Moving Ideas
Las-Vegas-Lights
Jan 142013

Growing Sustainable

The end of the human race will be that it will eventually die of civilization.
— Ralph Waldo Emerson

I remember like yesterday coming to LA in 2003 and being somewhat shocked about the extremely aggressive use of energy in this country. It struck me that UCLA’s sports fields were fully lit late at night when no one had stepped on them for hours. Or going to Las Vegas the first time and thinking that “Sin City” was probably using as much energy as my home country Bulgaria… (I checked, and it’s not quite the same, but still worth the thought).

I’m not trying to say aggressive consumerism is bad, and I do understand the principles of capitalism and economics well. But it does make me think that we are running into a growing problem. A powerful country like the U.S. also pays a price for its growth, and energy and sustainability are on the very top of that list.

I’m not trying to say aggressive consumerism is bad, and I do understand the principles of capitalism and economics well. But it does make me think that we are running into a growing problem. A powerful country like the U.S. also pays a price for its growth, and energy and sustainability are on the very top of that list.

By looking at other emerging countries that are striving to be global powers (China, India, Indonesia, Brazil, etc.) makes it obvious that Sustainability problems will continue to multiply going forward. Just consider this — today there are 7 billion people on the planet, with 3 billion living in emerging countries and 1 billion living the “American life style” — those with highest energy consumption per capita having TVs, PCs, laptops, phones, tablets, cars, etc. Looking forward to 2030, expectations are that there will be close to 9 billion people in the World, 5 billion of those will be in emerging countries and 3 billion will be living the “American life style”!!

So while population growth during the next two decades will increase ~29%, energy demand will actually increase by 3x!! Given existing energy resources, it is highly unlikely that we will have sufficient energy supply as we get closer to 2030. Moreover, heavy dependence on “dirty” fuels like oil and coal increase the problem of damaging our environment and cannot be the right solution long-term.

The Unsustainable Equation:
Urbanization + Population Growth + American-style Energy Consumption
=
Enormous Global Problem

As many of you know, Sustainability has been a key focus for us at GSV. We believe it’s a critical time to dive into the clean-tech sector, as we are starting to see fundamentally strong businesses in many sub-sectors. We also think there are several companies now tackling sustainability problems in meaningful ways.

With oil prices basically flat compared to six years ago but energy consumption growing by 25%, there is a widening gap in that equation. Looking at a longer period of time, oil prices are up 130% since 1990, while energy consumption is up 52%. This implies two things: 1) we’ve largely failed to focus on alternative energy and have continued to push up demand for oil; 2) oil prices will likely accelerate near term as global growth and diminishing supply will push the equilibrium.

We look at Sustainability as a combination of multiple investment areas that include Clean-tech, Blue-tech, and other segments where a company’s value proposition is driven by Sustainability. While Solar, Wind, Nuclear are some obvious ones, Transportation Apps, Internet of Things, or Sustainable Living are themes that are not evident yet.

The Internet Of Things

A theme we like which fits our Sustainability focus is The Internet of Things. By giving intelligence to “dumb” devices, we are embedding new functionalities to existing hardware, and in-turn, we tackle environmental problems. Think about water/electricity meters, thermostats, electronic systems in cars… adding Internet connectivity to any of those devices results in more intelligent energy use and better logistics. What if all devices were connected to your iPhone? Your Weather Channel app could communicate to the thermostat at home that tonight’s temperatures will drop sharply below zero, enabling it to turn on the heater by using the solar energy that was collected during the day. It can also communicate the data to the electricity provider so that you can adjust your current energy consumption in the most efficient way, and your car will also get the update and will self-drive to the gas station to refill its anti-freeze fluid… all happening while you are at work.

Self-flying drones are another interesting area. They are light, can be self-charging (solar potentially) and smart when connected to the Internet. Such drones could have multiple uses beyond bombing bad guys — for example for delivery purposes: FedEx packages, Dominos pizza delivery, purchases on Amazon… transportation of physical goods in general. Think about how much energy and CO2 emissions this could save when eliminating current methods of delivery.

The smart grid is certainly an area that is already seeing strong growth, with some of the larger cap companies focusing on that area. IPO aspirant Silver Spring Networks was the pioneer for real-time smart grid and is clearly among the leaders today. Startup Nest is seeing its popular self-learning thermostat sell extremely well and was a top item on many people’s Christmas list. Control4 improves energy efficiency by adding intelligent control to consumer electronics at home. Our focus list in this space is growing and includes several companies with strong fundamentals and upside potential. (Disclosure: GSV owns shares of Silver Spring Networks and Control4.)

Tackling Transportation Problems

Today, fossil fuels account for 80% of global energy consumption, oil accounts for 36%, and renewable energy is a mere 16%. Transportation is almost entirely driven by oil consumption, hence there is a strong opportunity in this area. While technology is improving transportation efficiencies already, we are excited about some of the emerging themes such as the Internet of Things, Transportation Apps, and Self-Driving Cars to name a few.

Electric cars are continuing to gain attention, and if you live in Silicon Valley you would think they are actually mainstream. Unfortunately, that’s not the case in the rest of the World…yet. Elon Musk’s Tesla was the pioneer in 100% electric vehicles and started selling its second generation Tesla S earlier last year. The sedan is the envy of every CEO in Silicon Valley and the waiting list is long. Fisker Automotive had high aspirations and was hyped by many insiders, but multiple mishaps and a poor management team have kept the company in jeopardy until today. Better Place Energy with its battery swiping stations was considered one of the most innovative businesses four years ago, and its star CEO Shai Aggasi was viewed as a rising superstar. Today however, Better Place is at a Worse Place and saw its valuation drop from $2.25 billion to significantly lower levels.

Meanwhile, local entrepreneurs across the globe have created smart new products like Zipcar (recently sold to Avis) in the U.S. or Autolib in Paris. Similar to the rent-biking service that gained huge popularity in Paris, Autolib’s electric cars are parked at multiple locations in central Paris and people can rent, drive, and drop them off at assigned charging station… all for a reasonable monthly fee.

I think we are now entering a new Era where ground transportation (cars) will be driven by improving intelligence, and sharing/renting will play a major role. This week at CES, car makers Audi and Toyota announced they will be rolling out new features such as self-parking and self-driving at low speeds. The trend was started by Google with its self-driving cars a few years ago and is soon going to be mainstream. It will make a lot of sense to have your car drop you off at a busy shopping mall and then park itself… At the same time, apps such as Waze (traffic overview), Uber (car service), HailO (Taxi finder) are starting to gain increasing popularity and help people move from point A to point B more efficiently. Car sharing apps like Avego, ZimRide, Cozy, Looptivity are also bubblin up and helping people find better solutions for their commute. Streetline and Parku are startups that help users find free parking spots in busy cities via their apps.

Combining the ideas of self-driving vehicles, apps, and Siri-like features makes me think that the future of ground transportation will have cars without drivers, most people will take rides on someone else’s car, and the car will chose its own route based on real-time traffic updates from Waze-like apps… an interesting thought and one that will tackle several environmental problems.

Moving on to long-distance transportation, air travel is obviously the most time-efficient way of travel today. The problem with jets is their enormous amount of carbon emission. While aviation is still a small chunk of global air pollution, accounting for less than 10%, it continues to grow at improving rates (~3%) due to Globalization trends. Additionally, it is hard to imagine that air travel won’t continue to grow during the next decades.

So while it’s nice to go half way around the world in something like 12 hours, we humans are easy to get spoiled and we always look for better and faster solutions (see a very funny video). It’s interesting to look at the new ideas out there and how some of them might soon become reality. Obviously, bullet trains make a lot of sense for short- and mid-distance travel. Europe and Asia are good examples… taking the train from central Paris to central London takes 1h40mins, which is almost the same time it takes to get to the airport in both cities. Having a bullet train between LA and SF will definitely have a positive long-term impact on the environment as it will reduce the hourly flights between the two cities and the millions of cars on Highway 5 and 101 every year. Elon Musk is currently looking into a high-speed train idea that he calls “the Hyperloop.” The train would travel twice the speed of air planes, it will be solar-powered, tickets would cost less than plane tickets, and you would go from downtown LA to downtown SF in 30 mins…

Regarding long-distance travel, there is a very interesting idea of the Transatlantic Maglev train, which would be going from London to NYC in just 55 minutes!!! How?? The idea is to create a vacuum sealed tunnel going across the Atlantic Ocean, and enabling a bullet train to travel at speeds of 4,000 mph! Being isolated in vacuum, it will be able to eliminate the problem of friction and air drag, which will allow for such high speeds… and this is very real! The tunnel will need to be submerged 150-300 feet below the surface and would be anchored to the ocean floor. Aside from the cost question, plate tectonics, wales, and submarines are some other issues that experts are tackling as we speak. Being an optimist, I think there is real potential that we could have such trains connecting continents in the next 10-15 years. Billionaire Richard Branson is among the people interested and looking into the project…

Solar

Another key focus area we look at is Solar energy. Solar companies have gone through a rough 5-year period after oil prices topped at $147 and fell from the cliff in late 2008. Since then, there were many headwinds: cheaper oil, a global financial crisis, PV supply starting to exceed demand due to falling prices of solar panels while demand was mediocre, politicians ignoring clean energy, and investors’ pessimism. Still, in 2013, reports from different research firms expect 70% of existing solar firms to close doors in 2013. While this is quite possible, we look at the developments as similar to what happened post the Internet bubble in the early 2000s…

As you recall, the Solar sector saw its valuations skyrocket in 2006 and 2007 until that bubble bursted. Today we are at a point where irrelevant businesses with weak fundamentals are being wiped out, meanwhile a few companies that have good underlaying fundamentals are starting to outperform. Simultaneously, new innovative startups with more robust business models and stronger fundamentals are emerging on the landscape… very similar to what happened with Internet companies post 2003-2004.

Looking forward, we believe solar is now undergoing its renaissance and will emerge as a major energy source for businesses and commercial properties. Recent IPO SolarCity which sells solar systems, saw its stock surge 96% since going public and is trading at 9.5x P/S. Most recently, SCTY raised its 2013 guidance and expects to deploy 250 MW, which will be a strong 60%+ growth rate for a solar company. Similarly, thin-film leader First Solar saw its stock nearly triple since June 2012 as growth seems to be picking up. SunPower is another leader in the solar industry and saw its shares jump 50% last week on the news that Warren Buffett’s Berkshire Hathaway is buying two projects (579 MW) in California worth $2.5 billion. Bubblin up from the bottom are new companies like Solexel for example, which wants to disrupt the solar space by providing significantly cheaper and more efficient solar panels in comparison to its peers. Enphase, which is the leading designer for micro-inverter systems for solar panels is also seeing nice growth in the 50%+ levels. (Disclosure: GSV owns shares in SolarCity and Solexel.).

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.

Up next week, we will have part two where we will look at Wind, Water, Power, Pollution,  Storage and Sustainable Living.

———-

Last week, stocks continued their positive momentum with NASDAQ up 0.8%, the S&P 500 up 0.4%, and the Dow up 0.4%. NASDAQ is already up 3.5% for the new year. The 10-year note yield fell slightly to 1.89%.

 

Something that caught our attention were the $18.3 billion of inflows into equity mutual funds. This is the largest weekly inflow since March 16th, 2011.

We are encouraged by the positive price action of leading growth companies and believe this is sustainable given fundamentals, valuations and surging cash flows into equity mutual funds.

———-

Bubblin…
From Luben

In sync with this weeks theme, smart parking network startup Streetline raised $25 million in a Series C led by True Ventures, Qualcomm Ventures, and Citi. Previous investors include Sutter Hill, Fontinalis, and Ford’s Chairman Bill Ford. Streetline, which operates in 30 cities today, installs wireless sensors in urban parking lots and communicates how many cars and where they are parked to the city governments. It costs $200 to install a device, and the pay back is fairly quick. The company also works with private parking garages via its ParkEdge app, and it also has an app for smartphone users that provides real-time data on available parking spots, pricings, and special offers in downtown areas. Given that an estimated 1/3rd of city driving time in the U.S. is wasted on finding parking, Streetline is a disruptive and efficiency providing product.

Moving into the digital cloud… ScaleArc is a company that aims to improve database efficiency. Its technology sits between the customer’s SQL database and applications, and enhances performance to better levels than by just using MySQL, Oracle Database or Microsoft SQL Server. The product does several things such as load-balancing, caching, SQL analytics and real-time dashboards. Last week they announced a $12.3 million Series C investment led by Accel, Trinity and Nexus. With the cloud computing space continuing to explode, we believe there is strong near-term opportunity for innovative businesses like a ScaleArc. We are adding them on our focus list.

The top news for the week was FireEye surging into the billion dollar club after receiving a $50 million financing at a $1.25 billion valuation from a strong group of VCs including Sequoia, Norwest, Juniper, Silicon Valley Bank and CIA’s In-Q-Tel. FireEye solves two major problems in the cyber space — it effectively tackles so-called “Zero Day Attacks” and “Advanced Persistent Threats”. Zero Day Attacks target holes in a software that the user doesn’t know exist, while APT is a series of organized attacks by hackers who want to enter into a network. FireEye solution is a combination of hardware and software and runs analysis on any suspicious content in a network, for a friction of a second. CEO Dave DeWalt was previously the CEO at McAfee, where he was able to turn the company around and sold it successfully to Intel. With $100 million in current revenue run-rate and 100%+ growth, FireEye is a great company to watch for, and it is moving high in our priority list.

Categories

Sign up for email updates

Subscribe to receive periodic emails with new
blog entries and commentary from GSV.

x

Contact Us

Mailing Address:

GSV Capital Corp.
The Pioneer Building
2925 Woodside Road
Woodside, CA 94062
USA

For Investor Relations inquiries,
click here.

*
*
*
* Required

Your information has been submitted and we will be in touch with you shortly.

Thank you

Return to the GSV Homepage