By Jeffrey Berlin • September 6, 2009

Even a year gone since the failure of Lehman, fundamental questions remain regarding the core underlying assumptions of our financial system. Though currently derivatives trading and black boxes appear out of favour, what will replace them in terms of helpful and productive uses of capital still has yet to be determined. This question was what the Conference on Social Capital Market’s, or SoCap09 tried to give some structure to; while the trend towards sustainable investments and long-term ROI seems to have taken the place of actively managed funds seeking 20x returns.

So what does this world presently look like? For one, It is not as easy to quantify as the Deloitte’s of the world would want it to be. In fact, Christopher Park from the company referred to standard accounting metrics as “a warm blanket” when compared with the confused and nascent metrics which provide assessment in this space.  Secondly, these markets are not as tested as traditional investment options. The oldest of these players, Calvert Foundation has only been around for ten years in it’s current form. The new-kid-on-the-block-phenomenon is both Social Capital’s largest asset, since apparently Wall Street pre-2008 logic wasn’t exactly perfect, as well as being it’s biggest challenge. Though the perception of Social Capital investments as a novelty, coupled with a palpable unfamiliarity with the valuations make this space seem unlikely to attract traditional capital, maybe ‘Social Investing’ is just a new word for a very old idea.

From the start of capitalism there have been players whose goals were multiple. From the massive endowments of the Rockerfellers and Carnegies to the educational scholarships committed by what today are called ‘high net-worth individuals.’ These acts of philanthropy were the yin to the yang of free-market capitalism. The question now is whether metrics and forcastable, and market-rate ROI can be properly delivered by such investments. Fittingly, Rockerfeller Foundation and Deliotte among others are behind the current push to bring the metrics of high finance down into the social sphere. One such project, called IRIS for ‘Impact Reporting and Investing Standard’s’ goal is to set agreeable metrics so comparing between these investments will be simpler. These metrics will require reporting of data such as: job’s created, revenue, etc., and are the underlying piece to developing the GIIRS, or ‘Global Impact Investing Rating System’, which will be similar to rating agencies in other asset classes. These new elements will undoubtedly smooth the road between capital and investments, if only just through the process itself introducing these actors to one another. There will have to be strong deliberative processes since the space constitutes of everyone from hedge funds to single social entrepreneurs.

While metrics and ratings are one solution to the problem of moving capital into the social sphere, other problems remain. One refrain at the conference was that investors feel comfortable either maximizing their investment returns or giving away money to charity. Oddly enough investors who were asked to invest in these blended value products had so much difficulty bridging these two worlds that they often wanted to  offer the money as a charitable donation. Though there are some reasons for making donations above proper investments due to tax laws, by-in-large this kind of response is nonsensical. Social funds not only infuse money towards inherently sustainable models, which need seed or growth funds, but they can often provide returns on the investments which in some cases exceed market-rate.

To combat this cultural wall, members of the Social Capitorati made the case that in order to attract capital, would-be ambassadors must use only the language of traditional finance. Jed Emerson of Uruhu Capital, who has espoused such social investments for many years discussed how at his fund he only speaks in phrases like ‘risk management’ and ‘qualitative assessment’ which, while they might seem euphemistic, could succeed in bringing down the barriers present for capital infusion into the space.

What is unclear still is how these investments will fit into the traditional investment paradigm-if they eventually are seen as being reasonable options for investors. One way to frame this comes from Skoll Foundation’s Dan Chrisafulli, who said that small and medium enterprises are “durable assets which are very good as part of a blended portfolio.” This seems to be the view of many with regard to the micro-finance space already. What was said as a goal for the sector at the conference is an eventual infusion of between 5 and 15 percent of total assets under management. My question is, what are the distinct borders of the space? As companies large and small begin to analyze more of their unintended consequences, and non-profits find that relying on grants limits their growth possibilities, aren’t we all moving closer to the middle by default?

Lastly, more capital will not mean that social entrepreneurs will have any less challenges- quite the contrary. Just as venture capital creates a few winners (in the neighborhood of ten percent of funded companies really find those 20x returns which fuel the industry), so too will social ventures find challenges along the road to high impact. Juggling multiple goals makes reaching each one infinitely more complex, and without the simplicity of singular attention on profits, running either a business or social enterprises now will  be a much more multifaceted endeavor. This hearkens true for the supply-side of capital as well. While old investments really could boil down to ROI over the short-term, liabilities are everywhere for companies making an impact ( which is inherently larger at scale). The days of only focusing on the bottom line are done. The flip side is that we are no longer living in a bifurcated world where money and meaning are painted as mutually exclusive. While definitions of value will have to become hammered out through intense deliberative processes, only two eventualities could possibly exist: either irreconcilable challenges will emerge, or reasonable fusions are going to be found.

One thing is sure, when the convener of the conference Kevin Jones called Social Markets “the intersection of money and meaning” a year ago at the first SoCap conference, a nebulous middle-path emerged which could-with enough work-make the science of economics just a little less dismal.

Written by Jeffrey Berlin

So we have all heard by now that Google is getting into the power management game, Cisco and IBM are coming to play too, but are the mega-stars of the VC and IT worlds going to be creating the new terms of energy management, or will local management solutions be more effective as the method for some markets? The easy answer is that it depends. Local grids can be made up of energy generation near recipient towns, cities or villages, just as energy can travel from another portion of a state or country, but increasingly there will be local power generation which will need to be brought intelligently to local customers on a block by block or building by building scale. ‘Micro-grids’ as they have come to be known, will likely serve most readily and immediately rural populations, who will bypass the need for state-electrification and develop power-management systems on their own because it is easier to implement than waiting for infrastructure build-out.

Many of the major players in the space have been basing their assumptions for growth not upon this notion, but upon a Western model of electrification. While the hardware developed by major California smart grid firms such as Trilliant and Silver Springs Networks will rightfully be applied toward the lucrative state or utility scale projects, these projects will only deal with the needs existing within the existing grid framework. The growth of the space will need innovation in power-management for those who either do not currently have access to an electrical grid or those who can benefit from opting-out of one altogether.

One example is in India, which has historically had many difficulties with its grid infrastructure. Power theft is pervasive and the reach of the grid to rural areas is still far from complete. Worldwide, nearly one and a half billion people do not have access to the electrical grid and while some environmentalists see this as a planetary savior for now, the reality is that eventually that number will shrink to zero due to expanded infrastructure and needed improvements in quality of life (as it should). Electricity enables communities to fulfill more needs locally and this, in turn, illuminates more needs–in other words, electrical demand snowballs. For populous countries like India and China (and other population centers) the stress on the old infrastructure will be immense and the need for elegant solutions will make itself felt increasingly over time.

While in the US, 99 percent of inhabitants connect to the grid, overseas the need for energy could force the  transcendence of the traditional models of grid deployment–we are seeing this change now. Where various layers can be created to make electrical systems work together more smoothly, smart-grid solutions will become useful as grid growth happens in these locations. Ideally, electrical appliances would communicate with power generation which would in-turn communicate with the power needs of surrounding users to balance out energy usage via shedding load during usage troughs or managing it wisely during spikes in demand. Implicit in this notion are various levels of grid intelligence embedded into electrical management systems. Each entity within this constellation would constitute its own grid- interacting with all other parts in the most useful ways possible. While more electrical generation will be needed, taking up the excesses and managing loads will ensure that unnecessary waste will not take place and higher efficiency will reign.

Micro-grids will become invaluable in the electronically developed world as well since many efficiencies will be gained by quarantining off some users and integrating others more thickly. As companies develop local power generation solutions at scale (see: Nexterra, Bloom Energy, and seemingly millions of others) and local renewable solutions such as solar or wind power find lower barriers to entry (see: 1bog, Grid Alternatives etc.) the need to manage these power generation sources locally will become important since the distance energy travels (especially in DC) has impacts on how efficient it is. Because of this fact, the most efficient use of energy is that of local generation for local utilization, since this reduces the need to transform currents or transport energy over vast distances.

Battery manufacturers are currently going through the process of understanding what it takes to develop a sound micro-grid system as they test how to improve efficiencies between energy storage devices. Indeed, other players have begun to enter the space as well, but soon these grids will need to be integrated utilizing various technologies for the sake of greatest value and efficiency. So far little has been done here -only one company springs to mind, Valence Energy, who is doing much of their work in India. Sure, larger players will be able to eventually bundle their technologies into smaller packages when the major markets have been taken, but because this will involve a lot of consultation and collaboration in devising systems for unique micro-grids, these smaller players may find that engagement with stakeholders is the correct strategy for this huge market as opposed to strict IT solutions. Obviously, both play a role in the space. Ideally, self-sufficient micro-grids will emerge which will exist within larger and more integrated national or international grids. The notion being that being self-sufficient enables communities to take care of their own energy needs and manage those locally, while integration within a larger system would ensure that problems or outliers could be neutralized or utilized in the best ways.

Photo courtesy of http://www.flickr.com/photos/cogdog/ used under a Creative Commons license.

Written by Jeffrey Berlin

There were many viewpoints this weekend at TIE’s annual ‘pow-wow’ TIEcon 2009 when it came to cleantech, but if I were to boil them down (in a electric stove running on renewable energy) I would say the essence can be summarized as this: the mundane matters.

I say this not because there was a lack of enthusiasm in the air-absolutely the opposite-rather I say it because a more zoomed-out perspective on cleantech has begun to crystallize, and with that everyone from VC’s to the entrepreneurs bootstrapping their way through the battlefields of innovation has recognized the value of niches within the ‘ecosystem’ of cleantech.

This, of course, is a fitting metaphor for the area of innovation hoping to save us from ourselves. The area of innovation slated to reinvigorate our intuitions about what it means to work alongside nature as opposed to taking it for granted. At the same time, the principles of business and innovation surrounding growth of capital via monetization requires these innovations to return deep profits for those invested. Here’s how that duality played out in real-time: 

In a panel presentation called: “Greentech: The New Paradigm”, Justin Label of Bessemer Ventures waxed about how the current cleantech constellation represents “fifty years of backlogged innovation,” presumably waiting to be capitalized upon in terms of green growth of profits. Other members of the VC community, notably Mayfield Fund’s Navin Chaddha, saw the potential in dollars terms alone it seemed, wanting whatever share of the huge energy market that can be wrestled away during these moments of market-disruption. Inside the panel’s back and fourth there seemed to be a deeper discussion going on about who will lay claim to the direction of cleantech.

Answers seemed to come from another panel I attended where this years winners of TIE 50 cleantech awards presented their businesses. These companies were culled from a vast number of entries and voted on by TIE members as part of the determination process. From this group of winners there were some audacious plans like those of AltaRock Energy, which have already beendiscussed. Most plans however were engaging niche positions when compared with the often lofty expectations placed upon funded Silicon Valley startups.

The best example was Enphase Energy, which developed micro-inverters for solar panels. The concept being that instead of converting DC current to AC current en-mass when a solar panel connects to the building, current conversion can happen at the panel site, creating a micro-grid between panels which improves efficiency, reduces cost and creates simpler maintenance for the lifetime of the system. This is textbook tech startup: leveraging effort and capital to solve a problem.

The real innovations, in other words, are situated in obscure and often mundane-seeming places. Cleantech in its many varied forms slowly and deliberately innovates a better greener mousetrap, (or perhaps light bulb is a more appropriate example). Innovation just happens, and the conference showed that innovators are not in short supply. With barriers of entry lower than ever and larger pools of talent directing their capabilities into the space, how can collaborations be orchestrated which scale these technologies quickly and intelligently? Maybe next years brightest companies will be brought to market using the current incarnation of VC funding schemes, maybe not, but what is known is that the niches keep growing and innovations will be needed to fill them for many many years to come. In the meantime, keep on tinkering!

this post can als be seen at http://cleantechnica.com/2009/05/27/tiecon-wrap-up-for-cleantech-the-mundane-matters/

@Jeff_Berlin would love to hear your comments on Twitter, but knows that, you know, you don’t have all the time in the world, so it’s like totally cool if you don’t too.

Written by Jeffrey Berlin

Published on May 27th, 2009

As the Economist wages the largest debate about bio-fuels in memory, another market opportunity appears to be showing itself in the bio production space as well. Bio plastics have been sprouting up in various applications, but a recent study puts the total market of green packaging at $43.9Billion by 2013. The highest growth gains in this market will be in bio plastics for reasons of price stability and increased capacity the report said. Bio plastics will, it is reported, preform at an annual growth rate of thirteen percent. This spells big news for an industry which currently holds only about .1% percent market share.

Part of the reason for this growth will be due to policy changes which restrict the use of some of the most environmentally damaging materials, but the largest effect seems to be coming from packaging producers themselves. Corporate social responsibility leader Coca Cola has developed a new bottle which is composed of around thirty percent bio plastics with the intended goal of developing a one hundred percent renewable option in the future. Likewise, Wal-Mart has begun sourcing toys and children’s goods made from bio plastics.

The draw is that decomposition coupled with less petroleum based material seems to be better environmentally, but some counter this analysis. According to the Guardian Newspaper, foods producers in the UK such as Innocent Drinks have chosen to stop using bio plastics due to lack of recycling options for the products at present. Likewise there have been claims that bio plastics can be environmentally damaging on par with their petroleum based counterparts. Recent innovations have made it so less energy is needed to create bio plastics and thus it seems the growth of the sector makes environmental sense. Followers of Bill McDonough’s cradle to cradle concept often tout the re-usability and closed-loop life cycle of these products, while others derided their historically slow decomposition rates.  Some applications in the burgeoning bio plastics space are:

A company coming out of Cornell has decided to make biodegradable plastic out of carbon dioxide. This would eliminate carbon dioxide while creating a biodegradable product (two birds one stone). Another application is for ocean-going container ships which could replace current plastics with ones that breakdown via hydrolysis, thus allowing much more cargo room aboard after plastics are used and jettisoned. This blog has reported on how the U.S. military is introducing bio plastics in order to reduce trash transport on the battlefield. There are also hopes to dissolve these plastics into bio-diesel thus adding to the fuel tanks. Finally, for those of us who are not planning to be in battle soon, two Japanese firms have developed bio plastics for demanding applications, one is mixed with fibers of natural plants in order to make the historically weaker bio plastics stronger and another company has found a way to make these materials more heat resistant. In all this seems to be a moment when the technology is overcoming previous hurdles, potentially launching it into new applications as yet unknown for biological materials.

Some problems are still being worked out, like making sure biomass is farmed in such a way which isn’t demanding on agricultural system, similar to issues being dealt with by ethanol producers. In total though, bio plastics seem to represent more good than ill, and along with the high learning curve, the growth curve for biodegradable and biological plastics will likely increase as well. It is hoped more products will integrate bio plastics in full or in part as these curves continue skyward, like the plants they derive from.

Check out @Jeff_berlin on Twitter where all your cleantech questions will be– if not answered, definitely given links to find answers.