DOE invites partners in green technology

The US Department of Energy is more than doubling the number of its national laboratories that are partnering with venture capital firms to bring green energy technologies to market. While DOE is still waiting to see if any new businesses will be spawned by a first round of “entrepreneur-in-residence” agreements initiated earlier this year at three of the labs, the department in November invited venture capital firms to bid for the opportunity to place an EIR in five others. The winning firms will hire an entrepreneur to work at one of the labs for up to a year, looking for renewable energy and energy-saving technologies that are ripe to spin off into commercial businesses.

“The EIR program is fundamentally changing the way we conduct business by helping our innovations reach the marketplace much faster,” Energy Secretary Samuel Bodman said in a statement. Although the EIR has been under way since spring at Sandia and Oak Ridge national laboratories and the National Renewable Energy Laboratory (NREL), a DOE official says it’s too soon to tell if the program has worked as planned. Rather, says the official, who asked not to be identified, the agency thought that a larger sample of labs was needed to adequately judge how well the program will work. Participating venture capital firms say they have made good progress in narrowing down the hundreds of lab inventions to a few spinoff candidates. Still, the process has taken longer than DOE had anticipated when the program got under way. It was expected then that entrepreneurs would need just a few months to find a technology and get the commercialization process going. That pace would have allowed multiple entrepreneurs, and multiple technologies, to leave the labs during the year-long contract.

According to DOE’s 19 November program announcement, the next batch of EIRs will be taking up residence at Argonne, Brookhaven, Lawrence Livermore, Lawrence Berkeley, and Pacific Northwest national laboratories. For the new round, DOE is offering $50 000 to each entrepreneur to help defray salary and other expenses, and the awardees must at least match that amount. DOE’s share is only half the $100 000 the agency agreed to pay each of the three venture capital firms that are already in place. “No one’s doing this for the money,” the DOE official explains, admitting that the award size won’t come close to meeting a firm’s cost to participate. The smaller grant size also means that DOE will get five entrepreneurs for less than the amount it paid for the first three.

Requirements are relaxed

To be eligible, venture capital firms must have a minimum of $5 million in funds available for energy efficiency and renewable energy technology investment, and an overall fund size of at least $50 million. Those levels are half the minimums that first-round participants had to meet. After signing a nondisclosure agreement, the entrepreneurs hired by the selected firms get full access to all the lab’s inventions—except those that require a security clearance. Once a promising technology is identified, the entrepreneur prepares a business plan, assembles a management team, and raises capital for the startup company. DOE and established venture capital firms have negotiated in advance a 17-page agreement spelling out the share of equity, royalties, or both that the lab will receive. The only variable in the agreement is the lab’s share of the equity.

Michael Bauer, the entrepreneur-in-residence at Oak Ridge, says he has waded through some 1500 invention disclosures since April and found five or six that are ready to be spun off in a new venture. “There are a large number of interesting technologies at Oak Ridge, from materials processing to nanotechnology and computational biology to hybrid motors, but there are not that many that fit a startup company,” he said. And few are sufficiently mature to build a company around in a 12-month time frame, he adds. Most lab technologies having commercial potential will require an additional 6 to 12 months of development work before they can attract venture capital, he said. DOE’s Office of Energy Efficiency and Renewable Energy, which runs the EIR program, has provided some funding to mature a number of technologies, generally in the $200 000 to $250 000 range.

Of the half-dozen viable technologies Bauer has brought to the attention of his colleagues at venture investment firm Foundation Capital, one or two may be spun off with the help of venture funding. To qualify for funding, a technology must fit a host of criteria—a multibillion target market, five times or better price-to-performance advantage over competitors, limited customer and supplier concentration, and others. In addition, Bauer says he has identified other technologies that should be of interest to the 50 or more technology companies in Foundation Capital’s investment portfolio.

“Technologies that present a 20–50% improvement over the state of the art may not be able to support a new startup, but can be a great addition to the product portfolio of an established company,” he said.

The EIR program does not preclude other parties from working directly with the lab on commercialization opportunities, but the EIR receives a right of first refusal for up to 180 days to allow for the negotiation of licensing agreements to the one or more inventions that will be needed for a spinoff. The bidders for DOE’s new solicitation, which closes on 6 January, are asked to specify which labs they’d prefer to do business with.

“Planetary emergency”

David Wells, a partner at Kleiner Perkins Caufield & Byers, said the firm was responding to an open solicitation from DOE when it applied last year to place an EIR at NREL. “We are very clear at this firm that we are facing a planetary emergency,” and that KPCB “should overlook no opportunity” to address climate change and the need for clean energy, he said.

The first six months at NREL “has been a learning process” both for KPCB and DOE in that the EIR program “wasn’t designed down to the last detail,” Wells said. “The belief that there are great [technology] resources at NREL is on the way to being proven correct.”

Like Bauer, Wells declined to be specific about technologies of interest. He said the firm looks only for “disruptive innovations,” as the basis of a new company. “The culture of KPCB is to seek the home runs.” It’s too soon to say if the company will suggest improvements in the labs’ tech transfer process or whether KPCB might continue with the EIR at NREL or another lab when the current program ends in March, he said. But Wells said the program has already shown itself to be “enormously successful,” since KPCB’s expectations were “more nuanced” than the single goal of discovering a startup opportunity. “Our goals included strengthening our relationships with DOE and its lab system and enlarging our network.” For DOE, the program has provided “insights into the way venture capital firms do business,” he added.