By Tom Ballard, Chief Alliance Officer, PYA
The top executive at the Energy Foundry praised initiatives like the “Innovation Crossroads” program at Oak Ridge National Laboratory (ORNL) as a way to ensure more successful energy start-ups during a forum Tuesday night at the Knoxville Entrepreneur Center.
Jason Blumberg, the evergreen venture fund’s Chief Executive Officer (CEO) and Managing Director, was in town to meet yesterday with the entrepreneurs who started the eight companies that comprise Cohorts 1 and 2 of the “Innovation Crossroads” program. Ahead of those discussions, he headlined the first “Innov865 Investor Forum” of 2019.
“There are not many of us,” Blumberg said in describing the Energy Foundry and its role as an investor in groundbreaking energy start-ups. As our regular readers know, that is the focus of “Innovation Crossroads,” one of three similar initiatives funded by the U.S. Department of Energy to help address the national decline in venture capital for early stage energy technologies.
“Most people have a hard time investing in our space,” Blumberg added. The five-year old fund has 15 companies in its portfolio and has seen four exits during that period. A total of $32 million has been invested thus far in those start-ups.
One of the more interesting insights shared Tuesday night about the Energy Foundry is the fact that the fund looks at about 750 deals a year but, on average, makes only four investments annually. “We want to see every company in our space,” Blumberg said.
Investments range from $50,000 to $1 million, and the Energy Foundry is the lead investor on about 80 percent of the deals it makes.
Blumberg is a big fan of federal grants as a tool to help accelerate early stage energy start-ups. Not only can those dollars help with R&D and commercial progress, but they also do not dilute the founder or founding team’s equity when venture capital is eventually sought.
As briefly described by Blumberg during the forum and more extensively outlined on the fund’s webpage, the Energy Foundry has a distinct approach in determining which start-ups to select. It looks for results-driven teams, transformational technologies or business models that solve real customer problems, and disruptive opportunities.
Blumberg said the fund believes in partnerships, invoking the famous line that “it takes a village.” Three other key philosophies that it espouses are carefully managing cash, focusing on key milestones (revenue, key performance indicators, and profits), and not investing in manufacturing.
“We always outsource manufacturing to partners,” Blumberg said. In a later Q&A, he elaborated on the last point, explaining that “we (a venture fund) can’t get our needed return (30 to 40 percent). Building plants is really hard to do on venture money.”
While five years is not that long a period of time, the Energy Foundry’s approach seems to be working. “Six in 10 of our companies will be successful,” the Chicago-based CEO said. That statistic is certainly much higher than a traditional venture fund.
“Most venture funds will not fund (cleantech start-ups) until there is revenue,” Blumberg added. “We are different.”
The Energy Foundry focuses on companies in the service, hardware, software and materials science areas of energy.
In response to our question about cities that are fully capitalizing on energy start-up opportunities, he cited two – Austin and Denver. The latter certainly has an advantage with the nearby National Renewable Energy Laboratory where the sole focus is on these types of technologies.
That said, with the extremely bright entrepreneurs that the “Innovation Crossroads” program is bringing to the region and more proactive policies to keep them here after their two-year Fellowship ends, perhaps Knoxville could join Blumberg’s list. The “Innovation Crossroads” program is an asset for all of East Tennessee, not just Knoxville, that a number of Angel and Venture Capitalists cited in their responses to questions posed in our annual “Investment Outlook” series that starts running on January 21.