New energy in venture capital

Electric Perspectives, Nov/Dec 2000 by Frankel, Adele

* essential.com, the first e-commerce energy and communications superstore, offering electricity, natural gas, telephone, wireless, and Internet access services to home and small-- business consumers.

For its part, Avista Ventures hopes that its investments in technology funds will provide a pipeline for future investment opportunities and help supplement business deal flow for direct or co-investments. "These investments give us a better toehold in the venture economic world by affording us the chance to communicate with other knowledgeable buyers, brokers, and incubators and find the best start-up companies out there," says Avista's Cahill.

Another example is Nth Power Technologies, a venture capital firm that focuses solely on companies in the energy field that are on the threshold of introducing commercial products. The firm makes five to seven investments annually that are generally between $500,000 and $2 million, but the company is willing to commit up to $4 million over time. When it closed its first fund in 1996, it brought in more than $63 million, and most of its investors were utility companies, among them: Alliant Energy Avistar (a subsidiary of Public Service of New Mexico), CapiTech (Hydro-Quebec), Cinergy, CH Energy Group (Central Hudson Gas & Electric), CNE VentureTech (Connecticut Energy), Electricite de France, FirstEnergy, PacifiCorp, Pacific Venture Capital, and Sierra Pacific Power.

Nth Power concentrates on companies in information technology, distributed generation and storage, power quality communications, Internet-enabled e-commerce, end-use consumer products, distribution automation, and outsourcing of business services. Some of the companies that have benefited from Nth Power investments are Capstone, Metallic Power (a zinc-- air fuel cell manufacturer), Evergreen Solar (a photovoltaic module manufacturer), Proton Energy Systems (a PEM fuel cell and hydrogen reformer manufacturer), Inari (providing technology for Internet connections through power lines), Electronic Power Conditioning (providing power quality equipment), and Pentech Energy Solutions (HVAC management).

By next year, Nth Power plans to close a new energy fund, capitalized in the $75-million-to-- $100-million range.

Several other funds are making energy-related companies their targets Arete Ventures, Kinetic Ventures, Insight Capital Partners, and Battery Ventures are just a few of them. Many of these are investing in alternative energy companies. (See Table 1.)

Venture capital in the energy industry still raises a few eyebrows-are utility companies savvy enough to work that capital and generate profits comparable to venture capital funding in other areas? Avista's Cahill isn't worried about squandering the parent company's money: "We invest in solid companies that develop unique strategies and offer tangible solutions for our businesses that are growing internally."

And though venture capital may be in the nascent stages for utility companies, it gives them not only technology that aids their companies, but also an entree into the technology business, along with (everyone hopes) the revenue stream that technology companies are enjoying.