Forbes / Wolfe Emerging Tech Blog

Weekly Insider (Solar's dimming IPOs & brightening M&A)

2010-03-08T09:20:00.003-05:00

This week: a quick investable insight from the all-stars at Lux Research. This time on Solar’s dimming IPO and brightening M&A prospects.

M&A activity brightens among solar thermal developers, as photovoltaic IPOs dim

Early February saw 2010’s first concentration of M&A activity in the solar market. First, French nuclear power giant Areva acquired Ausra, a linear Fresnel lens solar thermal plant equipment supplier. Ausra struggled in early 2009 as investment in solar thermal installations all but halted (see the February 5, 2009 LRSJ – client registration required), and changed focus from a power plant developer to an equipment provider. The company was rumored to be up for sale since mid-2009. The Areva-Ausra match-up could breathe life into Ausra’s low-cost solar plant technology, and use the experience and reach of Areva’s power plant equipment business to push forward solar thermal installations.

Meanwhile, dish Stirling solar thermal technology developer Infinia raised $11.5 million in an equity financing round. This follows a $50 million capital raise mid-2009, and a $58 million raise in April 2008. Infinia competes directly with Stirling Energy Systems, which received $100 million in financing from NTR in May 2008.

The hoard of cash flowing into solar thermal component developers follows theacquisition of leading parabolic trough technology provider Solel by Siemens for $418 million in October 2009. But two questions remain.
First, who’s next to buy? Large component firms, including energy and defense firms, may see a strong fit between their competencies and the large-scale, highly regulated processes required for solar thermal plant execution. As for targets, we’ll keep our eyes on three firms:

Heliostat and power tower developer BrightSource Energy, which continues to execute in plant development
Linear Fresnel lens and parabolic trough developer SkyFuel, which offers a lower-cost technology option and potentially lower price tag, and
Power tower technology developer eSolar, which recently signed a licensing agreement for a 2 GW facility in China
The second question is tougher to answer. Where is all that solar thermal set to go? While 50 MW plant installations continue in Spain, regulatory issues continue to dog the U.S. market (see also the January 7, 2010 LRSJ – client registration required). Clients should expect large-scale wrangling among new solar thermal owners as they push through complex solar thermal projects and offer the reliability, and balance sheet, needed to get the huge projects off the ground.

All of this stands in sharp contrast to IPO activity among photovoltaic technology firms. In Q4 2009, Trony Solar indefinitely postponed its IPO followed by Daqo, a Chinese polysilicon producer, which filed (see the January 21, 2010 LRSJ – client registration required), then lowered, and then in January postponed its IPO. Then, earlier this month, Jinko Solar – a vertically integrated ingot, wafer, and cell producer, joined the list and withdrew its IPO due to “poor market conditions.”

Even the completed IPO of U.S.-based STR Holdings in Q4 2009 yielded lackluster results after repricing twice in the days ahead (see the November 5, 2009 LRSJ – client registration required).

While the general market slump since the first of the year will put investors off, their greater concern likely lies in the volatility of the subsidy-driven solar market – and with good reason. A fresh storm of price cuts and continued margin pressure is brewing for late 2010.

Weekly Insider (Bloom or Gloom & BYD vs. Toyota)

2010-02-28T19:43:00.003-05:00

Here are some great insights straight from the analyst team at Lux Research on Toyota’s race to secure lithium supply and how it affects Warren Buffett’s BYD stake; the bloom or gloom around the PR extravaganza and the real numbers behind this past week’s launch of Bloom Energy…

Toyota Joins the Race to Secure Lithium Supply

Is Bloom Energy a Better Place redux?

Weekly Insider (Bill Gates & Nuclear Swords to Ploughshares)

2010-02-24T10:01:00.001-05:00

I’ve just wrapped a whirlwind of new Forbes video interviews on entrepreneurship and disruption, from all walks ranging from NYC School Chancellor Joel Klein to nuclear power player Exelon’s President Chris Crane. Stay tuned for their postings…

Meanwhile, speaking of videos, regular readers know I’ve long been a champion for nuclear. The trend through humanity has been from consumption of carbohydrates to hydrocarbons to uranium. This incessant march of energy density (more energy per unit of raw material) has undeniable logic, deniable only by the illogical or irrational. Indeed, the only barrier to this arrow of progress has been political misinformation or emotional misunderstanding. But now: droves of environmentalists, once opponents are now proponents. President Obama and Energy Secretary Chu just announced $8.3 billion in loan guarantees as many other countries in the world are racing to build new nuclear and increase the percentage of electrons they get from the only zero-carbon source of clean baseload power.

And here’s an amazingly remarkable nuclear statistic for you: 1 out of every 10 electrons you consume in America comes from dismantled Russian warheads. Half the uranium we consume comes from a program called Megatons to Megawatts. And 20% of our electricity comes from nuclear. Hence 10% of all electricity in this country comes from post-Cold War weapons dismantling. Bombs once pointed at your cities now power them—from swords to ploughshares, indeed.

So this weekend, the most important video you can watch is Bill Gates noting as I have for several years now that a molecule of uranium has a million times more energy than a molecule of coal.

Weekly Insider (Friction Between Capital & Ideas, Ben DuPont)

2010-02-12T22:08:00.001-05:00

This week I’m sharing a guest column from friend, entrepreneur, innovator and investor Ben DuPont of Yet2.com. His insight and inclusion of Ben Franklin, a true renaissance man caught my attention.

“The Friction Between Capital and Ideas”

The dictionary says friction is ‘a force resisting the motion of surfaces in contact’, but I think there is another type of friction – the friction between capital and great ideas. I think this latter kind of friction is key to economic growth and it’s about to undergo significant transformations.

In 1720, if you were bright and ambitious (and free), the only legal way to make money was to either to have rich parents or to spend a life toiling away - and if you were lucky you just might be able to provide for your family. The situation was so bleak that even Ben Franklin, about the brightest those times had to offer, found his best choice was to run away from home and apprenticeship. Fast forward 200 years, friction drops a little with the aid of low tax rates and democracy, and the industrial revolution takes a hold.

In the 1990’s we saw the second drop – an even larger decrease in friction aided by the internet and a rich ecosystem of venture capital – that democratized entrepreneurship. No longer was a life of toil required first – and the world changed so much that a kid named Michael in his dorm room, revolutionized how computers were made and capital found its way to his door step – or students like Larry and Sergey changed how knowledge is indexed and shared. Now, these guys toiled plenty – but there was much less toil finding capital or customers – they toiled perfecting their business models. Ben Franklin would have loved this world.

I predict in 2010 we will see the 3rd, and largest drop, in the friction between capital and good ideas. What are the first signs?

The adoption of ‘Open Innovation’ and the liquidity in the patent market.

Who would have thought, 10 years ago, that companies would spend million to look externally for ideas? When we founded yet2.com 10 years ago, most thought companies would never look externally for ideas and technology. Patents being bought and sold? Are you crazy? We got this response more than once. I don’t want to claim to be a genius here, Google was founded about the same time and let’s just say, they are modestly more successful But liquidity in ideas – is happening – patents and technologies are being traded, and over the next 10 years we will see a rich economic boom as a result. You heard it here first.

What will happen?

1) Technologists will get rich, a few will get really rich. Michael Dell, Larry and Sergey, and all of the others, still had to build companies around their ideas. They needed 2 skill sets; the idea and the ability to form a company around it. How many inventors don’t have the 2nd skill set? Lots. How many great ideas/technologies are out there – that we could all benefit from? Lots. I know, because yet2.com sees these every day as we connect companies with TechNeeds with inventors.

2) Companies that embrace Open Innovation will get rich. I think most large companies are still only 1% effective at OI. What happens when they get to 10%? Economic growth. 85% of the Fortune 500 are already experimenting with OI. When they start to perfect their models over the next few years, this will drive #1.

3) VC’s are watching these activities closely, A few big examples of #1, will drive investment into pure play technology development. This, of course, is already happening. Which is why yet2.com has started venture investing.

4) Consumers will benefit from this friction reduction, getting better products at a lower price (with less harm to the environment) - but there will also be fewer steps and less time spent. Think for a moment how much friction there is in scheduling a meeting? A lot less than there was, but we’re on 50% there. How much friction is involved in planning a trip? Sending a birthday present?

Ironically, Ben Franklin invented the ‘free library’ but it took 2 centuries of friction reduction for Larry and Sergey to make money at it. Old Ben would have loved this. Where else is there a lot of friction?

Weekly Insider (Water Security & Recession's Impact on Nano)

2010-02-05T21:19:00.001-05:00

Here are two great insights on water security in Israel and the recession’s impact on nanotech, both from Lux Research’s Lux Populi

1. Water Security Carries a High Cost for Israel’s Citizens:

Changes in Israel’s water industry are having a drastic effect on the nation’s water bills. At the start of the year, Israel’s national water company, Mekorot, which provides 80% of the nation’s water, increased water rates by 25%. Additionally, rates will increase by another 16% during this summer, and at least another 2% at the start of 2011. Currently, water rates range between $1.5 and $2 per cubic meter.

The additional money will help fund a rapid integration of desalination plants into Israel’s water infrastructure. Currently, Israel sources 80% of its drinking water from Lake Kinneret. However, recent water usage levels have caused the lake to drop 1.5 meters in the past two years, and created a total deficit of 2 billion cubic meters. In a report, Mekorot stated there is a 38% chance that the lake will drop to a level by the end of 2010 that prohibits further pumping.

Mekorot instituted a program in 2008 to drill relief wells, which reduced water sourcing from Lake Kinneret by nearly 50%. The company’s long-term water solution involves installing a series of desalination plants that draw from the Mediterranean Sea. Currently, three plants are fully operational, providing approximately 150 million cubic meters of water per year. A fourth plant in Hadera became operational in December 2009, and is expected to reach its full capacity of approximately 125 million cubic meters per year within a few months. Mekorot is planning on bringing two additional plants online by 2012, bringing the total production to 600 million cubic meters, or 80% of Israel’s residential demand. The Israel Water Authority predicts that the increased water production will end the country’s water shortage within three years.

Once completed, the company will invest an additional 5 billion ILS ($1.36 billion) to install a new east-to-west pipeline. The company will focus on reducing water loss with the new pipeline, but it has not made an estimate on the increase in yield at this time.

Even with such drastic rate increases, Mekorot’s CEO believes that the company will still endure heavy losses, and the company is already facing an $8 billion gap in the project’s funding. This indicates that the Israeli people can expect further increases over the coming years. The Israeli government has attempted to ease the impact on customers by temporarily suspending the national Drought Tax until April 2010. At this time, there are no additional plans for government funding or support of the project.

2. The Recession’s Impact on Nanotechnology

The economic downturn has hit key nano-enabled product segments hard, particularly automotive, construction, and electronics. The output of these three sectors is immense, accounting for 10% of the U.S. GDP in 2008, and 9% worldwide. Plus, because all are big end markets for nanomaterials and their intermediates, the disruption within them has rippled back up the value chain.

As a result, Lux Research has lowered its previous projections for nano-enabled product revenues by 21%: We now expect nanotechnology to generate $2.5 trillion in 2015. Hardest hit will be two nanomaterials and two types of nanointermediates.

Among materials, carbon nanotubes and ceramic nanoparticles will see the biggest impact from the recession, due largely to their out-sized applicability in the struggling automotive and construction sectors. The relatively diverse applications for ceramic nanoparticles will enable them to recover more quickly. Among nanointermediates, nanocomposites and coatings will take the biggest whack. However, both should return near previously projected revenue levels by 2015.

Weekly Insider (Petro Parity, Biofuels or Biofools)

2010-01-29T16:43:00.002-05:00

Our latest premium Forbes report was just released to subscribers. Some choice quotes from Robert Tjian, founder of Tularik:

The best scientists I know share one common denominator: a willingness to take risks.

And from Nobel laureate Bob Grubbs, a pioneer in catalysts:

It's really easy to start a company, but it's harder than hell to get any money out of it.

Meanwhile, I’ve long lamented biofuel ventures, dubbing them “biofools”.

Well, the expert analysts at Lux Research have an open webinar on the issue LIVE on Feb 10th at 11:00am EDT. It’s called, “Biofuels' and Biomaterials' Path to Petroleum Parity”

You can register here

Environmental and economic problems posed by petroleum are spurring the search for renewable, bio-based alternatives. To date, most biofuels and biomaterials developers have focused on lab- and demonstration-scale studies to improve performance and reduce cost so they can compete with petroleum products, and those goals are coming within sight. The hurdle on the horizon, however, is scale: Today’s biotechnologies would need an area the size of Russia to replace the 30 billion barrels of oil consumed annually. Complementing or replacing oil will require integrated, dual-use facilities in the biofuels value chain, and bio-based carbon capture to move from the realm of science fiction into science.

Join them to hear Lux Research’s first-of-its-kind analysis of how bio-based materials will compete with oil, and when and how they’ll reach the elusive goal of “petroleum parity.” Learn:

• How biofuels and biomaterials costs stack up against petroleum-based products

• What performance metrics biofuels and biomaterial stack up on – and where they fall short

• Whether biofuels and biomaterials technologies have the potential to scale up to match petroleum’s output

• Which biofuel and biomaterial technologies look most promising in the areas of cultivation, processing, and production

• How to follow the path toward petroleum parity and where the opportunities to profit will arise

Weekly Insider (Like Water for VC)

2010-01-26T10:27:00.002-05:00

Here are two great insights on VC generally and Water specifically.

First from Lux Research’s Heather Landis from their Lux Populi blog:

“Fifteen years ago, if you asked Asit Biswas if he believed there was a global water crisis, he would have answered “Yes.” Now, however, the Stockholm Prize winning water researcher says he believes the water crisis is indeed a myth. Biswas made his statement in a lecture at the 2009 Nobel Conference held at Gustavus Adolphus College last October.

While there are notable books on the subject of global water scarcity, including those authored by fellow speaker Peter Gleick, Asit pointed out that he doesn’t see a world water crisis caused by physical water scarcity, but by water management – or rather, a lack of water management.

Asit believes that there is indeed enough water to go around as long as people manage their water better. In his talk he highlighted the fact that 70% of the world’s water is used for agriculture - therefore, inefficiencies in the food chain are also a major drain on water resources. According to Asit, food waste is extremely high, with the USDA reporting that 27% of food in the U.S. goes to waste, while in India 50% of fruits and vegetables and 33% of all cereal grains never make it to the consumer. Asit noted getting food to the people and minimizing waste is one way to increase food availability without the need for additional water. His idea extends to the domestic side as well, where water leaking from distribution pipes is commonplace around the world.

Water efficiency and management is a cornerstone to many of Lux Research’s water reports, most notably the recent reports published on agriculture and water IT. In the Lux Research report entitled “Malthus Returns: Solving the Unsustainable Agricultural Water Demand Conundrum” (client registration required), we highlight the fact that it’s impossible to recapture an appreciable amount of water evaporating from agricultural regions. The only option left to agriculture is to increase water efficiency through technologies such as drip irrigation provided by Netafim and John Deere Irrigation; smart irrigation systems provided by Hydropoint and PureSense; and practices such as increasing crop yields and reducing the volume of water needed.

Improving water efficiency on the domestic side is addressed in the Lux Research report “Ranking Water Information Technologies on the Lux Innovation Grid” (client registration required). In the report, we highlight the fact that utilities, industries, consumers, and governments need to manage water more efficiently, and a basic solution to the water management problem is obtaining better information about water usage through information technologies provided by companies such as Derceto and Itron to minimize unaccounted-for water, reduce water consumption, minimize water pollution, and reduce energy consumption.

There are no fundamental issues that contribute solely to the water crisis. Water is indeed scarce in certain areas of the world where the population density is high, and it’s true that water efficiency and management are in dire need of improvement, as is the aging infrastructure. Improving water efficiency is an integral component to solving the water crisis, but there is also a need for increased funding of public water supplies as well as more investments in the hydrocosm to continue development of innovative water and energy-efficient treatment technologies. Finally, there’s a need for change in the mindset of how water is used and consumed. Not until all of these criteria are met will we truly see an end to the water crisis.

Now on VC:

The heyday for nanotech venture capital (VC) likely saw its peak in 2008, when overall investment reached $1.4 billion. Last year, the sector raised only $792 million, signifying a 42% decline from 2008. But while overall nano VC backing is down, it's not out, according to a new report from Lux Research. Investment in nano-driven healthcare and life sciences increased last year at the same rate that overall nanotech VC dropped -- 42%. These two segments attracted $404 million last year, and are likely to lead VC investments in nano for the near future.

Titled "2009 Nanotech Venture Capital: Healthcare and Life Sciences Provide Life Support," the report will help VCs, large corporations and start-ups understand what developments will drive VC investments in nanotech over the next few years, and where future funding will likely turn.

"Life sciences had been a big sector for nanotech VC early on, but energy and environmental deals grabbed the lead during the past several years," said Jurron Bradley, a senior analyst at Lux Research, and the report's lead author. "As deals in energy and environment dropped 69% last year, the life sciences and healthcare segments are back on top."

Drawing on its proprietary database comprising primary interviews with 1,000 start-ups and corporate players, Lux Research also spoke to 15 of the top VC firms that have invested in nanotech. The firm asked VCs whether funding would go up or down, and where the most activity would be. Among its key observations:

-- Reflecting global VC trends, nanotech funding fell 42% to $792 million in 2009. Despite the drop in overall value, the number of deals in 2009 actually increased slightly to 92, as VCs distributed the wealth more broadly. Specifically, they bid farewell to mega deals, slicing average deal size by 41% to $8.6 million.

-- Series D or later investments plunged 73% to $235 million. After a year of triple-digit investments in single companies, the Series D party ended in 2009. In contrast, Series B rounds surged 49% to $339 million and almost reached parity with Series C and later rounds, which collected $376 million. As in 2008, Series A walked away with the smallest portion at 7% or $56 million.

-- Most VCs expect near term funding to decrease or remain flat. Some 53% of VCs interviewed said they expected their peers would likely maintain existing portfolios rather than pursue new deals. Less than half of those interviewed predicted their investments would increase over the next two to three years.
Despite the gloomy outlook, nanotech will survive. While VCs play a crucial role in providing investments for early-stage companies and guiding them to exits, VC backing is only a small piece of the funding puzzle.

"Unlike corporate or government investors, VCs tend to accept more risk and fund early stage companies," said Bradley. "That helps explain their increased interest in nano-enabled healthcare. Although the long cycles imposed by clinical trials increase the risk of funding these start-ups, healthcare is a premium-based sector where margins are high."

"2009 Nanotech Venture Capital: Healthcare and Life Sciences Provide Life Support" is part of the Lux Nanomaterials Intelligence service. Clients subscribing to this service receive ongoing research on market and technology trends, continuous technology scouting reports and proprietary data points in the weekly Lux Research Nanomaterials Journal, and on-demand inquiry with Lux Research analysts.

Ten VC Prediction for 2010

2010-01-15T13:13:00.004-05:00

Here's my Lux Capital partner Peter Hébert with a much-buzzed about

"Ten VC Predictions for 2010: Outrunning The Bear"

He who loses less, wins? Venture capital in the 2000s was much akin to the joke about the two campers who cross paths with a bear. As the angry bear begins charging out of the woods towards the campers, the first camper starts putting his sneakers on. The other camper screams, “It’s no use, we’ll never be able to outrun the bear!” And the first camper yells back, “I don’t need to outrun the bear, I just need to outrun you!”

Over the past decade, venture capitalists could claim top-quartile performance just by showing smaller losses than the rest of the pack.
The start of 2010 provides a clean slate—that is, after we break out the scorecard and grade last year’s predictions.

Last January, I envisioned a 2009 cleantech price correction, which pretty much hit the mark. While media gushed over the billions investors poured into cleantech during 2009,

Several VC-backed companies with valuations deep into the 9-digits opted for the M&A escape hatch (SunEdison, Optisolar), taking haircuts in the process. Other high-profile pioneers like GreenFuel closed up shop and called it a day. Even cleantech’s most promising ventures were unable to avoid the reset. Case in point: Solyndra, which just last month filed for its long-awaited IPO. The company’s valuation was recalibrated during its $286M Series F financing, priced at less than $4 per share, compared to a prior Series D-3 offering at $23 per share.

So what does 2010 hold in store for VC investors? I’m foolhardy enough to once again venture predictions. Behold the biggest stories in the coming year:

1) Venture-backed IPOs rebound smartly, with 50%+ first day price jumps on name brand offerings from Facebook, LinkedIn or Zynga. Among the S-1 clutter, another big beneficiary will be IPOs from smaller, little-known, and speculative-grade companies that also make it out. The visceral response to many IPO filings: Who?

2) At least one famed VC partnership fractures or sees an orderly wind-down, with insider gossip eventually leaking out. The changing of the venture guard moves full steam ahead, as weak fund performance from the lost decade finally forces LPs to question historic allocations to “franchise funds”.

3) A large, non-traditional investor enters the venture fray, boasting a very long fund duration (~20 years) vehicle focused on science and technology. Commence discussion on whether the traditional 10-year fund life makes structural sense for early-stage life sciences and energy investments.

4) Stealthy cleantech companies unveil. After years of intrigue and speculation, not to mention tens to several hundred million dollars invested, several energy technology companies finally lift the curtain and introduce themselves to the world. Will the emperor be wearing clothes?

5) Spike in biotech M&A. December 2009 served as an excellent indicator of what’s to come, with more than $1 billion returned to venture funds through the acquisitions of Acclarent, Calixa and Gloucester. Expect this month’s JP Morgan healthcare conference to play host to the industry’s ultimate speed dating session.

6) Semiconductors regain luster. After years spent languishing as pond scum in the VC pool, the public market chip rebound finally extends to its capital-starved, private brethren. Expect several IPOs and profitable M&A for some of the largest revenue generators.

7) Solar failures litter VC landscape. Schumpeter’s gale of creative destruction blows through the 250+ private solar companies. A handful of heavily-funded solar PV and CPV companies flame out, while sector leaders like First Solar consolidate their market position.

8) Energy investors swap wind and solar for abundant natural gas and carbon-free nuclear. Looking to replace a large swath of coal-fired power for base-load electricity generation? Natural gas and nuclear are not just attractive base-load alternatives—they are the only options.

9) Russian oligarchs and other foreign investors snap up late-stage U.S. tech. DST’s investments in Facebook and Zynga serve as a role model. Let’s hope they encounter more success than the sovereign funds that purchased big stakes in U.S. investment banks.

10) Return of the VC mystique. A counter-intuitive prediction, but one that reflects the above assumptions and data points. A select few IPO grand slams create massive returns and fanfare, sparking a resurgence of interest in the asset class. LPs actually begin to talk about new opportunities in venture capital!

My Take on 2010

Count me in the bullish category. In contrast to more cautious views in 2008, the venture marketplace has finally priced in reality. At Lux Capital, we’re finding far more value in venture investments today than throughout the 2000s. On a recent flight back from the West Coast, my seat-mate was a well-regarded LP, invested in many leading venture funds. He told me that he is “super bullish on VC”, more positive today on the asset class than at any time over the past 15 years.

Sure, there are structural challenges that serve as near- to intermediate-term headwinds. Outside of a few corner cases, public liquidity does not exist. Strategics are only now coming out of their shells to scavenge for M&A opportunities. Equity values have been crushed, wiping away years of incremental value creation. Investors today demand liquid assets that can be sold at a minute’s notice before the close of trading.

But historically, capital-scarce environments like today are exactly the times when fortunes can be minted. Genuine-article growth businesses are fetching valuations that bring later-stage share prices below seed rounds. New investors no longer require bubble markets to earn attractive risk-adjusted returns and gain some margin of safety. And don’t forget: in a slow-growth economy, venture capital is the only asset class that can create un-levered growth.

Weekly Insider (CES & Wireless TV Now)

2010-01-11T12:16:00.003-05:00

So, where’s the growth? If leading indicators are what you seek, go west, young man: to CES. Consider: every Board meeting I’ve participated in this week had at least one VC calling in from Las Vegas. What a difference a year makes. Compare the mood and sentiment at CES last year (subdued, uneventful, off-peak attendance) with this year’s overdrive, full-blast, media-frenzied, jam-packed event. Tech is not only thriving, it’s jumping off the operating table, bouncing off the walls and bursting through the hospital doors.

One hot ticket has been SiBEAM (full disclosure: my venture fund Lux Capital is an investor). If you hate wires like I do (or better yet, my wife does) you’ll love Wireless HD and a living room completely free of the messy morass of wires. Here’s my exclusive Forbes interview on the heels of CES with SiBEAM CEO John LeMonchek:

John LeMoncheck: Unwiring Home Entertainment

Weekly Insider (Venture Capital & Venture Philanthropy)

2009-12-18T14:20:00.002-05:00

A few leapfrogging thoughts. First: one of my favorite investors and intellectuals--and an adjunct professor at Yale is Richard Foster. Dick pioneered the work on disruptive innovation and modern importance of Schumpeter’s creative destruction. He helped lead a variety of McKinsey practice areas and advised top companies for 30 years. I’ve previously shared extended Forbes interviews with Dick, but speaking to a class of his at Yale recently reminded me what a first-rate renaissance thinker and doer, he is.

And speaking of Yale, Mark Reed nanotech Professor recently noted of a recent nanotech and cancer breakthrough: “This is the equivalent of being able to detect the concentration of a single grain of salt dissolved in a large swimming pool."

And speaking of both thoughtful people and cancer breakthroughs, I’m very pleased to share--with permission from the excellent R&D Magazine--an outstanding article by Dr. Jonathan Simons, MD, President & CEO of the Prostate Cancer Foundation. Simply stated: this is the way philanthropic research and support should be done: the same way my partnership at Lux Capital thinks about things. Here’s the link....

And here’s the article:

Venture Philanthropy in Medical Research (By Jonathan Simons, MD, President and CEO, Prostate Cancer Foundation)
Monday, December 7, 2009
“You cannot depend on your eyes when your imagination is out of focus.” -- Mark Twain

Our eyes would tell us that funding for medical research finds itself now at a kind of triple witching hour. Financial, political and social assumptions that have held sway for the last half century are expiring simultaneously and the world economy is in a deep recession. Biomedical investigators are left wondering where new funding will come from in a financial system that may be years in recovery.

We have just elected a new administration that is publically more science-friendly than its predecessor. In his first address to the nation, the President challenged the scientific community, and our country, to find a cure for cancer―yet the American government is confronted by escalating demands, a growing deficit and diminishing resources. We seem, finally, to be mustering the social consensus required to reform a health care system that fails to serve a significant portion of our population, though the nature of those reforms is entirely uncertain.

It is a time of volatility, when past assumptions should be rethought. Small actions can have inordinately large effects, for better or for worse. It is a time of opportunity, for a whole generation to reconsider established ways and means and to ask whether they still provide optimum solutions. It is a time for more innovation, to seek new ways to amplify the value returned on investments made with fewer resources.

In particular, it is time to examine closely the institutions and processes that allocate resources for medical research. While we celebrate and admire the government and philanthropic funding mechanisms that have underwritten much of the progress achieved by medical science in the last 50 years, we do believe that these times warrant replacement of old processes with a larger role for high risk and innovative funding approaches. Such imaginative investment strategies must clearly focus on delivering solutions with tangible value to humanity—in our case at the Prostate Cancer Foundation, an end to the suffering and death caused by prostate cancer. For example, having the ability to distinguish between lethal and non-lethal varieties of prostate cancer could have saved $40 billion dollars during the past two decades, by avoiding over treatment, and thousands of lives, by directing intensive care to those who need it most. One inherent problem with government funding today is its tendency to promote only the “safer” projects, and not the more “risky” research with preliminary data that could lead to new approaches for prevention, treatment and, ultimately, a cure.

We believe that a well-proven mechanism already exists in a ”Venture Philanthropy” model pioneered here at the Prostate Cancer Foundation and adopted with demonstrable success by other philanthropic organizations supporting research including the Lance Armstrong Foundation (testicular cancer), the Michael J. Fox Foundation (Parkinson’s disease), the Multiple Myeloma Foundation, the Melanoma Alliance, and others. Applying the principles of venture philanthropy more broadly―preferably (and most expediently) through extant organizations—should maximize the value returned on our research investments.

Principles

Perhaps the first principle of venture philanthropy is that there are no universal rules. Venture philanthropy has its roots in the worlds of business and finance, where success depends on the ability to spot the opportunity that others have overlooked. Each situation is unique and must be approached without preconceived solutions. “Leverage” has gone from darling to pariah in financial circles, but it remains essential to success in venture philanthropy. In this context, success requires finding ways to encourage innovation and avoid inertial and negative thinking by leveraging the specialized knowledge of a motivated community of interest. Notwithstanding the first principle stated above, that there are no universal rules for judging innovation, certain patterns have emerged in the 16 years we have practiced venture philanthropy that seem to have general applicability, at least as a framework for analysis. We have explicitly followed six principles in the funding programs we have created:

Eliminate the endowment model: rather than building interest equity, build urgent discovery equity. A cash in, cash out model puts resources where they are most needed for patients, with the most valuable return on investment—progress. The PCF is in business of putting itself out of business, not building a self perpetuating organization.

Streamline the funding application process: time is money. Traditional grant applications can be hundreds of pages long and their preparation often consumes an unjustifiable amount of researchers’ time. As William Strunk Jr. outlined in The Elements of Style, vigorous writing is concise. A cogent research plan can be evaluated in five pages or less. Thus, our applications are strictly limited to a five page maximum. We take no more than 30 days for review and approval, and we make funds available within 60 days of approval.

Demand information sharing and encourage collaboration: the traditional process of peer review and publication, while fulfilling an absolutely vital role in the scientific process, can impede the free flow of information and slow progress toward vital new discoveries. All researchers receiving funds from the Prostate Cancer Foundation must agree to share their results freely within one year of funding at our annual scientific meeting, regardless of publication status. Our Challenge Awards and Therapeutic Clinical Consortium Awards are specifically structured to support collaborative research efforts.

Actively recruit the best and brightest young minds into the field: talented young scientists must be attracted to a field of research early in their careers when they are making choices that typically last a lifetime. Our Prodigy Awards and Young Investigator Awards are specifically designed to recruit the best and brightest young researchers as they embark on their careers.

Encourage flexibility and mid course adjustments: it is fundamental to the discovery process that new results suggest new directions for investigation. Use of funds in exploration of promising new leads should not be delayed by requirements for re-review and approval. If we approved the original application, we should trust the scientific judgment of the investigator and not waste time with reapplication for changes suggested by new findings.

Encourage and reward game-changing hypotheses and innovative new research methods: large institutional and government funding programs are well-suited to supporting advances that ultimately constitute the vital aspects of incremental scientific progress. However, they may not be the best way to liberate “breakout” ideas discoveries that can transform a field and generate new therapies and cures that can make an urgent impact in the lives of so many. Our Creativity Awards seek out the best “game-changing” ideas that are not being funded otherwise.

All competitive systems, political, economic, and biological, experience a natural ebb and flow between the forces of stability and innovation, conservatism and liberalism, proliferation and adaptation. In stable times, consolidation, incremental improvements in efficiency and economies of scale can return enormous benefits. In turbulent times, the optimal balance shifts to innovation. Systems incapable of fast-adapting to a changing environment are predestined for extinction. It is time now to increase the application of these six venture principles, particularly their emphasis on adapting to change, at every level of scientific inquiry exploration.

Video interview with Michael Mauboussin of Legg Mason

2009-12-13T22:42:00.002-05:00

See my interview with Michael Mauboussin, Chief Investment Officer of Legg Mason Capital Management

Weekly Insider (E.O. Wilson & A Powerful Mind in Harlem)

2009-12-04T16:53:00.004-05:00

I always say that people, kids especially, need two things: the right heroes, and a deep desire to learn. Over 12 years ago I met a man who had a profound impact on me and embodied both of these things: Ivan Hageman. He grew up in a crack rehab center, was Harvard educated and accomplished but opted out of the system to return to ‘El Barrio’, the neighborhood of East Harlem, with a grass roots approach to shelter, protect and nurture the minds of the many kids who had lost the ovarian lottery. Kids born to socioeconomic circumstances not of their choosing and ethnic heritages commonly treated as a liability, as shackles to shed instead of rich roots to celebrate in the Caucasian cacophony of insularity that long defined New York City.

Ivan taught me to speak with conviction. And he inspired me to co-found Coney Island Prep, the first charter school in my native Coney Island, Brooklyn. I spent today with Ivan and the full East Harlem School at Exodus House, (where I first volunteered over a decade ago) and was reminded of how amazing this man is, standing in a now state of the art multi-million dollar facility and the eye-opening impact he has had and is having on these kids and this community. Here are his words, reprinted with his permission from a recent communication to friends of the school.

…The School is quiet now. Another graduation has passed, and we ready ourselves for our new students and our summer semester. I have some time to reflect in these pauses in our calendric rhythm, and much of my thought has turns to these most recent alumni. After having served as a source of some occasional low level despair, as do most rising 8th grade classes, this recent graduating class became quite dear to us in these last several months. They became a group that included talented scholars, actors, and athletes. Most important, they became a group. Not lone virtuosi.

So much of what we hear in the media is about the lone teacher making all difference. Or the lone principal. Or the lone strategy for bubbling in the right answers on a high stakes test. Or the lone charter cartel with best practices for the urban student. How lonely are all the answers to our national education question.

From my office wall hangs a small Japanese wood block print. It shows the priest, Nichiren, skirting a humble mountain village as he heads into exile. We cannot see his face, and his body is bowed beneath a burden and against the wintery blast. He is alone. A couple of nights earlier, I talked with an architect friend and his spouse, a wise academic. We spoke of struggles of the Iranian people, Persian politics, and finally of the existential horror one must experience in exile- when one must leave home forever. The families that send us their children have all experience some form of exile, too, as have most Americans, in one generation or another. We are a nation of exiles.

E.O. Wilson takes things a step further, suggesting that psychological exile is our human destiny: unlike the mind of other animals, our neurology lets us know that we live; we will die, and then sends us off on a search to make sense of the grim news. Few can do so. Lives of the lone and quiet despair bloom and fade all around us. Not so on our little half acre in El Barrio!

Together, amidst the play of light and shadow that fills our new school building, we make a home. In the face of all of the uncertainty and frightful probability that lies beyond our walls and in our minds, we end our exile. Together, students embrace Algebraic unknowns and make Shakespearean forays into the loving, vengeful human heart. On the soccer pitch, lacrosse field, and science lab, students struggle with problem solving, team work, and finding that last reserve of courage. Together, students soften their hearts, open their eyes, and strengthen their bodies. This is all truly beyond metric or measure, but obvious for all to see. It is in circles of debate and inquiry, not lone rows of rote resignation, that we find our humanity and our true home.
It was a thrill for us to see this graduating class, together, leave us from our new and serene backyard – and to know they have this same home to which they will return. What a blessing it would be if all children in our city could end their exile in a place like this.
Ivan M. Hageman
Head of School

Weekly Insider (Celebrities for Prostate Cancer)

2009-11-20T14:24:00.002-05:00

A solemn note, if you’ve ever had a father, brother, son, business partner or friend who has suffered from prostate cancer, and we at Lux have, then you know the terrible impact it can have. 16 million currently face the disease. Next week Mike Milken & Jonathan Simons, MD host their amazing annual Prostate Cancer Foundation Dinner. Milken has long championed the most valuable form of capital: human capital.

And this evening focuses on funding the 2010 class of Young Investigators and building the human capital supply for continued research. They’ve already funded 20 and are targeting a total of 100. I’ve heard inside word that attendees include leading American philanthropists David Koch (Koch Industries), Peter Grauer (Bloomberg), Darius Bikoff (founder of Glaceau and Vitamin Water), Richard LeFrak (LeFrak Organization), Ambassador Earle I. Mack, Ted Virtue (MidOcean Partners), among others. Also, Jean Fogelberg, wife of Dan Fogelberg, the famed recording artist who died of prostate cancer in December 2007. If you’d like to attend contact jhaber@pcf.org or 310 570.4700.

Founded in 1993 to find better treatments and a cure for prostate cancer, the Prostate Cancer Foundation has become the world’s leading philanthropy for funding prostate-cancer research, almost like a venture fund that solicits and selects the most promising research programs and quickly funds them—now to the tune of 1,500 programs at nearly 200 research centers in 20 countries around the world. It’s helped to build a global research enterprise of nearly $10 billion.

Weekly Insider (Groundbreaking Lux report & Shaving with Occam's Razor)

2009-11-13T20:51:00.004-05:00

I always tell our analysts at Lux to shave daily with Occam’s Razor. With my recent Forbes interview with Lux Capital portfolio company, Luxtera (the leader in nano-photonics, turning light to electrical signal and back for communications at the speed of light), and my wife’s prodding, I realized I needed my own shave. I was being mistaken for a certain—ahem…unflattering, unwelcome—U.N. persona non grata: http://www.forbes.com/video/?video=fvn/clayton/info-at-the-speed-of-light

But when I say Lux’s team should shave with Occam’s Razor, it means this: find the simplest solution. When analyzing startups and their technologies, ask: “Is this the simplest way to do it?” Unlike Olympic divers, we don’t win any points for technical complexity. Engineers, like oenophiles prize “elegance”, “robustness” and other abstractions. We prize simplicity.

And speaking of simplicity, see the original groundbreaking report from Lux Research on ‘water wedges’. It’s called “Malthus Returns: Solving the Unsustainable Agricultural Water Demand Conundrum”. A sneak peek at the executive summary says: “The lion’s share of global water use is directed towards agriculture, and agricultural water usage already exceeds renewable supplies in the regions where people live and grow food. Water demands are set to skyrocket by virtue of population growth, economics expansion, and biofuel adoption. However, because recapture and recycling are out of the question, only technologies and practices that improve water efficiency can move the world towards sustainability. In this report, we forecast water demand and examine water reduction strategies – referred to as “water wedges” – that in certain scenarios bring water demand in line with renewable supply.”

Most valuably they outline the unintended consequences as well as all the new ag technologies that can lead to direct savings and boosted yields. Get access by emailing Lux Research at info@luxresearchinc.com

Weekly Insider (Noble Nobels)

2009-11-06T10:58:00.002-05:00

We’ve got some amazing upcoming interviews to share with you--all of whom happen to be part of my Lux Capital partner Larry Bock’s USA Science Festival. In the past week, I’ve sat down with Nobel Prize winning chemist Karry Mullis who invented PCR (polymerase chain reaction for amplifying DNA sequences); Nobel Prize winning physicist John Mather who helped prove the Big Bang Theory (with cosmic background radiation); Nobel Physicist Carl Weiman who discovered the Bose-Einstein condensate. And Nobel Chemist Alan Heeger who invented conductive polymers (think: OLEDs or plastic light).

Here’s one preview factoid gleaned yesterday while sitting with Nobel laureate Bob Grubbs talking about chemistry and war. When people remember World War II and the Battle of Britain in 1940, few remember the role of chemistry. A Northwestern University chemist invented a catalyst that gave the Allies a huge edge. The chemist was able to turn useless crude into 100-octane gasoline replacing the 87-octane everyone was using. The British Royal Air Force's Spitfires and Hurricanes could now go 30mph faster than the Germans. Outmatched, the military balance tipped to Britain and Hitler abandoned the British invasion and turned east. Just months earlier, the same British planes were being beat handily by Germans in battles over France. Same planes, different fuel: super fuel.

Weekly Insider (Soldier, Gold, Einhorn)

2009-10-30T15:54:00.004-04:00

A longtime friend, a Lieutenant Colonel having served in our two current theaters of operation, wrote me this morning from the battlefield. He is returning to the US in four months and wrote: “I don't understand how the market is up, gold is up, interest rates are down but unemployment is very high. I heard on CNN that the real unemployment number is close to 16%. I think the number cited is the U6 unemployment number. Am I missing something but this situation is not normal?”

When this soldier returns to the US, I don’t know what the next four months or four years hold. But I do know the crowing consensus “that the worst is over” sends shivers and wishful thinking that it’s not a lot of wishful thinking. Sadly, I suspect it is. What we know for sure: People lost jobs. They’ve lost income. They have less cash. What they own is less. What they owe is more. If they have income, they’re saving not spending. If they don’t have income they’re spending their savings--and doing and having less of both. Those that faked it till they made it, now can’t make it or fake it.

In industries, some are in permanent decline. In others, the strongest will get stronger as the weakest die. The strong will take the market share of the weak and their assets on the cheap.

The only certainty is uncertainty. The time to buy insurance is before the storm hits. With VIX low, long-term out of the money puts cheap, I’d consider an umbrella. As hedge fund manager David Einhorn brilliantly put it, “Events can move from the impossible to the inevitable without ever stopping at the probable.” Here’s Einhorn’s recent speech.

“One of the nice aspects of trying to solve investment puzzles is recognizing that even though I am not always going to be right, I don’t have to be. Decent portfolio management allows for some bad luck and some bad decisions. When something does go wrong, I like to think about the bad decisions and learn from them so that hopefully I don’t repeat the same mistakes…

This leaves me plenty of room to make fresh mistakes going forward. I’d like to start today by reviewing a bad decision I made and share with you what I’ve learned from that error and how I am attempting to apply the lessons to improve our funds’ prospects..."

Download a full copy of Einhorn's speech from Reuters.

Weekly Insider (Randomness, Optionality & Gladwell, Dawkins, Clinton and more)

2009-10-23T21:16:00.002-04:00

Randomness and optionality are the governing forces I heap my praise.

Some chance invites this past week had New York City offering a gorge at a sophist smorgasboard. First was the NY Stem Cell Foundation honoring the brilliantly entrepreneurial Joel Marcus of Alexandria Real Estate with Frank Gehry and Barry Diller. Joel's facilities and labs house some of the most cutting edge startups in the country. The following night had Bill Clinton presenting a group of us with you-are-there recap of Middle East policy from just before his presidency till today.

Two key takeaways: First, in any situation, only you, can grant the power to someone to humiliate you. Second, demography, technology and time are not allies of Israel's seemingly intractable situation. In other words: faster population growth of its hostile neighbors coupled with increased availability of GPS guided precision missiles mean time is not in its favor.

Next came intimate talks from Malcom Gladwell on why it isn't that drinking makes you uninhibited, but merely myopically focused. Followed the next day by Jim Surowiecki who spoke to a crowd on why we procrastinate, what it means and how stop doing it.

That was followed by a release party for Andrew Ross Sorkin's rising best-seller “Too Big Too Fail” which had nearly all the players in his insider's account of what just happened to our economy in attendance. The next night Richard Dawkins spoke at the New York Academy of Sciences on The Greatest Show on Earth, evolution.

And last night a traverse to Tribeca's Barnes & Noble had Dawkins again signing throngs of books. By sheer coincidence, or the draw of Dawkins, astrophysicist Neil deGrasse Tyson, director of the Hayden Planetarium, was holding court with an orbit of 20 people, talking about life, the universe and everything.

When the Barnes & Noble staff, not recognizing one of its own best-selling authors, moved Tyson to the obsolete CD & DVD section, he—as any great scientist might—refused on grounds that such a request was irrational. There, I stood in an ironic moment within the store's shelved labyrinth of letters, bookended to my left by Richard Dawkins—irritant to the irrational—and to my right Neil deGrasse Tyson—popularizer of the rational—standing his ground against store staff selling a dying medium.

The saving grace of a modern bookstore is intellectually curious people gathering to meet with each other and admired authors in physical space and buy books. And they were being herded to the music and video section. To randomness and optionality...

Weekly Insider (Electric Cards from Lux Research)

2009-10-09T15:14:00.005-04:00

Here’s the latest inside scoop from the stellar team at Lux Research:

ELECTRIC VEHICLE MARKET GROWTH REQUIRES PRICEY OIL

Demand-side projections for electric vehicles contradict the hype, says Lux Research.

Boston, MA – October 7, 2009 – Environmentalists, automakers, entrepreneurs and politicians all argue that the next generation of electric vehicle cars will be a boon for the economy and the environment alike. Despite the hype, however, the final judge will be consumers, who will be voting with their wallets – and electric vehicle enthusiasts might not like the returns, according to a new report from Lux Research.

Titled “Unplugging the Hype around Electric Vehicles,” the report takes a hard look at the economics of electric cars, including today’s hybrid electric vehicles (HEVs), as well as hotly anticipated plug-in hybrids (PHEV) and all-electric vehicles (EV). In preparing its report, Lux Research developed a demand-driven market model that calculates how fuel savings could counterbalance the higher price tags on electric vehicles. It includes projections for how the costs of these vehicles could fall as auto and battery manufacturers scale up production, and figures in the impact of oil prices using scenarios in which oil reaches $70/bbl, $140/bbl, or $200/bbl through 2020.

“Our model showed the HEV market doing well in every scenario,” said Jacob E. Grose, Ph.D., an analyst for Lux Research, and lead author of the report. “The markets for PHEVs and EVs, however, will remain small unless oil prices skyrocket. Even in the scenario with $200/bbl oil in 2020, only about 4% of the vehicles sold worldwide will be PHEVs or EVs, due to the high costs of the battery technology for these vehicles.”

Lux Research’s report is required reading for automakers, Li-ion battery suppliers, and even utility executives, who will find realistic projections of future demand for their products and services. The report also provides solid footing for government officials charged with drafting strategic policy and subsidies for their domestic EV industries.

Among the report’s key conclusions:

Oil prices are a key determinant of adoption of electric vehicles. HEVs are the only winner if oil prices hold steady at around $70/bbl. But regardless of oil prices, sales of these vehicles should reach roughly 3 million units annually by 2020. PHEVs, by contrast, will require oil prices around $200/bbl to achieve a similar level of success, and EV sales will be a factor of ten smaller, even in this scenario.

Geography and subsidies figure prominently in the adoption of PHEVs and EVs. With oil at $200/bbl, light PHEVs could be the best-selling electric vehicle in the U.S. by 2020, with over one million units sold. At those oil prices, Japan could generate the biggest demand for electric vehicles, due to the country’s high gasoline prices and generous government subsidies. Meanwhile, a lack of subsidies in Western Europe and China spells poor adoption rates in those markets for either class of electric vehicle.

Regardless of the scenario, Li-ion battery technology is a clear winner. Even relatively modest success for the PHEV and EV market will be an enormous boon for the global battery market. Costs for automotive Li-ion cells will drop from over $720/kWh today to between $405/kWh and $445/kWh in 2020 depending on oil prices. Moreover, sales of Li-ion batteries for electric vehicles in 2020 range from around $510 million at $70/bbl, to over $9 billion at $200/bbl. The market for NiMH batteries for HEVs, meanwhile, changes little in any oil price scenario, ranging between $1.3 billion and $1.6 billion in 2020.

“Unplugging the Hype around Electric Vehicles” is part of the Lux Alternative Power and Energy Storage Intelligence service. Clients subscribing to this service receive continuous research on the industry, as well as market trends and forecasts, ongoing technology scouting reports, and proprietary data points in the weekly Lux Research Power Journal, and on-demand inquiry with Lux Research analysts.

Weekly Insider (Tsunami of Thought, Three Things)

2009-10-02T16:30:00.000-04:00

I’ve been inundated by insights in a tsunami of takeaways from Lux Research. Here are three things for you.

First: take this invite to register and listen in on their call this Tuesday, October 6th, Lux Research Power State of the Market: Unplugging the Hype around Electric Vehicles, from 11:00 AM - 12:00 PM EDT

Why? Because in March of this year, U.S. President Barack Obama announced, “We will put one million plug-in hybrid vehicles on America's roads by 2015,” and almost every major automaker – including Toyota, GM, Volkswagen, and BYD – plans on introducing lithium-ion-powered plug-in hybrid vehicles (PHEVs) and all-electric vehicles (EVs). For these vehicles to succeed on a large scale, however, they must make economic sense – not simply be a niche high-end product bought for altruistic reasons. The economic viability of these vehicles will depend on many factors, including the price of oil, governmental subsidies (such as the $1.5 billion over the three years the Chinese government has pledged to green vehicles), and the reduction in vehicle costs that come from increasing manufacturing volumes. Yet despite all the money invested, governmental support offered, and hype generated, the current high prices of PHEVs and EVs compared to standard hybrids (HEVs) mean that widespread adoption remains a question mark. In this webinar, we will examine this issue using a quantitative model for electric vehicle sales through 2020, answering the following questions:

How will the price of oil affect full-sized electric vehicle sales? What role will the different subsidies offered in the U.S., Japan, Western Europe, and China play in the success of electric vehicles in those regions? How much will prices drop for the lithium-ion batteries that power PH/EVs? What technologies go into electric vehicles and what distinguishes one vehicle type from another? What are the implications of the relative success or failure of electric vehicles? How will the electric vehicle market interact with other vehicle technologies – such as clean-diesel, micro-hybrids, heavy vehicles, and e-bikes?

Next, within days, they’ve also released two killer reports with shocking findings for their clients.

The first, “Alternative Power and Energy Storage Financing: Can VCs’ Good Times Last?” notes the alternative power and energy storage sector is on pace to raise a record level of venture capital (VC) in 2009, with the majority going to battery technologies. However, the mergers and acquisitions (M&A) have slowed drastically, and initial public offerings (IPOs) have dried up, limiting exit opportunities for VC-backed companies. And IPO markets are struggling and starting to weigh on VCs. Leading executives at venture capital firms indicated enthusiasm for alternative power and energy storage technologies in general, but cited real concerns over time to market, capital requirements, and exit opportunities. Their views suggest that VCs' interest in alternative power and energy storage technologies is broad but not deep. VCs are likely to desert alternative power and energy storage, forcing a rethinking of financing for emerging technologies in this field.

The second, “Finding exits for Biofuels and Biomaterials Investors” notes venture capitalists (VCs) planted $1.12 billion in 2008 into industrial and agricultural biotechnologies like biofuels, biomaterials, and enzymes, a 26-fold increase from 10 years ago and a cumulative total of $4.17 billion. But even as investors venture ever deeper into these new fields, they have not yet found a clear path to exit. To date their fixation on bioenergy companies has been a response to policy decisions and investments by leading VCs, but to see returns grow, they will need new strategies. They should seek technologies that support multiple feedstocks and products so they don’t wander into dead ends like corn ethanol, and pursue opportunities in food, water, and carbon that balance the challenges inherent in biofuels and biomaterials.

Weekly Insider (A123 IPO & Lux Research)

2009-09-25T16:30:00.000-04:00

The big news this week: the long-awaited nanotech and cleantech battery company, A123 a spin-out from MIT had a smashing IPO approaching $2 billion in market cap.

Here’s Lux Research’s take as covered by Nature:

University spin-out opens trading as a billion-dollar company.

By Katharine Sanderson

More shares in battery manufacturer A123 were sold than initially expected.

One university spin-out company has suddenly turned investors batty for batteries. A123 Systems, a rechargeable-battery manufacturer founded in 2001 by materials scientist Yet-Ming Chiang and colleagues from the Massachusetts Institute of Technology in Cambridge, got a flying start to its life as a publicly traded company.

A123, based in Watertown, Massachusetts, first announced its intention to offer public shares in August 2008, with predictions that they would sell for between US$8 and $9.50. But yesterday, they flew off the shelves at $13.50 a share, with around 28 million shares being sold — 3 million more than expected. This bagged the company a cool $380 million ahead of its first day's trading on the NASDAQ stock exchange today. "It's very exciting news," says John Petersen, a lawyer specializing in energy-storage companies at law firm Fefer, Petersen and Cie in Barbereche, Switzerland. "I think the next 20 years are going to be times of immense prosperity for the battery industry," he says.

The cash boost comes shortly after A123 received a $249-million grant in August this year from the US Department of Energy to develop batteries for electric vehicles. The company has also raised more than $350 million in private investments. Add to this the money from the shares, a $69-million investment from General Electric and $100 million in refundable tax credits from the Michigan Economic Development Corporation, and A123 Systems becomes a billion-dollar company. The firm also applied for a $1.8-billion loan from the US government in January this year, with the intention of building a mass-production facility in Michigan.

"It's a very solid company poised to continue to grow," says analyst Michael Holman from Lux Research in New York. But, cautions Holman, "There are a lot of risks, particularly in the electric-vehicle market for A123."

A full copy of the article can be found on the Nature website.

Weekly Insider (The Hero vs The Hysterics & West, Wilson, William)

2009-09-18T16:30:00.001-04:00

A culture gets what is celebrates. With the nation obsessed over outbursts from Wilson, West and Williams (congress clown, raucous rapper and tennis terror), little attention was given to honor a hero who prevailed against hysterics: Norman Borlaug. He lived the ideal of 17th century Spanish philosopher Baltasar Gracian that one should aspire to be a hero, rather than merely appear one.

Despite renewed cries of Malthusian limits of our resources in the face of a growing population, Julian Simon had it right in challenging conventional wisdom with his own wisdom that the one inexhaustible resource is human ingenuity.

Here’s Greg Easterbrook writing in the WSJ on ‘The Man Who Defuse the ‘Population Bomb’: One of America's greatest heroes remains little known in his home country.”

Norman Borlaug arguably the greatest American of the 20th century died late Saturday after 95 richly accomplished years. The very personification of human goodness, Borlaug saved more lives than anyone who has ever lived. He was America's Albert Schweitzer: a brilliant man who forsook privilege and riches in order to help the dispossessed of distant lands. That this great man and benefactor to humanity died little-known in his own country speaks volumes about the superficiality of modern American culture.

Norman Borlaug

Born in 1914 in rural Cresco, Iowa, where he was educated in a one-room schoolhouse, Borlaug won the Nobel Peace Prize in 1970 for his work ending the India-Pakistan food shortage of the mid-1960s. He spent most of his life in impoverished nations, patiently teaching poor farmers in India, Mexico, South America, Africa and elsewhere the Green Revolution agricultural techniques that have prevented the global famines widely predicted when the world population began to skyrocket following World War II.

In 1999, the Atlantic Monthly estimated that Borlaug's efforts combined with those of the many developing-world agriculture-extension agents he trained and the crop-research facilities he founded in poor nations saved the lives of one billion human beings.

Read the full article on Norman Borlaug from the WSJ website (click here).

Weekly Insider (Water Tech & A School Grows in Brooklyn)

2009-09-11T16:00:00.000-04:00

A big thank you to Vince Capri who earlier this week in Chicago on behalf of the Nanobusiness Alliance presented a check, made out to Coney Island Prep, to me after my opening keynote. What a class act.

I hold the deep belief that kids, especially inner-city kids, need two things: the right heroes and a deep desire to learn. Usually the former results in the latter. Nearly two years ago, I was recruited by passionate and visionary school founder, Jacob Mnookin, to become founding Chairman of Coney Island Prep--the first ever charter school in my native Coney Island Brooklyn. We opened our doors last week to 90 5th graders for our inaugural class of 2021 (their future college graduation date set in their minds now), adding a new class every year until we reach grades 5-12.

The governance, staffing, financials, marketing and strategic decisions are not so different from high-tech startup boards I sit on, but arguably the stakes are higher. Entrusted with children’s future and maximizing their (and their families’) chances of success in life is extraordinarily fulfilling.

A final reminder for Tuesday’s private invitation and chance to listen to Lux Research’s webinar: “Lux Research Water State of the Market: Global Energy - Unshackling Carbon from Water” on Tuesday, September 15, 2009 11:00 AM - 12:00 PM EDT Register by clicking here.

Weekly Insider (Dean Kamen, Water Invitation & A123 Battery IPO)

2009-09-04T09:51:00.003-04:00

Here’s three things for your Labor Day weekend.

First, join me and Dean Kamen at the NanoBusiness Conference next week in Chicago at www.nanobusiness.org

Second is a private invitation to listen to a Lux Research webinar: “Lux Research Water State of the Market: Global Energy -- Unshackling Carbon from Water” on Tuesday, September 15, 2009 11:00 AM - 12:00 PM EDT Register here: https://www2.gotomeeting.com/register/269154627

The huge water footprint associated with energy production plays second fiddle to worries about carbon dioxide output in the popular imagination, but it is a vitally important consideration in our increasingly parched world. New energy technologies – from advanced methods of extracting fossil fuels to low-carbon renewable energy – may look appealing, but they exacerbate water worries, creating ugly trade-offs between carbon and water. As water stresses, multiply energy technologies’ water intensity will often play as great a role as their carbon footprint in determining the future makeup of the global energy mix.

In this webinar, Lux Research will examine conventional and alternative fuels and electricity generation and investigate the myriad of technologies – including water reuse and recycling, increases in energy production efficiency, and large-scale distribution – and answer the following questions: How much water is used today to produce electricity and fuels through conventional means? What is the relationship between water intensity, carbon intensity, costs and reliability for alternate energy sources? How does the water relationship affect the viability of biofuels and alternative methods of extractive fossil fuel? What technologies and approaches are available to reduce energy related water intensity while allowing for a reduced carbon footprint? What are the implications of water intensity on the future roll-out of energy technologies? Which companies stand to win or lose and how will this affect investors?

Third, here’s fellow Forbes columnist Mark Mills citing Lux Research’s battery team in his newest piece: “Battery IPO Could Recharge New Issue Market”

“Confidence, the Rorschach of economic indicators, is a weird thing. Easier to recognize than define or measure. We may soon learn something about confidence in our economic future via the market's reaction to the forthcoming IPO of A123, a Boston-based energy green-tech company just over half a dozen years old with cool new MIT-derived battery technology.

The Conference Board's Consumer Confidence Index (CCI), benchmarked as 100 in 1985, dropped to 65 in 2008 and plummeted to 25 earlier this year, even lower than post 9/11. We're a long way from the heady days of confidence exhibited during tech mania when the CCI approached 200, but the index has been tracking up recently, hitting 47 in July and 54 by late August.

For calibration; the index was 100 in 1985, the year Nintendo came out; one year earlier Apple had launched the Mac at a time when only 40,000 people in America used cell phones.

Confidence both reflects and creates the economic future we want more than any single characteristic of the human enterprise. Of course confidence is what drives people to create new companies, and jobs, to compete with big established guys, and, apropos of emerging from our Great Recession, let us not forget that small businesses with one to 499 employees account for nearly two-thirds of job creation..."

The full article can be found on Forbes.com, to be linked to the article click here.

Weekly Insider (Doodles, Entropy & Warfare)

2009-08-28T17:10:00.013-04:00

Change is the only constant. Hear me and fund manager and tech visionary Pip Coburn talk about change and why traditional equity research analysts are doomed (link to the complete video).

But before you watch that, read this. In recent years, investors have picked up on the Kelly Criterion, developed by John Kelly of Bell Labs after interpreting Claude Shannon’s information theory. Known as “Fortune’s Formula”, in short it tells you how much to bet based on when you believe the odds are in your favor. The simple math is 2p-1, where p is your confidence level--which tells you to never bet unless the odds favor you. If you have 60% edge, you’d bet 20% of your bankroll.

Now, Shannon’s information theory is proving as useful in warfare as it is in wagering. It was George Gilder who succinctly described that information is news, when it’s a surprise. And surprise is by definition a message with high entropy (that is, low predictability). Shannon’s calculus showed that a high-entropy message needs a low entropy carrier. Otherwise the signal gets lost in the noise. In analog terms writing a message on a clean crisp blank sheet of paper is way better than one with doodles and scribbles. In digital terms, sending a message (information) by glass and light is the best of all. As Gilder put it, a high entropy message needs a low entropy carrier.

In this new month’s issue we’ll have an exclusive sit-down with a Pentagon insider on the future of war. Notably, it’s been predicted the US will use one-tenth the force, yet 100 times the bandwidth, of prior wars. One company enabling that is Luxtera. Below is an exclusive excerpt from our premium monthly report with Greg Young, CEO of Lux Capital portfolio company, Luxtera who is delivering data at the speed of light.

Greg Young serves as president and CEO of Luxtera [full disclosure: My venture firm, Lux Capital, is an equity investor]. Prior to Luxtera, he was vice president and general manager of the High Speed Ethernet Controller and High Definition Media PC Video business units at Broadcom. While there, Greg led the growth of the Ethernet Controller business unit from concept to hundreds of millions in revenue and the No. 1 market share position. Prior to joining Broadcom, Greg was with Intel, where he held several engineering marketing and leadership positions.

Josh Wolfe: What career path led you to Luxtera?

Greg Young: After trying some startups out of school I joined Intel in the mid-90s, beginning as an engineer and then transitioning over to marketing and running product lines. I worked at Intel until 1999, when I joined Broadcom. I spent eight years at Broadcom helping to pioneer the company's participation in the Ethernet market for the network interface controller business. Ultimately, I helped grow that business to about $350 million dollars a year in semiconductor revenue. Most of my career has been spent building businesses off of advanced transceiver technology (devices that both transmit and receive information), so when I recognized the opportunity within Luxtera, it was easy for me to see how the technology could be built into a large-scale enterprise.

What excited you about the company?

First, some market backdrop here: It's getting harder and harder to send fast signals over copper wires. The world of optics has been sitting out there for a long time as the performance leader, but it has been a very expensive way to get the performance that you need for the same kind of input/output speeds. When I recognized that Luxtera had the ability to create a complete optical transceiver in CMOS technology to take performance to 10 gigabits and well beyond 10 gigabits at a cost point that was previously unachievable, I saw the same kind of opportunity I was given at both Intel and Broadcom.

Put it in perspective--how fast is 10 gigabits?

If you use a cable modem at home, that's about a 1 megabit connection--a million bits per second. We're talking about ultimately transitioning people to the point where they can readily transmit 10 billion bits a second. That's the equivalent of downloading more than 300 songs every second.

Why do photons trump electrons when it comes to broadcasting bits?

When you send an electronic signal over copper wires, there is a relationship between speed, distance, and signal integrity. As you get faster and faster over the same distance of wire, your signal integrity gets worse, and you see distortion in the signal that starts to dominate the signal quality at higher speeds. Because of that relationship, there is a natural limit for how fast and far you can push a signal over a copper wire.

At 10 gigabit speeds, electrical interconnects over copper wires really start to break down--it's hard to transmit the signal even 10 meters. Alternatively, you can send a burst of photonic energy down a low-cost fiber optic waveguide, and you can easily send a 10 gigabit signal over 10 kilometers. You can do it with less power, less complexity, and with Luxtera's technology--lower cost.

An inclusive version of the interview is available on the Forbes website, click here to be linked to the article.

Weekly Insider (Lux on China Solar and Mexico Water)

2009-08-21T15:46:00.003-04:00

From the brilliant global emerging technology team at Lux Research here are a few choice nuggets for you. First on Solar (remember my call that this will be a flight of Icarus with most US investors getting badly burned) and China’s deflationary forces. Then on Mexico’s water infrastructure woes.

**New entrants put on a brave face at Intersolar North America:

We recently attended the Intersolar North America Conference in San Francisco, CA. The conference was notable as much for the companies that did not attend as for those that did. Most major Japanese manufacturers – including Sharp, Sanyo, Kaneka, and Kyocera – did not present, while other industry heavyweights – including First Solar and Suntech Power – were also absent. The buzz remained focused on the size of the U.S. market, with all eyes set on the anticipated announcement of the Department of Energy loan guarantee program. Due to the slow drag of the stimulus package announcements in the U.S., module vendors and suppliers we spoke with were already focused on the U.S. market in 2H 2010. We wrote in the February 2009 report “Finding the Solar Market’s Nadir” that, for the U.S. market, “it’s unlikely that 2009 will be a breakout year.” Our outlook of 495 MW in the U.S. in 2010 continues to look accurate, while the greatest potential upside in the global market will come from China.

In contrast to the largely absent Japanese manufacturers, a host of Chinese firms – JA Solar, Canadian Solar, ENN Solar Energy, Best Solar, Trina Solar, and more – showed up in grand style, boasting huge displays. However, these large shells echoed with talk of still-slipping prices, with top-tier Chinese crystalline silicon manufacturers now selling at $2.30/W to $2.40/W according to our network. What’s more, one Chinese firm we spoke with expected prices to fall below $2.00/W by the end of 2009.

Chinese thin-film entrant ENN Solar Energy was on hand with a full 5.7 m2 tandem junction (microcrystalline silicon/amorphous silicon, or “micromorph”) thin-film panel on display. Since we last briefed the company in April 2009, ENN Solar received TÜV certification for its full panels, but the ramp-up has fallen behind schedule. According to the company, the ramp-up of its 60 MW Applied Materials line has been pushed out from the end of Q2 2009 to the end of Q4 2009 or Q1 2010, implying that full micromorph production with AMAT tools continues to drag down customers’ roadmaps. Nevertheless, the company, like many of its compatriots, was out to put on a bold and brave face throughout the show.

**Mexico City attempts to save water to avert sinking into the abyss:

On July 26, Mexico City authorities announced an emergency, 10-month water rationing plan in response to severe shortages resulting from an extended drought that has gripped the region since 1994. The National Water Commission, Conagua, warned in recent days that the seven reservoirs that make up the Cutzamala System, which supplies 24% of the Mexican capital were at dangerously low levels. (Over 70% is supplied by ground water, and the reservoirs are the sole source of water for 10 municipalities on the city’s outskirts.) Conagua, in response, plans to reduce the water flowing from Cutzamala’s dams in the southwestern state of Michoacan to 13 municipalities of Greater Mexico City by between up to 10% during the weekdays to 50% on the weekends; the goals is to reduce water use by 6.7 million m3/month, representing 3.5% of consumption. The 20 million residents of the giant metropolis were already hit with partial stoppages earlier this year, including a cutoff in April that affected roughly a quarter of Mexico City’s population.

Although the city’s mayor blames the crisis on global warming, demographics and ill-conceived management have played a far greater role in the local crisis – one that is now far too severe for temporary austerity measures to solve. The inhabitants of Mexico use on average 300 liters per day, roughly double that used in some water-conserving cities of Europe. Because the population is growing by 4% annually, water demand is expected to jump by 20% in the next four years to five years. The problem is further compounded by a self-reinforcing water withdrawal/leak cycle. Overdrawing groundwater has led to the land’s surface dropping by 10 centimeters per year. This causes the water distribution system to crack, which in turn has led to the loss of more than 40% of the water from water mains, yielding an equivalent demand for more groundwater.

The self-reinforcing nature of the problem makes it one that is particularly challenging and expensive to solve. Although the citizens of the city use a lot of water, nearly half of the “consumption” is in the form of leaks, so water restrictions on end use will be doubly painful. Those same leaks will also blunt the efficacy of water recycling. And because water withdrawal causes stresses that result in leaks, a slow piecemeal effort to replace pipes will not work. It seems that the only solution is to replace the entire distribution system within a few years; however, the Mexico City government has only allocated 770 million pesos ($57.8 million) to substitute water networks and capture systems and fix leaky pipes – a number orders of magnitude smaller than what’s required to rectify the problem. Given the political finger-pointing and token responses seen to date, it unfortunately seems unlikely that the needed investment will materialize. The city may very well have reached a tipping point where its only future is one of depopulation and decline.