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Energy Angels to Fuel Industry by Deirdre Gregg, Staff Writer Puget Sound Business Journal, February 24, 2006

A new angel investment group plans to invest millions in early-stage financing of clean-energy startups in the Northwest.

The Northwest Energy Angel Group, launched by venture capitalist Martin Tobias, state House energy chair Jeff Morris and others, now has 15 angel investors with at least $1 million net worth each, and expects to increase its ranks to 40 or more investors. It appears to be the first in the region to focus on angel investment in energy, including renewable energy and energy efficiency.

While venture capital investment in such energy firms is growing, angel investment still is hard to come by, and the group's organizers aim to bridge that gap.

The investment forum plans to meet six times a year to learn about energy technologies and policies and review presentations from four startups at each meeting. One such startup already landed an investment in mid-January, although the group would not disclose the company name or amount.

For the startups, it means a chance at the early-stage capital they'll need to get off on the right foot. For investors, it's a chance to eventually make money if these companies find financial success in what is now a wide-open field.

"When I look at the next 10 years, the path to the information superhighway is pretty well laid out, but the path is not laid out in energy," said Tobias, a founder of the group.

"As a country, we have severely underinvested in energy, and I think that's a pretty big opportunity for investors," said Tobias, who is also a venture partner with Seattle firm Ignition Partners and chairman and CEO of renewables firm Seattle Biodiesel.

Organizers hope the forum will provide a further boost to the region's clean energy sector, which already is fueled by some Northwest residents' environmental ethic and government and business leaders who see lots of economic development potential in the field.

The formation of the group also is part of a national trend of increased funding in clean energy. In 1999, less than 1 percent of venture capital investing went to clean-energy firms; by 2004 that share had grown to 3.3 percent of total venture funding, with $716 million invested, said Ron Pernick, co-founder and principal of Clean Edge Inc., a clean energy research firm in Portland, Ore., and San Francisco.

The clean-energy investment trend continued its fast pace in 2005, as well. In the third quarter of 2005, $251 million was invested in clean energy, up 32 percent from the second quarter and almost 50 percent from third quarter 2004, according to Ann Arbor, Mich.-based Cleantech Venture Network.

But, at least in the Pacific Northwest, the earliest-stage angel funding has been hard to come by. And nationwide, some of the utilities that once provided the early seed money took a hit in the pocketbook from the Enron fallout and have had less disposable capital to invest in fledgling energy firms.

Still, the rekindled investment appetite in renewable energy reflects broader trends: Energy prices have increased as worldwide demand increases and fossil-fuel supplies become less accessible. While many renewable energy technologies are still more expensive than conventional ones, the costs of renewables have declined steadily and are expected to keep doing so through 2020, according to the National Renewable Energy Laboratory, a program of the Department of Energy.

Back in Washington state, several people were looking for ways of tapping into this industry. Their idea -- form an energy angel group.

"You know that commercial for Reese's Peanut Butter Cups, 'you put your chocolate in my peanut butter?'" said Nate Silverman, manager of the Washington Technology Center's Angel Network. His investors were looking for industry-specific funds, and at the same time, the energy entrepreneurs working with Northwest Energy Technology Collaborative said they needed better access to seed capital.

Jeff Morris, the director of the collaborative, said his group runs an annual venture capital forum and has seen that angel funding was the missing piece of the financing pictures. Once startups get past their initial stage, however, they may be able to get funding from venture capital firms such as San Francisco's Nth Power or Vancouver, B.C.-based Chrysalix Energy.

"One of the fallouts from the Enron debacle was it dried up a lot of traditional capital," said Morris, who is also the chair of the Washington State House of Representatives Energy Committee. "When utilities lost capital, they lost the ability to invest in these companies the way they used to."

Meanwhile, Tobias had a similar idea and approached Morris. Tobias offered to chair the organization, and the Northwest Energy Angel Group was born.

The group first gathered at a lunch meeting on a Thursday in mid-November. More than 30 energy investors and experts crowded into a conference room at law firm Dorsey & Whitney to talk about investing in fledgling energy companies. While clutching sandwiches in one hand and business plans in another, investors listened to start-up companies pitch mini-windmill and energy-efficiency technology. The room was so full that the entrepreneurs had to wait outside in the hall until it was their turn to present.

The investor forum met for the second time in January and plans a third meeting in early March.

The group works on a network model, similar to other early-stage investment groups, such as the Alliance of Angels, Silverman said. Rather that raising a fund, individual investors will write checks to the entrepreneurs they find most promising.

But the group will share expertise and due diligence and help educate each other, Silverman said. For example, at Northwest Energy Angel Group's second meeting, which occurred in January 2006, two attorneys from sponsor Stoel Rives talked about project finance in the energy sector. Future meetings will also try to get investors -- many of whom came from software or telecommunications backgrounds -- up to speed in the new field, Tobias said.

"Maybe we'll all read a book, or we'll talk about policy implications created by the 2005 energy act," Tobias said.

"We'll try to understand public policy and macroeconomic trends, because the issue for someone who wants to invest is it's a completely new set of players and rules, (different) than where they made their money."