Monday, May 23, 2011

Impressions from LightFair 2011

Attended LightFair last week and had the opportunity to spend some time with portfolio company Bridgelux as well as walk the floor.

Some takeaways below:
  • LightFair might as well have been called LEDFair. About 90% of the floor space at the Philly convention center was dedicated to LEDs ("solid state lighting") - despite the fact that LEDs still account for a minuscule percentage of lighting sales. This was certainly not the case 5 years ago. Conventions can tend to be leading indicators, but the question is whether adoption of solid state lighting is 2 years or 10 years out.
  • Did not see a lot of differentiation among the various lighting controls companies. I would love to see a compelling business model in lighting controls, but as it stands today, the paybacks are still too long (3-5 years), sales cycle is difficult, and there are a lot of companies doing a lot of the same things. Some exceptions here are Digital Lumens, which focuses on the industrial/warehouse market and Encellium, which has some really cool 3-D visualization tools. I suspect this space will become commoditized as fixture companies begin to embedd zigbee chips onto individual lights themselves - which we're already seeing with the Lighting Science / Google announcement.
  • Nichia showed off a 6" inch GaN on silicon wafer. Today, LEDs are typically built on 2" wafers, but there are great cost advantages in moving up to larger wafer sizes (increasing your batch size and therefore, throughput). We expect the industry to move to 6", which is standard in solar in semiconductor industries, which should help to further bring lighting costs down.
  • There sure are a lot of fixture companies. The fragmentation in the downstream part of the industry is incredible. It will be interesting to see how companies here differentiate themselves, and how non-China companies are able to compete. One company that stood out was Switch - a Vantage Point portfolio company with a $20 liquid cooled incandescent replacement.
All in, a good trip (although my retina is still recovering from staring at lights all day). Until next year....

Wednesday, May 18, 2011

The Coming Adoption Wave in Lighting

As I slowly make my way to Philly on the Amtrak to attend Lightfair, I am bemused by how little has changed in lighting and train travel in the last 100 years. In many ways, these two industries are a paradox of the modern age. You'd be hard press to name many other major industries that haven't seen some sort of technology revolution in the last century - just think of how much has changed in communications, aviation, or computing, to name a few.

By contrast, today,
50% of the light sockets in the world are still made up of incandescent bulbs - a technology that was commercialized in the late 1800s. While there has been innovation along the way, nothing has fundamentally transformed lighting since people figured out how to produce long-lasting filaments in vacuum bottles.

Lighting is a $70 billion industry, and if the press releases going into LightFair are any indications - folks are quite excited about the potential of LEDs to be a killer app in this space. At Novus, we have a strong investment thesis around solid state lighting and believe that the industry is on the cusp of a major adoption wave.

So why do cleantech guys care about this space? By way of comparison, an LED can provide the same illumination for 1/5th the power today and last 50 times as long as an incandescent bulb. This is important since lighting accounts for 25% of global electricity use. The problem, however, is that LEDs have been too expensive. A year ago an LED bulb may have cost $50-80 at Home Depot (if you could even find one). This week Philips and a few others have announced $20 bulbs. The adoption wave in CFLs showed that a $10 price point was a tipping point for mass adoption.
At Novus we are invested in Bridgelux, and they have stated publicly that a $10 bulb is within reach in the next 1-2 years. Materials science and packaging advancements are driving performance improvements, while the demand surge of LEDs for LCD televisions has brought large scale to the industry and helped reduced costs dramatically.

We've seen LEDs make their way into traffic lights, street lights and automobile headlamps, but not the larger general illumination markets. At least - not yet.
So what happens if (or when) solid state lighting takes off?

There will certainly be opportunities to make and lose a lot of money; and we can look at how the solar industry evolved as a guide for what may happen:
  • Asian manufacturers will dominate and commoditize the industry - driving down costs further, shrinking margins and killing anyone with high cost structures
  • There will be a huge opportunity in the downstream space (lighting service companies, networked lighting, lighting demand response)
  • Shortages in raw materials such as phosphors, indium and sapphire
  • Capacity overbuilds leading to dramatic booms and busts for equipment makers
It's going to an interesting next couple of years. But tomorrow, I will just enjoy walking the floor and seeing some cool lights.

Thursday, May 5, 2011

The Value of Offsites

Since founding Novus, the Partners have made Quarterly Offsites one of the cornerstones of how we work together. Once a quarter, our cross-Atlantic team gets together under one roof and spends day-long sessions reviewing each portfolio company in detail, providing sector updates, and discussing or adjusting the overall investment strategy of the Fund.

These meetings are sometimes conducted over a weekend of skiing, hiking or other outdoors activities (half of our team is Norwegian, and they love their outdoors), and also give us an opportunity to spend time together outside of the office. My girlfriend jokingly calls these my "Man Retreats", and although they can sound like a boondoggle, I am always amazed at how productive and valuable they can be.

I find that so many of my days are spent just keeping up with the momentum of the work week - going from one conference call to the next, one meeting to the next, one email to the next. There are days when email takes up an entire morning (As an aside, it is my firm belief that as a work culture, we are over-emailing. Too much cc'ing, replying all, and having long conversations that should be had over the phone). I imagine this is felt by many out there. While offsites are not a cure-all, I have found them to be a good opportunity to step back and discuss issues at a high level; get feedback and input from people you don't usually interact with; and get everyone on the same page as to what we should all be focusing on.

It is one of the best practices we have established here at Novus and I encourage any of you to try to implement them in your organization.

Tuesday, May 3, 2011

Cleantech: The next generation

Over the last 10 years the primary focus in cleantech has been on solving very difficult engineering and science problems, with the goal of bringing down the cost of solar, lighting, batteries and electric vehicles. In many respects, those efforts have yielded unprecedented results. Consider the example in solar, where technologies are nearing maturity. In the last five years, the cost of solar modules has dropped from $4.50 per Watt to $2 per Watt, with a pathway to grid parity by 2015 in some markets, based on further reductions.

During that period, something pretty extraordinary happened in the broader Tech space. The unique confluence of (1) lower storage and computing costs; (2) faster development cycles; (3) profileration of mobile technologies; and (4) rise of cloud computing and social media, resulted in all of us becoming walking supercomputers that generate mountains of data.

So what does that have to do with Cleantech?
As science and engineering solutions reach maturity and cost levels reach a tipping point, there will be a huge opportunity for companies that can leverage technology platforms (online, mobile, social, etc) to enable and accelerate mass adoption of renewables.

Folks have called this Digital Energy, Cleantech 2.0, Green IT , and many other names. Sunil Paul of Spring Ventures has probably done the best job articulating this general thesis and has called it GreenWeb. (For the record, the term we use at Novus is Green Net)

Green Net business models could include:
  • [Cleantech] as a service (for example "Lighting as a service", "Solar as a service", etc.)
  • Analytical tools to enable managing or developing renewable assets
  • Optimizing existing assets
  • Data analytics engines
  • Social platforms for energy efficiency
  • Innovative financing and leasing
...just to name a few.

Many companies are already hard at work in this space. Just recently, I've come across a number of interesting examples such as Solar Mosaic, which crowd funds solar development; Green Wizard, which serves as a market place and analytics tool for LEED construction; Geostellar, which has a geodata platform for solar developers; and Automatiks, which has a telematiks platform for electric vehicles. (I should note that Novus is not invested in any of these companies).

There has been a lot of commentary lately of generalist venture capital funds having been burned by cleantech investments, and leaving the space altogether to focus on their core sectors. While this is understandable (and probably rational given what's going on in the broader tech market), my belief is that we are about to enter a pretty extraordinary period in cleantech, and Green Net businesses will have a big role to play.

Only time will tell.