Last year, Pepper Hamilton and the Cleantech Alliance Mid-Atlantic celebrated a decade of energy technology with the 10th anniversary of the Mid-Atlantic Energy Technology and Sustainability Forum. Now in its 11th year, the 2019 event proved that the industry is still growing and evolving, and that there is significant interest from investors.
Pepper Hamilton partner Thomas Dwyer, co-chair of the firm’s Energy Industry Group and the Emerging Growth Group, welcomed guests to the event, which was held on November 6 in Philadelphia, and introduced the evening’s investor discussion. The panel included Chad Gardner, principal, Energy Innovation Capital; Dean Sciorillo, managing director, EnerTech Capital; and Allison Shapiro, executive director, Closed Loop Partners.
Dwyer began the discussion by asking each panelist to provide an overview of their fund and investing priorities.
Energy Innovation Capital invests in venture and growth-stage companies that target large oil, gas or energy markets. It focuses on companies that drive operational efficiency, safety and sustainability in the global oil, gas and power sectors. EnerTech Capital focuses on investments in emerging companies essential to energy innovation. It invests in mid-stage venture companies that offer technologies that dramatically improve the profitability of producing or consuming energy on both the customer and utility side of the meter. Closed Loop Partners invests in sustainable consumer goods, advanced recycling technologies and the development of the circular economy. It is reimagining the current linear system, in which billions of dollars are spent annually to landfill valuable commodities, to create circular supply chains that reduce costs, generate revenue and protect the environment.
Dwyer then asked the panelists about the types of investors for their funds and what those investors were looking for in potential investments.
Sciorillo noted that EnerTech aims for a 50/50 mix of financial investors and strategic investors, and that each group has different priorities.
“For the financial investors, it’s all about returns,” Sciorillo said. “The strategic investor is different. The financial returns aren’t as meaningful to those folks. It’s all about the strategic value we can provide back to them.”
Gardner said Energy Innovation Capital’s limited partner base is composed almost exclusively of financial investors, but that those investors are unique because most have experience in the energy industry. The fund’s investors, Gardner noted, include 20-25 former oil and gas executives.
Shapiro explained that Closed Loop Partners has different funds, and that each fund has a unique investor group. For their first fund, most investors were strategic investors that had made sustainability promises and saw a brand benefit in committing to a circular supply chain. Meanwhile, Closed Loop Partners’ venture fund, launched two years ago, has seen investments primarily from family offices.
Dwyer next spoke about the power and utility sector, noting that technological advancement has been stifled in the area somewhat by regulation. He then asked the panelists what challenges and opportunities they were seeing in the marketplace.
Gardner noted that there was a challenge in integrating Silicon Valley into the oil and gas industry.
“The energy industry is the biggest industry in the world, so using those technologies in the oil and gas space and the energy space in general is a big issue,” he said. “A lot of the companies we invest in are figuring out ways to use current technology to do things better, safer, faster, cheaper within oil and gas.”
Sciorillo added that the underlying technology is often not at fault when EnerTech’s deals do not work out as expected. Rather, the culprit is usually market adoption of the technology.
“The early adoption period can take years, which is why we invest in later-stage companies,” he said. “When we do our diligence, it’s all about the market adoption. When we get that right, we get the investment right.”
Shapiro said Closed Loop Partners faces “thematic challenges” within its investment priorities.
“The biggest challenges for the recycling industry are structural,” she said. “It is still cheaper to landfill, and the recycling industry doesn’t benefit from tax credits like renewable energy does. The waste management industry is remarkably consolidated, while the recycling market is segmented. We have to look at a lot of deals before the economics make sense.”
Dwyer next asked the panelists about their investment process, including where deals come from and whether they have any advice for companies making a pitch to their funds.
Gardner said most of Energy Innovation Capital’s good deals come from their network of co-investors, and that he has seen a recent trend where entrepreneurs do not acknowledge the risk that comes with entrepreneurship. He noted that “entrepreneurs are afraid of exposing the risks to the investor,” but that they should be upfront about risks and challenges.
Sciorillo advised companies not to talk about deal terms too early in the investment process. “Too often a team will talk about valuation and what they’re seeking. That may kill the deal if there are different views on valuation,” he said. “You should talk about your company first and get the investors excited.”
Shapiro said most of the investments entered into by Closed Loop’s venture fund come from referrals, but that they have invested in companies that contacted the fund through its website or companies presenting at industry conferences. She added that her advice to companies seeking investments is to be proactive about sharing their key performance indicators.
“Think about your KPIs upfront and make it easy for us. Because our investment priorities are so specific, it’s helpful for you to spell out in your investment deck how you fit into those priorities and to suggest the KPIs by which you’ll benchmark success,” Shapiro said.
After the panel discussion, Kevin Brown, co-founder and chairman of the Cleantech Alliance Mid-Atlantic and partner at energy executive recruiting firm Hobbs & Towne, introduced the company showcase, where cutting-edge companies had the chance to present their innovative ideas and visions for the future. The companies featured this year included the following:
The event concluded with a cocktail reception, where attendees could network and meet representatives from the presenting companies and the investor panelists.
The 11th Annual Mid-Atlantic Energy Technology and Sustainability Forum was sponsored by Aon, Ben Franklin Technology Partners of Southeastern Pennsylvania, Broadpath, Constellation, Hobbs & Towne and Ernst & Young.