Moving Ideas
WALL-E
Jan 282013

Growing Sustainable, Part 2

Since 1990, global population growth has been ~29%. During the same period, average energy use per person has increased by 10%. So net-net, energy consumption has actually gone up 42%… What’s worrying is that the rise of the Internet and our computer-driven lifestyle are also kicking in globally and will add aggressively to the trend in the next decades.

The need for better, faster, and cheaper energy, and the associated problems and opportunities in cleantech is what we are focused on… and wrote about in our last issue on January 13th. In Growing Sustainable, Part Two, we are looking at Wind, Storage, Alternative Power, Pollution, Light and Lifestyle.

Wind energy accounted for 6% of US’s total energy in 2012, with 13.2GW installed — 5.5GW in December alone. Globally, wind accounts for even less but it is projected to go to 15-20% by 2030. Similar to solar, wind is an abundant resource and it’s ~100% clean. On the flip side, it’s not easy to install, wind farms have large footprints and need to be built away from rural areas. What’s critical for wind in order to gain broader adoption is a better cost structure and simpler installation methods.

But we are beginning to see ground braking technologies that are potentially very disruptive. Kleiner Perkins-backed FloDesign Wind, which is a spinoff of aerospace company FloDesign, is impressive and promising… Its turbines are quite different compared to traditional ones, as they are much smaller, lighter, more efficient and easier to transport and install. And they can be placed much closer to rural areas. Its jet engine-like turbine has two sets of blades — the first one is fixed and redirects the wind onto a second set of blades that are moving. The wind spins the rotor and as it comes out on the other side, it meets with slower moving wind from the outside and creates a rapid mixing vortex… The end result is 3-4x more efficient output compared to traditional wind turbines. See the visual description — it’s impressive.

Wind is also starting to play an increasing role in architecture. The Da Vinci Tower in Dubai (still in pre-construction phase) is such an example, and it will have self rotating floors, it will be aerodynamic in design and will be able to use wind flows to generate energy. Smart design will play a critical role for any large constructions in the future as it improves energy generation by multiples.

Next to Solar and Wind, Geothermal energy is also an abundant resource that could easily cover all Global energy needs. One of its advantages is that it provides continuos energy flow, regardless of sunshine or wind speed. But accessing that type of energy has been limited and costly. Historically, it’s been isolated by location and only available at hot springs where it could be used for bathing and heating. Today, most Geothermal energy is found at naturally occurring Geothermal reservoirs, usually at boarders of tectonic plates.

But things are changing… AltaRock Energy, a startup backed by top VCs Kleiner Perkins, Khosla Ventures, and Paul Allen’s investment firm, has found a new way of creating geothermal sources of power where none were naturally occurring. The technology drills wells deep in the Earth, pumps cold water inside the hot rock, and causes a geothermal reaction. Last week, AltaRock made a breakthrough and reached a milestone by creating multiple, stimulated geothermal areas from a single drilled well. This is a first real sign that the technology can be commercialized and enhanced. Similar to solar energy years ago, it will be a matter of time and cost until geothermal energy reaches broader adoption.

An MIT study a few years ago suggest that enhanced Geothermal system technology could generate as much as 100GW of electricity by 2050 — the equivalent of power produced by 100 large coal plants. I believe that the actual result will be much higher and will be driven by technological innovation and more efficient cost structures in generating geothermal energy.

If you’ve ever been to Beijing, Delhi or Jakarta, you’d be more aware about pollution than most people in the World. These cities deal with massive Air and Land Pollution. Motorcyclists in Jakarta wear scarfs and gloves at 85 degree weather to protect their skin. Air pollution in China’s megapolis is particularly bad and some companies are exploring ideas of firing rockets that would detonate in the sky and release chemicals to clean the air.

Just last week, Beijing measured its worst levels of air pollution in history. The exceptionally cold winter caused increased coal burning, and led readings to move from “beyond index” to “hazardous.” The smallest, most dangerous particles are the PM2.5, which are 2.5 microns or less in diameter and are the ones that can enter directly inside lungs and blood stream. The World Health Organization says 25 micrograms (of those particles) per cubic meter is an acceptable level… in Beijing the index is at 1,000 now!!! Not surprisingly, data services on hourly air quality updates are among the most “popular” sites in China.

With population growth being strongest in less developed countries, we will see growing pollution problems in the years to come, and the need for smart solutions will grow substantially. Whether it’s improvement in education, better awareness, reduced CO2 emissions, better water and air filtration, better waste logistics, or less energy consumption per capita, all areas will be driven by smart technologies that will improving the way we select and use our resources.

Lighting is an area that is about to undergo a massive transformation, going from traditional lightbulbs to much more efficient LED lights. In 2011, LEDs were just about 3% of the US residential market, but estimates point to at least a 10x increase to ~370 million shipments in 2016, bringing it closer to 20% of the overall market. While LED bulbs cost 10x traditional ones today, they also last that much longer. But if you account for the energy saved and for inflation, the net effect clearly speaks for LEDs. Additionally, LEDs cost will be coming down significantly over the next years, and we  are already seeing large retailers like Home Depot and Lowes selling them aggressively.

One of our portfolio companies, Totus Solutions, combines LED lights with security technology by adding multi-app functionality to street lights… just like adding apps to the iPhone. Aside from improving light efficiency on streets and parking lots, Totus’s lights can monitor street activity with installed 360 cameras, have motion control sensors, serve as a WIFI hotspots, measure radiation and temperature, etc. See their video here. Totus has a strong potential to disrupt the Thief industry, among other things. (Disclosure: GSV owns shares in Totus Solutions.)

Energy Storage has been called the “holy grail” of sustainable energy. Companies and investors alike understand that the biggest drawback for most forms of renewable energy (outside of nuclear and geothermal) is intermittency — the Sun doesn’t always shine and the wind doesn’t always blow. More problematic is the fact that we face periods of peak electricity and energy demand when renewable energy isn’t at peak generation.

Suffice it to say, reliable and affordable grid-level energy storage would change the economic dynamic of the entire energy industry.

Today, the dominant form of energy storage is pumped-storage hydropower (PSH) which involves using energy to pump water upward and against gravity. When energy is needed, the water flows back down and generates electricity by pushing a turbine. The second more prevalent method is compressed-air energy storage (CAES). But all told, the current forms of grid-level storage adds up to a very small amount of the total energy consumed.

The form of energy storage that the public mostly thinks of is batteries. Batteries are quite an old technology, invented in 1800 by Professor Alessandro Volta. And while the technology has improved continuously and is a $50 billion market today, applying it to the electricity grid has been minimal given its inability to scale up to higher storage capacities. This means disruption must come from new ideas that haven’t been explored yet.

The good news is that big problems attracts big thinkers, and here comes a fresh group of entrepreneurs, armed with new technology and processes that they believe will disrupt the world of storage.

A company that’s captured headlines recently is LightSail Energy, which raised $37 million from Bill Gates, Peter Thiel, Khosla Ventures, and Innovacorp, among others. LightSail is a compressed-air energy storage company with an important innovation — It uses a warm water spray to capture the heat energy in a compression process so that it can provide that energy, normally lost in prior generations of CAES technology, during the expansion process.

Using this technology, LightSail aims to create successive generations of storage systems that can outcompete diesel and gas plants. An economically competitive  storage system will likely drive massive adoption of renewable energy worldwide.

An up-and-coming startup taking a different, software-only approach is GELI, a SF-based digital cleantech company working on creating an operating system for controlling batteries, inverters, and other power electronics.

GELI believes that it has cracked the code for energy storage economics. The GELI EOS is a flexible command and control operating system with financial optimization and sophisticated cloud-based analytics. GELI licenses its software to OEMs, energy finance companies, and solution providers so they can integrate energy storage into their solutions for micro-grids, smart buildings, renewable energy installations, and electric vehicle infrastructure.

The company is also launching developer tools to make Energy Apps and Energy Drivers. GELI will invite other companies to create useful energy applications on top of its EOS. Think of it as the iOS or Android ecosystem for energy.

While there are more established businesses, both later stage privately-backed and public companies, there are also a number of new entrants that are beginning to prove their game-changing technologies.

The gap between the available energy storage systems and the total amount of energy we actually use remains large. Because we are far away from a real solution, improving existing technology isn’t the right way to go. The innovators may come from new battery categories, different than those that are increasing the efficiency of existing solutions… so we are keeping a close eye on true breakthroughs!

Lastly, but mostly important — Sustainability is also Healthy Living. While malnutrition is a big problem in underdeveloped countries, bad diets and lack of physical activities are a growing problem in the developed world. With the emergence of the Internet, we live in a computer centric world. The majority of jobs are office-based and don’t require much physical activity. Kids are exposed to computer games at early ages, and that just adds to the problem. Combining these trends with worsening eating habits creates even more trouble. While it might be good business for doctors, biotech and health care companies, it is an issue with negative effects on us.

In Pixar’s blockbuster WALL·E, humans of the distant future are portrayed as more or less physically disabled. Everyone is laying on a floating chair and communicates with his peers electronically, regardless if the other person is just inches away (see video). While we are nowhere close to be like that today, it is worrying to think about the possibility. Also, the “fact” that many sci-fi movies come true eventually, is disturbing.

Back to 2013, there is a broad range of products and services focused on improving our lifestyle. The obvious ones are those who simply want us to exercise more and to keep us physically active — they are the traditional sportswear companies. A new breed of tech-driven startups has now entered the field by introducing health measurement devices. Jawbone with its UP wristband was among the first ones to do that. Nike quickly followed and developed its NikeFuel wristband, in addition to the already popular Nike shoes with chips and the accompanying iPhone app. These devices keep us aware of our daily activity and serve as motivators for us to stay active.

Organic food chains like Whole Foods and The Fresh Market have become omni-present. Modern fitness center chains are bubblin up in ever more places. Yoga has been a rising trend in the past 5-10 years, gaining enormous popularity worldwide. And so has Lululemon, the yoga-inspired sportswear company from Vancouver, and one of the best growth stocks, today a $10 billion business with $1.3 billion in revenue. (Disclosure: GSV owns Lululemon shares.)

It’s evident that the combination of technology and communication (mostly Internet) is what’s driving change and disruption across clean-tech. Smart devices will play a large part in solving global problems and are the foundation for any Solar, Wind, Light, or Transportation startup today. Management teams with talented computer engineers and open minded entrepreneurs are a key combination for success.

Some experts see Building Integrated Photovoltaics (BIPV) — solar panels that can be integrated directly into walls, roofs, etc., to increase by 5x in the next 5 years to 2.3 GW. This makes sense as Solar is essentially at grid parity today and its cost structure and efficiency will continue to improve.

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The Market was whipped around by a flurry of earnings reports last week with most stocks finishing higher. For the week, the Dow advanced 1.8%, the S&P 500 was up 1.1% and NASDAQ was up 0.5%. The 10-Year Note Yield is approaching 2% and ended Friday at 1.98%.

Apple‘s earnings announcement disappointed investors despite selling nearly 50 million iPhones and achieving 18% revenue growth. APPL shares were down 12% for the week and are off nearly 40% since September. With Apple’s drop, Exxon Mobil once again took claim to be the largest market cap company in the World.

On a more positive note, Netflix’s earnings popped NFLX shares 71% for the week, and Google‘s strong results catalyzed GOOG shares to finish up 7% for the week.

Stocks in general, and in particular growth stocks, are acting well. We continue to focus on investing in shares of Companies with the most powerful growth potential that are selling at prices we think are compelling.  We are seeing a lot of happy hunting.

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Bubblin…
From Luben

A new billion dollar business bubblin up every week… at least in our focus list currently. The newest entrant is SurveyMonkey, which raised $800 million in debt and equity, valuing the company at $1.3 billion. Tiger Global and Google Ventures are joining existing investors Spectrum Equity and Bain Capital. Based in Palo Alto, CA, SurveyMonkey has been the leader in online surveys and is now a profitable business.  Its unique visitors have grown from 20 million in 2009 to 60 million today. The new capital will enable some of the earlier investors and employees to get liquidity as there are no real IPO plans at this point.

Vine, the video app maker recently acquired by Twitter, launched its new app which is very slick and cool. It lets users take a 6-seconds short clip (can be straight or a compilation) on their phone and share it directly on Twitter. Taking the clip is super simple, just by holding a finger on the screen… When setting up Vine, users have the option to connect with their Twitter, Facebook and phone contacts on Vine’s platform. Not surprisingly though, Facebook was quick to react and banned access to its platform in less than 24 hours post release.

AppDynamics, a next generation Application Development Platform, announced a new round of funding led by IVP and existing investors Kleiner Perkins, Greylock, and Lightspeed. Its focus is to manage web applications that are dynamic in nature and are fueled by Cloud, Big Data and Agile Development. They currently monitor 51 billion app transactions per day of customers like Cornell University, Edmunds.com, ExactTarget, Glassdoor.com, Overstock, Priceline, Roku, StubHub, Staples, Taleo, and TiVo. AppDynamics’ success is visible and supported by its 300% revenue CAGR in the last two year. We’ve been focused on emerging cloud/data businesses and AppDynamics is one that goes up high on our list.

Shopkick, which is one of Kleiner Perkin’s initial iFund companies, announced it had its first profitable quarter. Shopkick’s in-store hardware recognizes an incoming customer and sends deals to the user’s app. When a user redeem a deal, Shopkick  shares the information with the merchants. The network has multiple chains signed up including some big names like American Eagle Outfitters, Best Buy, Crate and Barrel, ExxonMobil, Macy’s, MasterCard, Old Navy, The Sports Authority, Target, Toys“R”Us and also brands like Visa, P&G, Kraft Foods, and Unilever. In 2012, Shopkick helped its merchants to generate over $200 million in revenue and the total number of users is 4 million — up from 1.4 million in May 2011. I think Shopkick is a nice to have service for many merchants as it provides intelligence about the customer and will increase in value as its penetration grows. We are moving it up on our list…

Lynda.com, an education video platform for how-to videos is an impressive and unique company. Founded in 1995 by Bruce Heavin and Lynda Weinman, Lynda had not received any funding to date and managed to grow to $100 million in revenue in 2012, and is profitable (obviously). In 2012, revenue growth was 43% and its library counted more than 83,000 videos, for which it charges $25 per month for full access. In December, Bruce and Lynda hired long-time Adobe executive Frits Habermann as CTO and former Saba Software and Gaia Online executive Elaine Kitagawa as its CFO. Last week, Lynda announced it has decided to grow its business more aggressively and took a $130 million investment from Accel and Spectrum Partners. While there are many similar video platforms that are trying to disrupt the education space, the numbers speak for themselves and Lynda is certainly one to follow very closely.

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