in batteries, in LED substrates, in new nano materials and were encyclopedic in their knowledge. I learned a huge amount from them. For my part, as a LEED AP architect, with no business degree, there was still plenty of value to add.
An understanding of the applications and the market and my experience as a specifier was essential. A good example would have been my involvement with Sage Electrochromics, a glass company that manufactures a glass that can darken its tint to keep out solar heat gain or let it in, depending on user needs. (The same window facing west might want to allow solar heat gain in the winter, but reject it in the summer.) First of all, the company was one I found through my relationships in the sustainable construction industry.
Secondly, during our research, as my MBA-trained colleagues were crunching the numbers, I got on the phone and called a few curtain wall consultants to ask a lot of questions. When my colleagues and I were discussing what I’d learned, they said, “What’s a curtain wall consultant?” It takes someone from the industry just to know who to call and what questions to ask. My relationships in the industry proved very helpful, over and over again. Obviously, I could only be effective as part of a team that had very experienced deal and technology people as well.
This post was originally published on Smartplanet.com