VC Jim Pettit sees big returns in green building materials as biofuels, solar dim
The latest injection represents the largest funding round for greentech energy efficiency in 2009, according to the Cleantech Group. And it is likely an early indicator of a big bump in venture activity in this space. Venture capitalists, burned out on expensive and capital-intensive energy generation players focused on biofuels and solar panels, are looking to the more mundane areas of energy conservation and efficiency as places to lay their markers.
Super VC Vinod Khosla has come on strong in the space, betting big Calera, a producer of cement that uses significantly less carbon than traditional cement makers. I sat down with Pettit, a gregarious former sell-side technology analyst with Hambrecht & Quist, at the sedate Claremont Resort near his Piedmont, Calif. home. Pettit has become one of the most prominent VCs plying the green building sector and we discussed his investments and his thoughts on green building.
DailyFinance: So where are we in terms of development of a green building sector?
Jim Pettit: It's really early. We are starting to get some real traction with companies like Serious Materials, but it's only started to gain steam fairly recently. Other types of greentech have gotten a lot more investment. Part of that is because I think the channels in the green building and construction supply and design segment are extremely difficult to change.
There are a lot of really good people in construction but it's an antiquated industry. You have incumbents that are going to be very slow to change. So any advancement in technology or systems or material is going to necessitate a collaborative approach to change. Whatever the innovation is has to be embraced by the channel and there's a multi-year adoption cycle. This isn't like a software system. It has to work or else.
That's why we are picking our partners carefully. Webcor, one of our investors, is one of the few general contractors that can drive change in the sector through the key stakeholders through architects, engineers and sub-contractors. They are on the forefront of green building and, by extension, green materials. Webcor is actually a very sophisticated IT company masquerading as a general contractor. Their modeling capabilities and their ability to understand green building is beyond impressive.
DailyFinance: Where do you think the opportunities are in green building?
Obviously in materials. That's why we invested in Serious and are so bullish on their prospects. I also think lighting and lighting-control systems is a very exciting area. That represents a big chunk of energy consumption and one that can be fairly easily retrofitted. Lots of building owners already do some this, changing ballasts and other things. But there's a lot more that can be done.
One of the investments we just made was Lunera Lighting. Think iPod meets new efficient lighting. It's a very slick, ultra-thin, lighting source and it's a full, solid-state system that to me creates high quality light that's better than even traditional incandescent light. The products are LED (light emitting diodes) and are much more efficient than fluorescents. They just started rolling out the product. EBay (EBAY) is one of the anchor tenants and we have more coming on soon. We're very excited about these guys.
DailyFinance: How has the ongoing implosion in commercial real estate impacted the sector?
I believe holding periods for large commercial buildings are extending a bit because of the nature of the economy. That's great for green building technologies like lighting or HVAC retrofits. That's because it's a far better economic case for a landlord to embrace what may be a two- or three-year payback on any investment if they are planning on holding onto the property for longer periods of time. When properties were getting flipped rapidly, or there was always the possibility of a flip, landlords had little incentive to invest a lot in energy efficiency.
DailyFinance: How is green building tech different than cleantech in general?
A while back, I was one of the developers in a 400 unit condo complex in Boulder with backing from CalPERS (the California state employee pension fund). We wanted to put Serious Materials noise mitigation drywall product into that condo. This product was amazing -- it really cut down on noise due to some special coatings. This project would have a mix of families, older people and students so noise mitigation was key.
But the material didn't cut well on site. It was cumbersome. As a developer we could have mandated that the subcontractors use it, but we decided that would be a big mistake. The takeaway was that anything new has to be a perfect fit for the channel. That's very different than many of the other products in cleantech that almost create their own new channels.
In building materials and building design, you want it to be disruptive in that it saves a lot of money and drives efficiency. But you don't want it to be too unique or alien to the practices of the guys on site. As important as the CEOs are in the boardroom with their whiteboards, the guys with the hardhats and the boots are very important as well -- probably more important -- if you want a product in green building to stick.
Another thing that's somewhat unique to green building is the quality of life aspect. If you have more efficient lighting fixtures that give off better light than existing products, you might improve employee productivity or reduce headaches or something like that. Those things have not been measured yet because its so new. But the concept of ergonomics and creating a comfortable workplace and the benefits of that -- those are pretty well documented. Many green building materials make an office or a commercial space more livable. And that will be of value to landlords.
Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at firstname.lastname@example.org.