The National Advisory Council for Environmental Policy and Technology (NACEPT) is an

independent federal advisory committee that provides recommendations to the Administrator

of the U.S. Environmental Protection Agency (EPA) on a broad range of environmental

issues. This report has not been reviewed for approval by the Agency, and hence, the contents of this report do not necessarily represent the views and policies of the EPA, nor of

other agencies in the Executive Branch of the Federal Government, nor does mention of

trade names or commercial products constitute a recommendation for use. Reports of

NACEPT are posted on the EPA Web Site at http://www.epa.gov/ocem/nacept.

EPA/600/R-08/043

U.S. Environmental Protection Agency

Office of Cooperative Environmental Management

http://www.epa.gov/ocem

April 2008
Subcommittee Members

Philip Helgerson (Chair) – Computer Sciences Corporation

Dan Watts (Liaison to the NACEPT Council) – New Jersey Institute of Technology

Linda Benevides – Massachusetts Department of Environmental Protection

David Dzombak – Carnegie Mellon University

Kenneth Geiser – University of Massachusetts at Lowell

John Hornback – Metro 4, Inc. and Southeastern States Air Resource Managers, Inc.

Kristine Krause – Wisconsin Energy Corporation

JoAnn Slama Lighty – University of Utah

Raymond Lizotte – American Power Conversion Corporation

Oliver Murphy – Lynntech, Inc.

Robin Newmark – Lawrence Livermore National Laboratory

Patrick O’Hara – Cummings/Riter Consultants

Christine Owen – Tampa Bay Water

Katherine Reed – 3M Environmental, Health and Safety Operations

Norman Richards – First People’s Environmental, LLC

Karen Riggs – Battelle Memorial Institute

Howard Roitman – Colorado Department of Public Health and Environment

Kent Udell – University of Utah
i

important initiatives EPA can undertake particularly with ongoing budget constraints. The global need for solutions exceeds the fiscal capacity of any government, and the commercial market may be able to mobilize and invest immense

resources of private capital to develop and diffuse technologies rapidly.

Not long ago, the United States unquestionably dominated the marketplace

of new environmental ideas and technology solutions as our nation recognized

and addressed threats to health and the environment and vowed to address

them through regulations and new technology. EPA embarked on impressive

research and development programs—opening laboratories, funding university

research, and conducting pilot programs and demonstration programs.

Responding to the immediacy of EPA’s vision of a cleaner, safer, healthier world,

students flocked to universities to study environmental science and to participate

in EPA-funded research. As we observed in our previous reports, that era has

passed. Since then, EPA has been forced to reduce or discontinue many successful programs that produced significant environmental improvements, and as

a result, our nation has lost some of its technical excellence and environmental

leadership. 

It is time for EPA to restore its powerful vision of a clean and healthy world, by

declaring an even more energetic and visionary commitment to technology discovery and verification, and the commercialization of innovative approaches to

address threats to health and the environment. Such a commitment is essential

to solve the enormous environmental challenges posed by climate change,

releases of carbon dioxide and greenhouse gases, the impacts of diminishing

resources, nanotechnology and new products, and other issues.

On the positive side, there has never been a better time to act! The global

community is increasingly aware of environmental risks and the interconnectedness of our world. Global commerce places companies in many locations

around the world and people experience the world more than ever through the

media and extensive personal travel. Science is providing explanations of the

risks that threaten natural resources, sources of energy and food, human health,

economics, and our quality of life. 

These challenges call for technological solutions on a scale that requires

enormous capital investment. The capital must come from private businesses,

individuals, and public institutions with the vision and confidence that technology

solutions can succeed. We learned from the investment community that there is
ii

the market and reduce risks of uncertainty. Investors are looking to EPA to consistently enforce regulations to ensure a “level playing field” for all participating

companies. After a technology is demonstrated, investors seek a streamlined

permitting process that allows prompt market entry. EPA can work collaboratively with states and regional offices to streamline the permitting process for these

new technologies. The Agency also can help reduce risks by providing objective

technology verifications. All of these actions by EPA will help stimulate new investment by reducing risks.

Investment in the clean energy sector is strong because future market

demand is apparent. Energy and environmental technologies often are related,

so many new technologies in the clean energy market sector have significant

environmental components. For example, technologies that bridge energy and

environmental sectors often address challenges related to climate change and

diminishing natural resources that threaten human health and the environment.

It is logical for EPA to partner with other agencies such as the Department of

Energy and seek ways to collaboratively support investment in mutually beneficial technologies.

EPA should initiate better communications with the investment community to

promote understanding and mutually beneficial relationships. This is not a simple

task. Maintaining a dialogue with the investment community will require fundamental cultural changes at all levels within the Agency, and a clear vision for

EPA’s role in encouraging environmental technology investments. Our study

found that EPA has not been perceived by the venture capital community as

open to or interested in such a dialogue. The investment community believes

that a constructive dialogue will change that misperception, if it is accompanied

by the actions we recommend to EPA. 

Investors indicated their willingness to pursue an ongoing dialogue with EPA,

and emphasized the need to act now. EPA’s interest in initiating such a dialogue

conveys an encouraging message. The Agency already has taken important initial steps toward establishing this useful dialogue by appointing a Senior

Environmental Technology Officer and establishing Environmental Technology

Advocates in each EPA regional office to serve as Agency points of contact, but

the vision must be defined and embraced by the EPA Administrator. 

We urge EPA to build on this new foundation and capitalize on its scientific

and technical credibility by acting promptly on the recommendations in our
iii
iv

III. Venture Capital Setting........................................................................11

A. Definitions ..................................................................................................................11

B. Trends in Venture Capital Funding ..........................................................................13

C. Environmental Technology Investment Market ....................................................13

D. Opportunities for Increasing Investments in Environmental and 

Clean Technologies ..............................................................................................15

E. Stages of Investment ................................................................................................17

IV. Findings from the Interviews with the Venture Capital Community....19

A. Drivers of Environmental Technology Investment ................................................19

B. Regulatory Context ..................................................................................................24

C. EPA Role in Technology Development and Commercialization ........................28

D. Future EPA Interactions with the Investment Community ....................................34

E. Actions of Venture Capital Firms to Help EPA Encourage Environmental

Technology Development and Demonstration ................................................41

V. Next Steps – Work Group Recommendations....................................45

A. Recommendations for EPA ......................................................................................46

B. Recommendations for the Venture Capital Community......................................49

Appendices................................................................................................51

Appendix A: Venture Capital Work Group Members ..............................................51

Appendix B: Charge to the Work Group....................................................................53

Appendix C: Venture Capital Community Interviewees ..........................................55

Appendix D: Pre-Interview Instrument ........................................................................60

Appendix E: Open-Ended Questions and Sub-Questions ......................................66

Appendix F: Summary of Pre-Interview Question Responses ................................68

Appendix G: Examples of Successful Investments from the 

Venture Capital Community ..............................................................73

Appendix H: Understanding the Environmental Impact of Clean Energy 

and Other Technology Investments: Environmental Capital

Group’s Environmental Due Diligence Process ..............................82

Appendix I: List of Acronyms......................................................................................87

Appendix J: References ..............................................................................................88
v

Projects for Venture Capitalists and EPA to Emulate

“Funding New Environmental Technology That Holds Promise for a 

Cleaner Environment”................................................................................................16

“Environmental Due Diligence Process Used by CalPERS” ......................................2

“Pension Fund Investing in Environmental Technology” ..........................................30

“Technology Verification Validates Innovative Environmental 

Technology Claims” ..................................................................................................3

“Using Government Grants to Augment Venture Capital Investment in 

Clean Technology” ....................................................................................................32

“Government Outreach to Venture Capital Community” ........................................33

“Technology ‘Spinouts’ from Government Laboratories”..........................................35

“Regional Mechanism for Bringing Together Venture Capitalists, Industry,

Academia, and Government to Accelerate the Region’s Clean 

Energy Economy” ......................................................................................................36

“National Mechanism for Bringing Business, Capital Markets, and

Environmentalists Together to Help Corporate Governance Address 

Climate Change” ......................................................................................................37

“Utilizing CRADAs to Demonstrate and Commercialize Innovative 

Technologies”..............................................................................................................40

“Government Partnering with Venture Capitalists to Commercialize 

Technology from Federal Laboratories” ..................................................................4
1

of carbonbased energy, and the increasing costs and decreasing availability of

other essential resources such as clean water. 

Significant investments are being made by the venture capital community in

clean energy-related technologies, including “cross-over” technologies that yield

both energy and environmental benefits. Although the growth potential for most

environmental sectors is expected to continue to rise through 2010, the most substantial growth is expected in the clean energy sector. Investors have indicated

that there is a vast amount of capital available for investing in promising environmental technologies and many individual and institutional investors are seeking

opportunities to invest in the growing environmental technology sector. Returns

on these investments, however, still must compete with other investment options.

Therefore, it is critical to investors that areas of investment risk—often based on

regulatory uncertainty and unpredictability—be identified and reduced. 

Horizons for investment contemplate long-term potential for the technology,

and a predictable forecast of the regulatory environment is essential to reduce

uncertainty. Moreover, the new challenges that will be solved by emerging technologies often require a new regulatory framework. Delays in establishing that

regulatory framework impede investment in new technology by perpetuating the

risk of an uncertain, unpredictable market. 

For these reasons, effective stimulation and adoption of new technology

requires timely regulatory action. EPA must act promptly to accelerate its

engagement with new technology developers and investors, and commit to a

credible, long-term advocacy of new technology. This includes not just clear,

timely regulations and predictable, consistent enforcement, but also an institutional culture that advocates new technology and stimulates constructive interaction and communication among EPA, technology investors, technology developers, and users. 

Findings and Recommendations

Major Findings

Based on the nine interviews conducted and the experiences of the Work

Group members, the major findings of the study follow:

1. The existence of regulations many times stimulates technology investment

and the lack of regulations can sometimes retard technology investment.
“Valley of Death” (i.e., the particularly challenging period from proto type

and proof of concept to the critical later stages of development and profitable revenues). 

4. The role of the regulatory community is important in clean technology

development and commercialization. Early-stage investors are looking for

a minimum of 3 to 5 years of certainty regarding investments contingent

on governmental influences. Next-stage investors provide capitalization for

taking these new clean technologies to commercial scale. During this

commercialization phase, streamlined permitting and consistent enforcement become increasingly important. 

5. Investors expect that regulatory requirements will be aggressively enforced

so that a “level playing field” for all participating companies will exist. 

6. Although venture capitalists have invested in clean technology companies, investors are concerned that there currently is no system or metrics to

monitor these technologies to determine if they are “cleaner” than existing alternatives. 

7. EPA credibility is high in the investment community. EPA certifications are

recognized internationally and can influence a technology’s commercialization potential. 

Key Recommendations for EPA

The Subcommittee urges EPA to consider the following six recommendations:

1. Recognize carbon dioxide, greenhouse gases, and climate change-related pollutants as pollutants that are addressed in Goal 1 of EPA’s Strategic

Plan (Clean Air and Global Climate Change1) and take priority measures

within EPA’s authority to establish standards and long-term regulations for

these pollutants.

2. Forge and sustain communications with the early-stage investment community. 

2

*“Protect and improve the air so it is healthy to breathe and risks to human health and the environment are reduced.

Reduce greenhouse gas intensity by enhancing partnerships with business and other sectors.” Goal 1. Clean Air and

Global Climate Change. U.S. Environmental Protection Agency. 2006-2011 Strategic Plan: Charting Our Course. EPA190-R-06-001. Washington, DC, 2006. Available at http://www.epa.gov/ocfo/plan/plan.htm.
3

The venture capital community also should take actions to promote EPA’s

involvement in the environmental technology sector. The Subcommittee encourages early-stage environmental technology investors to consider the following

four recommendations:

1. Collaborate with EPA to establish metrics and monitoring strategies for new

technologies to measure and document demonstrated actual performance of these technologies.

2. Participate in environmental technology verification programs and EPAsupported metrics and monitoring programs.

3. Encourage communication and interaction among technology developers, investors, and EPA.

4. Provide opportunities for EPA to financially support promising new environmental technologies through existing and new financial support programs.

More detail on these recommendations is presented in Chapter V: Next

Steps—Workgroup Recommendations, which also includes additional recommendations to further EPA’s objectives of stimulating development and commercialization of environmental technologies to protect human health and the environment. 
4
pgy ()

at stimulating the development of environmental technologies to achieve the

objectives of protecting human health and the environment. 

In its first report, EPA Technology Programs and Intra-Agency Coordination

(May 2006), the Subcommittee presented the “EPA Environmental Research and

Development Continuum” as a perspective from which the Agency could view

its role in the creation and diffusion of new technologies. In a second report, EPA

Technology Programs: Engaging the Marketplace (May 2007), the Subcommittee

described a recommended external focus for EPA initiatives to be addressed by

the Senior Environmental Technology Officer (SETO) and Regional Technology

Advocates, and identified the need for EPA to strategically partner with other

organizations to develop and commercialize environmental technologies.

This report, EPA and the Venture Capital Community: Building Bridges to

Commercialize Technology, summarizes the assessments and recommendations

of nine leading representatives from the investment community who routinely

review and engage in investment opportunities targeting early-stage environmental technologies. Together, they represent a valuable perspective on some

key trends that dominate this investment market. 

Without exception, the investors share confidence about the current and

future business opportunities in the environmental technology market. They have

shared their candid assessments about ways EPA influences those opportunities.

They also have offered suggestions about steps the Agency can undertake to

remove barriers, stimulate technology development, and increase the introduction of new technologies to address persistent and emerging environmental challenges. 

A. Origin and Purpose of the Study

In October 2004, U.S. Environmental Protection Agency (EPA) Administrator

Michael Leavitt asked the National Advisory Council for Environmental Policy and

Technology (NACEPT) to investigate two questions: 

How can EPA better optimize its environmental technology programs to

make them more effective?

What other programs should the Agency undertake to achieve this goal? 

5
from the private sector to be commercialized and used to protect public health

and the environment. The report challenged EPA to adopt a more significant role

in technology development as a fundamental part of its activities, and to seek a

balance approach that fulfills the need for participation at all stages in the

development continuum, with particular emphasis on the gaps in the commercialization phase.

In its second report, EPA Technology Programs: Engaging the Marketplace,

the Subcommittee described a recommended external focus for EPA initiatives to

be addressed by the Senior Environmental Technology Officer (SETO) and

Regional Technology Advocates, and identified the need for EPA to strategically

partner with other organizations to develop and commercialize environmental

technologies. Recommended strategic partnerships would provide opportunities

for EPA to stimulate and support increased investment in the commercialization

of environmental technologies and build upon the Agency’s internationally recognized scientific and technical expertise. 

While actively implementing recommendations in the first two reports, EPA’s

Office of Research and Development requested that NACEPT direct the

Subcommittee to extend its efforts by engaging with the investment community

and seeking advice on actions that EPA and the investment community could

take, and partnerships that the Agency and the investment community could

create, to stimulate greater private sector investment for commercialization of

environmental technologies over the long-term.

A fitting sequel to its first and second reports, this third effort explores critical

components of the early stage investment process, including current investment

practices and trends; discusses positive and negative influences of EPA in investment opportunities and decisions from the perspective of those in the investment

business; and offers suggestions to remove or overcome barriers and critical gaps

and create productive relationships leading to increased investment and commercialization of environmental technology. 

B. The Study Work Group

To address this charge, the Subcommittee formed a focused Venture Capital

Work Group. The members of the Work Group are listed in Appendix A and the

Charge to the Work Group is provided in Appendix B. The Work Group was asked

to conduct a study and prepare a report to be reviewed and approved by the

6
The overall approach for the Venture Capital Study was to compile and

review reports and other information about venture capital investment in environmental technology and to conduct interviews of nine members of the venture

capital community whose investments include a clear focus on early-stage environmental technologies. 

The Work Group members considered EPA’s draft Venture Capital Support for

Environmental Technology: A Resource Guide (this document was prepared to

provide EPA staff an overview of venture capital investment in environmental

technology) and other sources of information on investment in environmental

technology to develop contextual and background information for this report

(see the reference list in Appendix J). The combined financial, technical, and

investment experience of the members enabled the Work Group to identify leaders in the environmental technology investment community for the interviews. In

7

Venture Capital Study Work Group Members

Phil Helgerson*, Work Group Chair, Computer Sciences Corporation

John Hornback*, Executive Director–Metro 4, Inc. and Southeastern

States Air Resource Managers, Inc.

Robin Newmark*, Director–External Relations Global Security Principal

Directorate, Lawrence Livermore National Laboratory

Karen Riggs*, Battelle Memorial Institute

Daniel Watts*, Liaison to NACEPT, Executive Director Otto H. York

Center for Environmental Engineering & Science–New Jersey Institute

of Technology 

Andrew dePass, Managing Director and Head of Sustainable

Development Investments for Citi Alternative Investments 

Bryan Martel, Managing Partner–Environmental Capital Group LLC

Frank McGrew, Managing Director–Morgan Joseph & Company, Inc.

John Preston, Senior Lecturer–Massachusetts Institute of Technology

Entrepreneurship Center

John Wise, Liaison from the EPA Environmental Financial Advisory 

Board (EFAB)

* NACEPT Subcommittee on Environmental Technology Member
and advisors whose collective investments make up a substantial portion of the

venture capital investment in environmental technology, particularly early-stage

investment. Without exception, these individuals are recognized, influential leaders in the environmental investment community. Together, the portfolios of the

firms represented by the individuals selected for interviews total more than $3 billion. The investment community leaders who volunteered to share their perspectives and suggestions as part of this study are identified in the text box below.

8

Venture Capital Study Interviewees

Rob Day, Principal–@Ventures

John DeVillars, Founder and Partner–BlueWave Strategies

Hank Habicht, Managing Partner–SAIL Venture Partners

Winston Hickox, Partner–California Strategies

Kef Kasdin, General Partner–Battelle Ventures

Eric McAfee, Managing Director–Cagan McAfee Capital Partners

Chuck McDermott, General Partner–RockPort Capital Partners

William Reilly, Founding Partner–Aqua International Partners/

Texas Pacific Group

Rosemary Ripley, Member–NGEN Partners

Not surprisingly, several of the leading environmental technology investors

gained their specialized awareness of the technical and regulatory aspects of

environmental technology opportunities through significant roles in the environmental regulatory community. Some served in public positions, including a former EPA Administrator, a former EPA Deputy Administrator, a former EPA Regional

Administrator, and a former Secretary of California’s Environmental Protection

Agency. As a result, the interviews reflect a strong awareness of EPA’s past and

present policies, procedures, and programs. Biographies of the interviewees are

provided in Appendix C. 

Chapter IV: Findings from the Interviews with the Venture Capital Community,

presents the ideas, concerns, and suggestions offered by these venture capital

community representatives, but to ensure an open dialogue in the interviews the

report does not attribute specific comments to any of the interviewees. 
9

investing in the latest hot topic).

Investment Experience

Experience with traditional (or new) environmental technology and

not just energy technology.

Experience with early stage investment.

Experience with seed/first round funding.

Minimum of 5 years of experience as a senior venture capitalist. 

Experience managing funds of $20 million to $200 million. 

Experience managing funds other than hedge funds. 

The Work Group decided to focus on early stage investors and not to include

institutional or social investors. In addition, the Work Group agreed to consider

angel investors only if they are bringing opportunities to first-round investors.

Twenty-one venture capitalists were identified and considered by the Work

Group. The list was narrowed to 13 of the most qualified individuals based on the

selection criteria. These 13 potential interviewees were contacted to determine

their willingness and availability to be interviewed. Although everyone contacted about participating in the study indicated their interest in the topic, some

were not available for an interview during the short timeframe in which they were

to be conducted. Nine of the individuals contacted confirmed that they were

willing and available to participate in the study interviews and the telephone

interviews were scheduled for the month of February. 

The Work Group designed a Pre-Interview Instrument, provided in Appendix D,

which was sent by e-mail to the interviewees 1 to 3 days before the interview. The

interviewees were asked to complete the pre-interview instrument rating questions and submit them to the Work Group prior to the interview. This allowed the

Work Group time to tailor the open-ended questions posed during the interview

and to probe deeper on specific areas of interest.

The Pre-Interview Instrument described the background and purpose of the

study as well as the process for the interview, and provided instructions on completing and returning the instrument to the Work Group. The Pre-Interview

Instrument was divided into four parts: (1) Current Investment Practices, (2) Future

Investment Outlook, (3) EPA Activities, and (4) Open-Ended Questions. The interviewee was instructed to complete and return the first three sections prior to the

interview, which involved assigning ratings. The 10 open-ended questions (see

text box on page 10) were provided prior to the interview to give the interviewee
described in Appendix G.

The Work Group analyzed the Pre-Interview Instrument responses and interview discussion summary transcripts as well as other background materials to

develop the findings and recommendations presented in this report. To foster an

open and frank discussion, this report relates the assessments and comments of

the interviewees without attribution or individual quotations. The Work Group has

framed the results of the interviews with a set of concrete findings and achievable recommendations. To ensure that the information and responses provided

by the venture capital community were presented accurately, each interviewee

was asked to review and comment on the draft report. Their comments were

incorporated into the final version of the report.

10

The Ten Open-Ended Questions Used in the 

Interviews with Venture Capitalists

1. What are the most important metrics used by your firm in evaluating environmental technology investments? 

2. What is driving environmental technology investment—EPA activities

or private-sector activities or both?

3. Do you think environmental technologies have a more difficult

entry and/or exit investment strategy than other clean technologies? If so, what can be done to make it easier? 

4. Are there characteristics of environmental technologies and markets that need to change to attract venture investment? 

5. Which environmental technology segments (e.g., climate change,

water technologies, etc.) have the greatest potential to generate

investments in the next few years? 

6. Are there “cross-over” opportunities for certain technologies to support both environmental technology and energy technologies?

7. What can EPA do to reduce the environmental technology investment risks? 

8. What EPA activities present significant barriers to environmental

technology investment?

9. Are there some successful technology development and commercialization programs that EPA can learn from? If so, what are the

programs? 

10. How can EPA continue a dialogue with the investment community

in the future?
11

Venture capital is a type of private equity capital typically provided by professional, outside investors to new, high-growth businesses. Generally made as

cash in exchange for shares in the portfolio company, venture capital investments usually offer the potential for above-average returns. A venture capital

fund is a pooled investment vehicle (often a limited partnership) that primarily

invests the financial capital of third-party investors in enterprises that are too risky

for the standard capital markets or bank loans. Venture capital typically is associated with new, cash poor, and/or rapidly expanding companies. Venture capital

managers often are actively involved in the management of the expanding

companies in which they invest. In return for the capital invested, venture capitalists receive equity shares and privileges, such as active participation in the

company’s management and profit sharing. 

Environmental Technology

Traditionally, the environmental technology sector has been viewed as a

diverse range of equipment, services, and resources. There have been a number

of definitions for this sector, one such definition was given in the 1995 report

“Bridge to a Sustainable Future: National Environmental Technology Strategy”

(see references in Appendix J), in which it was defined as: 

“A technology that reduces human and ecological risks, enhances

cost effectiveness, improves process efficiency, and creates products

and processes that are environmentally beneficial or benign. The

word ‘technology’ is intended to include hardware, software, systems,

and services. Categories of environmental technologies include those

that avoid environmental harm, control existing problems, remediate

or restore past damage, and monitor and assess the state of the environment.” (National Science and Technology Council, 1995)

Over the past 12 years, the definition of environmental technology has

changed. In 2007, the Department of Commerce, International Trade

Administration (ITA), defined the environmental technologies industry as goods

and services that advance sustainable development by reducing risk, enhancing

cost effectiveness, improving process efficiency, and creating products and

processes that are environmentally beneficial or benign. The environmental

technologies sector includes: air, water, and soil pollution control; solid and toxic

waste management; site remediation; and environmental monitoring and recy-
According to the ITA, water equipment and chemicals, and air pollution control represent the largest percentage of the U.S. environmental technologies

equipment market; wastewater treatment and solid waste management represent the largest percentage of the U.S. environmental technologies services market; water utilities and resource recovery represent the largest portion of U.S. environmental technologies resources market (U.S. Department of Commerce

International Trade Administration, 2007). 

Clean Technology

Many investors believe that clean technology is an investment theme or category. The definition used by the venture capitalists interviewed in this study is

that cleantech is any knowledge-based product or service that improves operational performance, productivity, or efficiency, while reducing cost, inputs, energy consumption, waste, or pollution. Cleantech advocates view the metamorphosis of the environmental technologies industry or sector into the Cleantech

Sector much as many environmentalists view sustainability as the new form of

environmental protection. This new view of environmental technologies has

been adopted and promoted by Environmental Entrepreneurs (E2), an affiliate of

the Natural Resources Defense Council (NRDC), one of the largest environmental

advocacy organizations in the nation. 

The Cleantech Group (formerly the Cleantech Venture Network), a coalition

of nearly 20,000 cleantech investors, companies and professional service organizations, categorizes cleantech investments into 11 segments:

Agriculture Materials

Air & Environment Manufacturing & Industrial

Energy Efficiency Recycling & Waste

Energy Generation Transportation

Energy Infrastructure Water & Wastewater

Energy Storage

The Cleantech Group (http://www.cleantech.com) is a membership organization of cleantech investors, companies, and professional services organizations

with assets exceeding $6 trillion. (The Cleantech Group includes venture capital

12
industrial processes. Although several of these categories are different, all share

a common thread—they use new, innovative technology to create products and

services that compete favorably on price and performance while reducing

humankind’s impact on the environment. To be considered cleantech, products

and services must: (1) optimize use of natural resources, offering a cleaner or less

wasteful alternative to traditional products and services; (2) have their genesis in

an innovative or novel technology or application; and (3) add economic value

compared to traditional alternatives” (Stack, et al., 2007).

B. Trends In Venture Capital Funding 

The United States maintains the oldest and most dominant position worldwide

in venture capital. In 2006, U.S. venture capitalists invested $25.5 billion in 3,416

deals (i.e., companies), realizing a 10 percent increase in deal volume and a 12

percent increase in dollar value compared to 2005. In 2005, venture capital

investments worldwide reached $31.3 billion (U.S. dollars). The United States,

Canada, Europe, and Israel represent 93 percent of capital invested, while China

and India account for the remainder (Deloitte & Touche, 2007).

Generally, U.S. venture capital investing has recovered from the collapse of

the internet investment bubble in 1999-2001. Venture capital investment peaked

in 2000 with over $100 billion placed in deals at various stages. In August 2007,

the National Venture Capital Association reported that 14 of the 17 industry sectors tracked by the association, including the industrial/energy sector, experienced an increase in the number of deals for the second quarter of 2007

(National Venture Capital Association and PricewaterhouseCoopers, 2007). 

C. Environmental Technology Investment Market 

Significant investments are being made by the venture capital community in

clean energy-related technologies, including “cross-over” technologies that yield

both energy and environmental benefits. Although the growth potential for most

environmental sectors is expected to continue to rise through 2010, the most substantial growth is expected in the clean energy sector. Investors have indicated

that there is a vast amount of capital available for investing in promising environmental technologies and many individual and institutional investors are seeking

opportunities to invest in the growing environmental technology sector. Returns

on these investments, however, still must compete with other investment options.

13
tal. Government environmental policies and regulations were important drivers

of the market but the timing and size of current and future markets often was a

function of the specifics of regulation, including the timetable for new regulations, the stringency of current standards, and their enforcement (National

Science and Technology Council, 1995). 

Today, there are more optimistic data about environmental technologies but

the investment levels are small compared to energy technologies. The cleantech category currently offers a good approximation for venture capital support

for environmental technologies. Although the cleantech category is dominated

by four energy segments (i.e., energy generation, energy infrastructure, energy

storage, and energy efficiency) and energy-related investments have led other

segments for the past 2 years, there has been some encouraging growth in some

environmental technologies segments. U.S. and Canada investments in environmental technologies, such as recycling and waste and transportation (i.e., hybrid

vehicles), also showed gains since 2005. Investments in energy-related technologies totaled $2.14 billion, almost three times the amount invested in 2005, and 33

percent greater than the investment total for the entire cleantech industry in

2005 (Stack, et al., 2007). 

In 2006, cleantech became the third largest U.S. and Canada venture capital investment category (11 percent of all venture investments), behind software

and biotechnology. In 2006, total U.S. and Canada venture capital invested in

cleantech companies reached $2.9 billion, a 78 percent increase over the $1.6

billion invested in 2005 (Stack, et al., 2007).

Since the economic downturn of 2000-2001, cleantech is one of the few U.S.

categories that has experienced real growth in venture investments. While U.S.

venture capital investments as a whole were down by 33 percent in 2006 compared to 2001, investments in U.S. cleantech companies were up 243 percent in

that time (Stack, et al., 2007). 

In the second quarter of 2007, the cleantech sector was the third largest

industrial sector based on venture capital investments, totaled $451 million going

into 44 deals. This represented a 38 percent increase in the number of deals and

a 46 percent increase in dollars, attributed to a $73 million investment in a solar

energy company, the largest deal of the quarter (National Venture Capital

Association and PricewaterhouseCoopers, 2007).

14
Environmental Industry Sectors 2000 1990-2000 2010 2000-2010

Growth Growth

Services

Analytical Services $1.6 -26% 1.9 19%

Wastewater Treatment Works $30.0 34% 44.5 48%

Solid Waste Management $42.0 45% 58.8 40%

Hazardous Waste Management $8.0 -15% 9.7 21%

Remediation/Industrial Services $10.0 5% 13.7 37%

Consulting & Engineering $18.0 21% 28.8 60%

Equipment

Water Equipment and Chemicals $20.0 57% 32.6 63%

Instruments & Information Systems $4.0 84% 6.0 50%

Air Pollution Control Equipment $18.0 30% 19.1 6%

Waste Management Equipment $9.6 20% 11.5 20%

Process & Prevention Technology $1.2 192% 2.0 67%

Resources

Water Utilities $33.0 53% 42.3 28%

Resource Recovery (recycling) $18.0 29% 25.5 42%

Environmental Energy Sources* $15.0 87% 38.2 155%

U.S. Totals: $228.4 35% $334.6 46%

* Environmental Energy Sources (biomass, wind power, landfill gas, solar power, geothermal, minihydros, fuel cells) encompasses both system sales and revenues from electricity production.

The rough estimates for growth by Environmental Business Journal assume current federal and

state tax incentives and other measures are renewed or remain in place as legislated.

Several interviewees noted that venture capital firms are investing in new

environmental technologies that hold promise for transforming large industrial

process operations. Advanced Electron Beam is an example of such an investment. It is a venture capital-supported environmental technology that has “in

line” manufacturing process applications (see description of Advanced Electron

Beam on page 16). 

These different markets can, in turn, be plotted by size and growth rate to

characterize the nature of opportunities (see Figure 1).

Group A in the figure represents small, but high growth market niches—

Process, Prevention, and Instrumentation, including “clean energy”—where the

growth rate and dynamism helps create larger opportunities for adopting innovative technologies. Venture capitalists express a clear preference for high growth

15
markets. Trends for the clean energy market were recently published in a report

by Clean Edge, Inc. (see text box on page 18). 

Group B represents larger, slower growth markets—Wastewater Treatment,

Solid Waste, and Drinking Water, where growth is tied closely to demographic

growth and suburban expansion. Technology in these markets often is geared to

any change in regulatory standards or enforcement.

Group C represents smaller, “back end” remedial markets—Remediation, Air

Pol lution Control, Waste Management Equip ment, Analytical Labs, and Hazard -

ous Waste—which are not growing as fast as the economy or demographics,

and may actually contract in some years (e.g., with recession). Some aspects of

these markets are shrinking, such as Superfund and cleanup of underground fuel

tanks. Hazardous waste volumes also contracted in the 1990s as industry

cleaned up operations. Landfills were not expanded much overall.

Other market niches—Consulting Services, Resource Recovery, and Water

Equipment—tend to be driven by the other sectors and regulatory changes.

Water equipment could represent an opportunity for innovative technologies if

regulatory changes were made, but buyers tend to be risk-averse and compliance oriented, often content to use conventional technologies.

16

RockPort Capital

Partners

pumping equipment, offers a compact, solid-state power supply, and

requires no in-plant engineering or maintenance expertise. Specific AEB

Emitter applications include: the destruction of airborne viruses and

bacteria; the extension of shelf life of foods; generation of hydrogen for

fuel-cell vehicles; the modification of recycled tires into high-quality

engineered plastics; and the removal of hazardous gases, such as sulfur

and nitrous oxides (SOx/NOx), from fossil-fuel burning power plants. 

In March 2007, AEB announced it had received $17.5 million in a Series

B funding round led by RockPort Capital Partners, with participation from

existing investors Atlas Venture and General Catalyst Partners. The funding will be used to accelerate commercialization of AEB Emitters as one

of the world’s most efficient, clean, and cost-effective forms of industrial

energy. 
17

E. Stages of Investment

Historically, venture capitalists have invested in the initial stages of a company’s development but the size and number of investments were cumbersome

and the recent trend is to support companies at a later stage in their development. In general, there are four stages of company development in which venture capital can be invested. These stages are: 

Seed/Startup Stage—the company has a concept or product under

development; 

Early Stage—the company has a product or service in testing or pilot production; 

Expansion Stage—the company product or service is in production and

commercially available; and 

Later Stage—the company product or service is widely available. 

The majority of venture capital investments go to follow-on funding for companies originally financed by angel investors, corporate investors, or government

programs. This trend continued in 2007. In early August 2007, it was reported that

venture capitalists invested $7.12 billion in 977 deals in the second quarter of 2007—

the highest level of investment reported in a quarter since the third quarter 2001.

By stage of company development these investments were: Seed/Startup – 3%;

Early Stage – 19%; Expansion Stage – 33%; Later Stage – 44% (NVCA and

PricewaterhouseCoopers, 2007).

The National Association of Seed and Venture Funds (NASVF) found that venture capitalists primarily invest in those business sectors that are not only growing

rapidly but also have not yet reached the competitive shakeout stage. In other

words, venture capitalists fill a gap between the early startup stage and later

consolidation (NASVF, 2006). 

Source: Environmental Business Journal, 2008

0%

10%

$- $10 $20 $30 $40 $50 $60 

Market Size in 2010 ($Billion)

AirPC

Mgt.Eq
The Work Group made a decision to focus this study on Early Stage investments both because this is a critical phase in the success of technology development and, given the small number of interviews to be conducted, the Early Stage

focus allowed the Work Group to narrow the field of potential interviewees.

Although Early Stage investments were the primary focus of the study, the interviewees also described investments at other stages to make certain points.

During the course of the interviews, the venture capitalists also provided examples related to investments at earlier and later stages (see Appendix G).

18

research firm New Energy Finance.

The report indicates that global production and wholesale pricing of biofuels

reached $25.4 billion in 2007 and is projected to hit $81.1 billion by 2017. The

global biofuels market last year consisted of more than 13 billion gallons of

ethanol and more than 2 billion gallons of biodiesel production worldwide. Wind

power is expected to expand from $30.1 billion in 2007 to $83.4 billion in 2017.

Last year's global wind power installations reached a record 20,000 megawatts

(MW), equivalent in size to 20 conventional fossil-fuel power plants. Clean Edge

also found that solar photovoltaics (including modules, system components,

and installation), which totaled $20.3 billion last year, will more than triple to $74

billion by 2017. Annual installations in 2007 were just below 3,000 MW worldwide. 

New global investments in energy technologies—including venture capital, project finance, public markets, and research and development—have expanded

by 60 percent from $92.6 billion in 2006 to $148.4 billion in 2007, according to

New Energy Finance. In the United States, venture capitalists invested $2.7 billion

in the clean-energy sector, representing almost 10 percent of total venture capital activity. 

The report copyright is held by Clean Edge, Inc., which offers the report for free

on its Web site (http://www.cleanedge.com). 
Drivers of Environmental Technology Investment

Regulatory Context

EPA Role in Technology Development and Commercialization

Future EPA Interactions with the Investment Community.

A. Drivers of Environmental Technology Investment

The Work Group identified the following findings related to drivers of environmental technology investment:

1. Although venture capitalists have invested in cleantech companies,

investors are concerned that there currently is no system or metrics to

monitor these technologies to determine if they are “cleaner” than existing alternatives.

2. Environmental investors expect venture grade returns; they are not investing to “save the planet.” 

3. Municipalities and utilities are the largest customers for environmental

technologies and they are a difficult and risk-averse customer set.

4. The role of the regulatory community is important in clean technology

development and commercialization. 

5. Environmental technologies have a more difficult “exit strategy” than

other clean technologies. (Exit strategy is the process through which venture capitalists realize their investment returns through sale or initial public

offering.)

6. There is a lack of experienced managerial talent in environmental technology companies. 

The decision thresholds for investors to capitalize environmental technology

enterprises (i.e., companies or projects) are complex and varied. It was pointed

out during the interviews that venture capitalists do not invest in research and

development or even in technologies, per se; they invest in commercial enterprises for profit that are promoting innovative technologies under certain regulatory

and market conditions and scenarios. 

19
Venture capitalists expect substantial profits over a 5 to 7 year horizon. As

many of the interviewees noted, environmental investors expect “venture grade”

returns; they are not investing to “save the planet.” 

The most prevalent drivers identified among interviewees fall into three categories across the spectrum of environmental technologies: (1) metrics—investment criteria for venture funds; (2) policy—federal and state legal and regulatory

framework, and legislative outlook; and (3) market factors, including technological obsolescence, customer resistance, etc.

Metrics

A variety of metrics drive the investment decision and these metrics can be

characterized as “hard” metrics or “soft” metrics.

Hard metrics are the fundamental criteria for investment decisions, such as:

Expected rate of return commensurate with risk;

Break-through technologies with good comparative advantage;

Market size, penetration, and growth prospects; and 

Economic value proposition based on business plan, management team,

and eventual exit strategy for capital return.

Return on investment (ROI) was the metric most often cited by venture capitalists during the interviews. Their belief was that a risk-adjusted ROI is the only

measurement that matters in an investment. In other words, a highly profitable

opportunity that has high risk and a long time frame is less attractive than a less

profitable idea with low risk and a short time frame. Investors cannot know what

the ROI will be ahead of time; they only know a projected one. Therefore, other

factors are weighed to evaluate the potential for and risks to successfully meeting a projected ROI at the time of investment.

Besides ROI, many venture capitalists are concerned whether the technology

they are considering is a “breakthrough” technology with a good competitive

advantage compared with what is currently available. The cost and technological advantages of a product and/or service need to be clearly demonstrated.

Many venture capitalists agreed that the world market for “disruptive” green

20
21

2. Does the fund management have the capability and willingness to

implement its environmental strategy and measure the resultant

environmental benefits? 

ECG has developed analytical methods to measure and report significant net

environmental benefits created by the portfolio companies. To analyze net environmental benefits, ECG considers how the “new” process or product compares

to the “existing” process or product. This requires an understanding of not only

the environmental impacts of the company’s technology, but also of the technology that it seeks to replace. It also requires establishing the boundaries of the

analysis and considering significant positive and negative environmental

impacts within those boundaries. The potential sources of environmental benefits

relate to consumption of energy and raw materials, manufacture of product

and by-products, and product functionality (i.e., the technology may be more

environmentally benign than the product it replaces). All five areas—product

raw materials, energy raw materials, manufacturing or energy-production

process, product functionality, and by-products (emissions)—must be considered in an analysis of net environmental benefits and they usually are linked. 

To move from concepts about environmental benefits to specific results for each

portfolio company, ECG developed an Environmental Performance Reporting

System (EPRS). The objectives of this system are to: (1) measure the net environmental benefits of each fund and portfolio company investment, and (2) establish an environmental performance basis for proactively choosing future clean

energy and technology investments. The calculation of net environmental benefits can be thought of as an engineering or technical report that links a business result, such as the number of product units sold or amount of material

processed, to the associated environmental result, such as tons of emissions

avoided or gallons of water saved. ECG works with the General Partner to conduct this analysis, including assessing which environmental impacts should be

included, identifying respected literature sources, and checking the analysis for

consistency with similar technologies based on our broad understanding of the

market. In some cases, the analysis is reviewed with an expert in the appropriate field. 

At the end of each fiscal year, the General Partner collects business results data

from each portfolio company and calculates the associated net environmental

benefits using the analysis framework established at the time of investment. ECG

collects and reviews this information and works with the General Partner to

update and refine the analysis framework.
“Economic value propositions”—a company’s business model, its management team, and the eventual exit strategy for the investment—were considered

important for any environmental technology or clean technology investment.

Unfortunately, the venture capitalists found a lack of experienced managerial

talent in environmental technology companies and that most environmental

technologies have a more difficult exit strategy than other clean technologies in

the energy sector. 

Soft metrics are considerations often employed by public pension funds,

foundations, and public institutions for environmental and other clean technology investments. They include:

Investment transparency that withstands public scrutiny;

Socially responsible investing;

Sustainability or reduced environmental and resource impact;

Good will reputation for investing in companies that have a positive

impact on the environment; and 

Patient capital for longer term environmental improvements.

Because of their nature, public pension funds and their investment decisions

are likely to be held up to public scrutiny and require more “transparency” in

their investments. These funds may be especially concerned about the public’s

reaction to losses on investments with which the public is unfamiliar such as highrisk venture capital investments. They also may require evidence of satisfactory

investment performance on a more regular basis. 

Socially responsible investing describes an investment strategy that combines

the intentions to maximize both financial return and social good. In general,

socially responsible investors favor company practices that are environmentally

responsible, support workplace diversity, and increase product safety and quality.

The desire to “do well by doing good” is common to both sustainable investing and socially responsible investing. The key difference between the two

approaches is that sustainable investors tend to give more weight and attention

to environmental issues than socially responsible investing. Sustainability or

reduced environmental and resource impacts are secondary considerations for

many investors. Many pension funds, foundations, and public institutions, however, prefer sustainable investments that have beneficial environmental and economic results.

22
primary and secondary considerations.

Policy or Legal Framework

The role of the regulatory community is important for clean technology investment. Most investors are scared away from investing in a business that is based

on the creation of regulations. They do not want to invest in companies that

hope a regulation will drive their market potential. They prefer investing in companies that do a better job meeting existing regulations; this creates a better

economic value. Although government regulations are important, venture capitalists do not favor investments in technologies whose future markets could be

eliminated with a “stroke of the pen” (i.e., regulation change). They want to see

that the technology provides enough economic value on its own.

The legal framework is comprised of many issues including applicable federal/state regulatory and enforcement regimes, tax policies, subsidy provisions, and

other mandates. The regulatory and enforcement regime is an essential primary

driver for many investments; whereas, taxes, subsidies, and mandates play important subsidiary roles.

The legal framework is known as “policy risk” in the investment community. To

minimize this “policy risk,” an investment calculus needs reasonable certainty and

stability for the legal framework with dependable terms of application of at least

5 years. Where the legal framework is likely to change (such as new statutes

authorizing “cap and trade” markets), clear signals in anticipation of such

change are needed. Hence, regulation is not enough to mobilize venture investment; economic value is vital.

Market Factors

Market considerations are an important metric in any investment decision.

Nearly all interviewees agreed that the markets for environmental technology are

driven by global markets because they comprise the most basic functions of any

economy: water treatment and delivery, agriculture and land use, effluents of

basic manufacturing and materials processing, air pollution handling, and the

instrumentation, design, monitoring, and services of these functions. 

New market drivers are emerging that are creating more interest in environmental technologies (i.e., instrumentation, process efficiency) and more sustain23
nology to convert a sugar-laden waste stream for the generation of ethanol.

Other cross-over technologies that were identified during the interviews included:

technologies that save energy through efficiencies, waste-to-energy plants,

drought-resistant crops, smart-grid sensors, and more energy efficient water treatment systems. 

Although several market niches are growing, others such as Superfund

cleanup and underground storage tank remediation, have peaked in activity,

and are subsiding. Still, the market and customer base for pollution control/remediation technologies is constrained by the risk-averse nature of municipalities, utilities, and their supporting engineers and consultants. Most interviewees confirmed this view identifying “risk aversion of POTWs [publicly owned treatment

works]” as the highest rated market factor in evaluating an investment. 

B. Regulatory Context 

The findings from the interviews with respect to regulatory context include:

1. The existence of regulations many times stimulates technology investment

and the lack of regulations can sometimes retard technology investment.

Therefore, regulation of carbon and climate change-related pollutants is

needed to advance investment in new technologies to address climate

change issues. 

2. The role of the regulatory community is important in clean technology

development and commercialization. Early-stage investors are looking

for a minimum of 3 to 5 years of certainty regarding investments contingent on government influences. Next-stage investors provide capitalization for taking these new technologies to commercial scale. During this

commercialization phase, streamlined permitting and consistent enforcement become increasingly important.

3. Investors expect that regulatory requirements will be aggressively

enforced so that a “level playing field” for all participating companies will

exist. 

4. Many EPA regulations prescribe specific control levels. Unfortunately, Best

Available Control Technology (BACT) rules and regulations are not written

in a way to maximum investor interest.

24
the final investment decision and the final outcome.

Regulatory Programs

Regulatory programs are of key interest to venture capital firms. Technologies

have been spawned by emergence of new and enhanced environmental

requirements. Some of these technologies have represented major markets with

substantial profit possibilities while others, similarly important, have been much

narrower in scope and thus have been less appealing for investment.

Interviewees offered diverse views on the importance of environmental regulation. In some cases, investors reported that they avoid investing in ventures that

are driven by, or dependent on, government regulation or regulatory compliance. In other cases, a market may be perceived to have the capacity to flourish because of the existence or promise of a regulation. The degree of opportunity is case-specific and dependent on the perspectives of the investor. Several

venture capitalists saw regulations as useful but not sufficient to justify investment.

Opinions ranged from investments in companies where there is little regulation

(i.e., government-wide regulation, not just EPA) to investments in companies

affected by regulation to investments in companies where regulations help create the need for environmental technologies. Regardless of their perspective,

most interviewees found that, beyond government regulations, there must be an

economic case for the investment as well.

Environmental technologies may be mandated by, or may arise from, two

different kinds of regulations. Technology-based regulations specify that certain

types of technologies must be installed in specific circumstances and that the

operation and maintenance of those devices will constitute compliance with the

regulations. Performance-based regulations deal less with modifying behavior

and focus more on outcomes. They specify the desired result and give the regulated community more flexibility to determine how to comply in an effective way

that achieves the desired end result. Performance-based approaches generally

allow the regulated community to comply more efficiently and effectively, taking

into consideration the unique circumstances of their particular business. Venture

capital firms tend to have a preference towards performance-based regulations. 

Many EPA regulations prescribe specific control levels. Unfortunately, such

regulations are not written in a way to stimulate keen investor interest. Because

25
horizons where the regulatory requirements are fully known. Further, investors

expect that the regulatory requirements will be aggressively enforced so that a

“level playing field” for all participating companies will exist. 

Regulatory risks are an inherent part of any investment. Venture capitalists

assume substantial risks as they become involved in new growth businesses. It is

hard for them to understand why government agencies are not willing to assume

risks relative to environmental technologies. As new environmental technologies

emerge, they must be tested in real-world applications. In many cases, such tests

require regulatory agency approval. Traditional regulations, especially those that

are technology-based, however, require a degree of certainty that they will successfully achieve their design parameters. In many cases, field-testing is required

to confirm hypothesized performance levels. In the most critical environmental

programs and for the most promising technologies, interviewees suggested that

regulators should find ways to promote field-testing of new technologies so that

their capabilities can be established in a timely manner. Doing so would raise the

interest level of those with capital to invest in such emerging markets.

Non-Regulatory Practices

In addition to direct regulatory programs and requirements, interviewees

found that environmental technology investments can benefit from indirect regulation, voluntary programs, incentives, and general advocacy. Interviewees

found that some of EPA’s most successful programs affecting investments are voluntary rather than regulatory in nature (e.g., Energy Star).

Indirect Regulation

EPA’s Toxics Release Inventory (TRI) is a public database of information on discharges, emissions, and other releases of chemical compounds exhibiting certain

toxics characteristics. The TRI has become a database of prime interest to the

public, raising concern in the minds of facility owners and the public about actual and potential environmental impacts of releases. Through public scrutiny and

much media attention, companies became sensitized to these concerns and

voluntarily initiated release reduction plans as well as substitutions of less toxic

compounds where possible. Interviewees noted that since it was first introduced,

TRI has caused major reductions in releases of toxic compounds without any regulatory mandate to do so. Financial rating agencies have reinforced this trend

26
stock was labeled Energy Star compliant. 

Incentives

Venture capitalists are interested in technologies with a large potential for

market success. Most are only interested in technologies that have a multi-billion

dollar market potential because technologies penetrating large markets generally can grow more dramatically. Unfortunately, many niche environmental technology products that may be protective of human health and the environment

face less investor interest due to their limited market potential. 

Several interviewees cited the value of government activities that can assist

with bringing technologies to the marketplace. Examples of such government

activities include: tax credits, direct funding (grants and loans), special regulatory provisions such as expedited permitting, and general advocacy. 

Protection of Intellectual Property Rights 

Intellectual property rights (IPR) protection is an important issue for investors.

Several interviewees acknowledged that some technologies within their portfolio

companies were created from intellectual property developed in government or

academic laboratories. IPR rules of ownership need to be clear, particularly in

foreign markets. Mixed IPR ownership discourages investors. Interviewees found

that IPR issues for government researchers must be addressed, and if these

researchers cannot share in invention royalties, then the government should find

some way to address this issue. 

Absence of Regulation 

Rather than being too regulatory dependent, sometimes the lack of regulations retards technology investment. Many interviewees cited climate change or

carbon regulation as a key determinant for lack of investment in this market. If

the government is going to mandate some type of carbon controls sometime

between 2009 and 2011, investors need to be making those carbon-related

investments now. Yet few investors are willing to make such investments with the

uncertainty about whether there will be future government regulations in this

area and the form that such regulations may take. 

27
Renewable Energy has initiated several successful clean technology

development and commercialization programs. There are “cross-over”

technologies that have both energy and environmental benefits (e.g.,

waste-to-energy and carbon sequestration technologies) on which EPA

and DOE could collaborate.

4. Some states, such as California and Pennsylvania, and non-profit organizations like Ceres (www.ceres.org)—a coalition of investors and environmentalists for sustainable prosperity—and the New England Clean Energy

Council have initiated noteworthy clean technology initiatives. 

Environmental Technology Development and Investment through 

Market Drivers

In addressing the question of what effort(s) might best promote market use or

adoption of environmental technologies, interviewees noted the following efforts

that could carry the most impact: 

Expedited permitting

Federal mandates

Government grants to environmental technology firms

Federal subsidies for technology performance. 

In specifically addressing EPA’s role, interviewees also suggested investment in

environmental technologies would be enhanced by the following: 

Programs approving specific technologies for emission reductions.

Grants or other incentives to directly fund a class of technologies.

Reports of performance (verification or demonstration).

Rules, regulations, or technical guidance specifying use of selected

environmental technologies. 

These findings all suggest a need for EPA to establish market drivers for

environmental technology development. 

28
these activ ities will remain in place stabilize the market. Inter view ees found, for

exam ple, that regulatory cer tainty is beneficial for both the regu lated community

and inves tors. Mandates that last for 3 to 5 years or longer to allow venture firms

to amortize their investments enhance the predictability and influence of government activities on new technology markets. 

National and International Technology Verification and Certification 

Interviewees noted that third-party evaluations are helpful in supporting new

technology development, growth, and acceptance in the marketplace. They

also indicated that certifications are valuable in foreign markets. EPA certifications are recognized internationally and can influence a technology’s export

potential. Interviewees noted that foreign interest in reciprocal technology verification programs is strong. Most thought that the Agency needs to push for

objective, verified protocols and standards that can be used by all countries.

EPA credibility is high in the investment market. Several interviewees noted

that EPA procedures often can validate the performance claims of technology

vendors. ORYXE Energy International and WaterHealth International are venture

capital portfolio company examples of how EPA procedures helped validate

technology developments for a fuel additive and ultraviolet disinfection technology (see the descriptions of ORYXE Energy International and WaterHealth

International on page 31). 

Outside of Federal Govern ment efforts, several interview ees commented on

the value that non-governmental certifi cation can provide to investors. Privatesector certification programs such as the LEEDs (Leadership in Energy and Envi -

ron mental Designs) Green Building Rating System as well as the Forest

Stewardship Council and Marine Stewardship Council accreditation services

were cited as especially successful. 

Federal, State, and Private Programs for Technology Development and

Investment 

Interviewees mentioned several government and non-government programs

that have been created in the past several years that are success fully supporting

innovative technology development. “Targeted” federal technology development programs are the most effective ways to stimulate investments. Existing

29
30

In March 2004, CalPERS launched a new investment program to invest up to

$200 million in the burgeoning environmental technology sector during the next

few years. The System’s Board of Administration approved the CalPERS

Environmental Technology Program that will target investments in environmental

technology solutions that are more efficient and less polluting than existing

technologies such as recycling; minimizing the use of natural resources; and

reducing emissions, refuse, and contamination to air, water, and land. CalPERS

established the program to capitalize on the evolving investment sector and

deliver increased returns to its private equity portfolio.

The primary objective of CalPERS’ $200 million Environmental Technology

Program is to achieve attractive investment returns over the long-term and help

catalyze the adoption of environmental and clean technologies to the broader

marketplace. CalPERS is building a “best of breed,” diversified portfolio of clean

technology-focused investments by investing across stages, strategies, geographies, and structures. The Program defines environmental or clean technologies

as solutions that are more efficient and less polluting than existing or legacy

products, services, or technologies. Areas of particular interest include alternative and renewable energy (clean energy), water technologies (clean water),

advanced materials or nanotechnology (clean material), air purification technologies (clean air), and transitional infrastructure opportunities. It is expected

that investment returns in this sector will be commensurate with the risk-adjusted

returns of the general private equity market.

CalPERS uses both financial due diligence and environmental due diligence

when deciding what investments to make in venture capital firms that want to

fund environmental technologies. As of September 30, 2007, CalPERS had committed $200 million to seven investment partners: NGEN , Craton Equity Partners,

Carlyle/Riverstone, DFJ Element, RockPort Capital Partners, Vantage Point

Venture Partners, and EnerTech Capital.

federal programs cited by interviewees include DOE programs to develop renewable energy sources and photovoltaics and U.S. Depart ment of Defense (DOD)

Programs to develop energy storage batteries.

Federal 

At the federal level, many interviewees cited DOE’s Energy Efficiency and

Renewable Energy (EERE) Program and those ongoing at the DOE national laboratories as worthy examples for EPA to investigate. Two highly cited EERE

Programs include the Solar America Initiative and the EERE Technology

Maturation Funding Program. The Solar America Initiative (SAI) is a DOE effort to

accelerate the development of advanced solar energy technologies. The goal is
to make solar electricity cost-competitive with conventional forms of electricity

by 2015.

Several interviewees mentioned that the DOE SAI is a good example of a successful federal funding program that can augment venture capital investments in

photovoltaic technology. Soliant Energy is an example of a venture capital portfolio company that received SAI funding (see the description of Soliant Energy on

page 32). 

DOE’s EERE technology maturation funding program attempts to bridge the

gap in technology commercialization funding during the particularly challenging

period from prototype and proof of concept to the critical later stages of development and profitable revenues, a period known as the “Valley of Death.”

31

Interna

www.oryx

www.wat

SAIL Ven

cy with the use of ORYXE RFT. The efficiency improvement often offsets

the cost of the additive, thus providing users with an emission reduction

program that requires no large capital expense and little to no operational expense.

Dr. Ashok Gadgil, Vice President of Scientific Affairs for WHI, developed

UVW at the DOE Lawrence Berkeley National Laboratory. Through a

multi-stage filtration process coupled with a proprietary UV disinfection

technology, contaminated water is converted into clean, potable water

that exceeds the World Health Organization’s standards for potable

water. The UVW-based system effectively purifies and disinfects water

contaminated with a broad range of pathogens, including polio and

roto viruses, oocysts, such as Cryptosporidium and Giardia. Low maintenance requirements, high efficiency, and high throughput make UVW

systems capable of delivering affordable, high-quality drinking water

even to remote and rural markets that have previously been under

served. 

ORYXE Energy’s new technology already has been proven to reduce

emissions in diesel fuel. The technology was used to develop an alternative diesel formulation, approved by the Texas Commission on

Environmental Quality, to meet the new Low Emission Diesel standards in

Texas. The immediate success of this product, called ORYXE LED, also

proves ORYXE Energy’s ability to meet its promise to supply a revolutionary new additive to the market.
Usually, there is a 50/50 split in maturation funding between DOE and venture

capital firms on various technology investments. Interviewees noted that some

collaboration between DOE and EPA already exists on biofuels but more direct

DOE and EPA laboratory communications should be explored. Candidate DOE

national laboratories for EPA to investigate include the National Renew able

Energy Laboratory (NERL), the Oak Ridge National Laboratory (ORNL), the

Lawrence Livermore National Laboratory (LLNL), and the Argonne National

Laboratory (ANL). The NREL’s Industry Growth Forums and its periodic “show and

tell” meetings with venture capital firms were cited as useful forums to encourage

technology investment and development (see description of NREL on page 33).

Several inter viewees noted that they actively look for technology investment

opportunities within the DOE national laboratories.

Several interviewees identified portfolio companies supported by their firms

that are successful examples of technology “spin outs” from DOE national laboratories, such as NREL and ORNL. Aldis, Inc., Planar Energy Devices, and M2E Power

are three examples of these DOE laboratory originated technologies (see the

description of Aldis, Inc., and Planar Energy Devices on page 35). 

32

www.soliantenergy.com

RockPort Capital

Partners

conventional “flat plate” x-Si products. As a plug-compatible alternative

to standard solar panels, Heliotube conforms to the existing standards

and practices of the large, established channels of solar installers, integrators, project managers, dealers, and distributors. 

In March 2007, Soliant Energy (previously Practical Instruments) was

awarded a $4 million grant from the U.S. Department of Energy (DOE)

Solar America Initiative (SAI). The DOE SAI grant will allow the company

to accelerate development of its HeliotubeTM product platform. Soliant’s

project partners in the SAI award included: Spectrolab, the DOE Sandia

National Laboratory, SunEdison, and the Massachusetts Institute of

Technology. 

Soliant’s DOE SAI award is expected to allow the company access to

more private equity support if needed in its photovoltaic product line

development. Currently, Soliant is funded by leading energy and

renewable technology investors, including RockPort Capital, Trinity

Ventures, Nth Power, Silicon Valley Bank, and Rincon Venture Partners. A

RockPort Capital General Partner serves on the Board of Directors of

Soliant Energy.
A similar approach adopted by EPA might enhance environmental technology development and investment. 

State

Beyond federal programs, several inter view ees cited state programs that

encourage technology development and investment. The programs most often

cited were those in Pennsylvania and California.

The Pennsylvania Department of Environmental Protection (DEP), Office of

Energy and Technology Deployment (OETD) serves as state’s principal office for

energy policy, the assessment of energy and environmental technology, and the

promotion of the use of appropriate technology to address environmental problems. OETD’s initiatives illustrate and emphasize the common needs of a sustainable economy and a self-sustaining natural environment. As such, OETD’s priority

projects encourage environmental technology enterprise, expand renewable

and advanced indigenous energy opportunities, identify and work to overcome

market and regulatory barriers, and promote related economic development in

the Commonwealth. In particular, OETD works to make Pennsylvania a center for

33

cesses in the clean energy industry, and have enabled NREL and DOE to manage and maximize return on technology development investments. 

The Clean Energy Alliance—This national alliance of clean energy business

incubators helps emerging clean energy companies take more effective

advantage of opportunities stimulated by the restructuring of the utility markets,

sustainability concerns, and more stringent environmental regulations. NREL catalyzes strategic alliances among select business incubators across the country

to provide an array of business and financial services to start-up clean energy

companies. 

Technology Commercialization Development Fund Program—This new pilot

program supports collaboration between researchers and companies to develop commercial products based on NREL innovations. Commercial partners will

share 50 percent or more of project development costs, which will typically

range from $150,000 to $1 million. Both NREL researchers and outside industry

can submit proposals. 

Resources and Information for Renewable Energy Entrepreneurs—NREL provides access to informational and how-to resources for renewable energy entrepreneurs, often at little or no charge. 
Develop new investment screens for its investment managers to use when

evaluating a company’s potential exposure to environmental liabilities. 

In February 2004, California State Treasurer Phil Angelides launched the Green

Wave environmental investment initiative calling on the CalPERS and the

California State Teachers Fund (CalSTRS) to implement a four-pronged investment

strategy to bolster their financial returns, create jobs, clean up the environment,

and combat global warming. The Green Wave initiative urged the pension funds

to invest $1.5 billion in cutting-edge technologies and environmentally responsible

companies, to prod companies to address the financial risks posed by environmental liabilities and global warming, and to reduce energy consumption by

their massive real estate holdings.

Non-Government

Several interviewees noted that non-governmental programs such as the

New England Clean Energy Council and Ceres—a national network of investors,

environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate

change, have been successful in promoting cleantech or environmental technology investments (see descriptions of the New England Clean Energy Council and

Ceres on pages 36 and 37, respectively). 

International

Canadian provincial governments are very active in providing research and

financial support to new technology companies. Venture capitalists noted that

the Canadian technologies and management teams they see often are better

than their U.S. counterparts. Interviewees suggested that the Federal

Government investigate and coordinate with technology development and

investment programs in other countries, and consider adopting the more successful approaches to improve technology development in the United States. 

D. Future EPA Interactions with the Investment Community

With respect to suggestions for future EPA interactions with the investment

community, the interviewees’ findings were as follows:

1. EPA has few programs that focus on the commercialization stage.

Assistance at this stage is critical because many technologies are never

34
commercialized because they cannot bridge the “Valley of Death” (i.e.,

the particularly challenging period from prototype and proof of concept

to the critical later stages of development and profitable revenues).

2. EPA often is viewed by the venture capital community as not being in

touch with the world of business and commerce.

3. The EPA Administrator and other EPA senior management officials need to

be technology advocates and they need to think expansively about EPA

responsibilities related to clean technologies and energy. 

4. Most venture capital firms are unaware of what EPA does other than

promulgate and enforce environmental regulations.

5. EPA should consider new ways of creating a “stamp of approval” for environmental technologies and recognition programs for plants and other

manufacturing facilities. 

35

Battelle V

“founder capitalist,” building technology companies from the ground

up. With Battelle as a limited partner, Battelle Ventures cannot only

deploy a unique set of company-building capabilities, but it also can

leverage its position as a bridge between early-stage businesses or

technology entrepreneurs and the Battelle network to add value to

Battelle Ventures’ portfolio companies.

Battelle Ventures investments in Aldis and Planar unfolded differently. For

Aldis, assurances of the management team capability came before the

technology. The idea for advanced traffic management came from the

Aldis cofounders, who Battelle Ventures took to visit ORNL, where some

related projects were in development. 

Battelle Ventures became aware of the differentiated power-storage

technology created at NREL, which became the basis for Planar.

Battelle Ventures funded early prototype development of the technology

and recruited Planar’s Chief Executive Officer for the spinout. Planar

then was introduced to complementary work going on at ORNL in the

thin-film battery area and, as a result, became a licensee of ORNL technology as well. 
36

The New England Clean Energy Council’s mission is to accelerate New

England’s clean energy economy to global leadership by building an active

community of stakeholders and a world-class cluster of clean energy companies. 

The Council represents a diverse set of stakeholders, including the industry associations, area utilities, local universities, labor, and large commercial end-users.

The Council also includes 30 Chief Executive Officers of the region’s leading

clean energy companies, representatives from most of Massachusetts’ top 10

law firms, and partners from more than a dozen of the top New England venture

capital firms (with a total of more than $8 billion under management). The

Council serves as a forum through which these players collaborate on common

interests. 

The Council focuses its resources on five key areas, each of which has a significant impact on fulfilling the organization’s stated goal of accelerating the

region’s clean energy economy. These focus areas are innovation, growth,

analysis and education, market adoption, and policy.

EPA often is viewed by the venture capital community as not being in touch

with the world of business and commerce. This lack of contact has produced

and may be in part be caused by cultural differences that include the language

that is used, the issues that are most important, the types of people who are

involved, the ways of doing business, and others. It would be beneficial to EPA,

the venture capital community, the environment, and the economy for EPA to

engage with the venture capital community in significant ways to bridge this cultural divide and bring together the resources of both sides.

Increasingly there are shared values for EPA and the investment community in

believing that protecting and improving the environment are both important

ends in themselves and important for creating new business opportunities. The

major issues forcing this convergence are the very strong belief that climate

change is real and needs to be recognized by government as a threat that

requires government leadership and the need for energy independence which

drives investment in alternative and renewable energy sources.

The Administrator and other senior management need to be technology

advocates; to think expansively about EPA’s responsibilities related to cleantech

and energy, including moving into areas that have been seen as the purview of

DOE; to create new mechanisms to support investment in innovative technology

development and commercialization, in part by learning from DOE and other

federal, state, local, and private sector organizations.
37

mental groups, and other stakeholders together to encourage companies and

capital markets to incorporate environmental and social challenges into their

day-to-day decision-making. Ceres has received numerous awards including

the 2006 Skoll Award for Social Entrepreneurship and the Fast Company/Monitor

Group Social Capitalist award, and was named one of the 100 most influential

players in the corporate governance movement by Directorship Magazine. By

leveraging the collective power of investors and other key stakeholders, Ceres

has achieved some dramatic results:

Launched the Global Reporting Initiative (GRI), now the de-facto international standard used by more than 1,200 companies for corporate reporting on

environmental, social and economic performance. 

Partnered with Yale University and the insurance firm Marsh to create the

Sustainable Governance Forum on Climate Risk, a unique leadership development program designed to help corporate leaders address the problem

of climate risk. 

Spearheaded dozens of breakthrough achievements with companies, such

as Nike becoming the first global apparel company to disclose the names

and locations of its 700-plus contract factories worldwide in 2005, Dell

Computer agreeing in June 2006 to support national legislation to require

electronic product recycling and “takeback” programs, and Bank of

America announcing a $20 billion initiative in March 2007 to support the

growth of environmentally sustainable business activity to address global climate change. 

Brought together 500 investor, Wall Street, and corporate leaders at the

United Nations in 2005 to address the growing financial risks and opportunities posed by climate change. The ground-breaking meeting included 28

U.S. and European investors approving a 10-point action plan seeking

stronger analysis, disclosure, and action from companies, Wall Street, and

regulators on climate change. Another investor summit will be held in

February 2008. 

Launched and directs the Investor Network on Climate Risk (INCR), a group

of more than 60 leading institutional investors with collective assets exceeding $4 trillion. 

Published cutting-edge research reports to help investors better understand

the implications of global warming. Among those: a January 2007 report,

Climate Risk Disclosure by the S&P 500, an August 2006 report, From Risk to

Opportunity: How Insurers Can Proactively and Profitably Manage Climate

Change, and a March 2006 report, Corporate Governance and Climate

Change: Making the Connection, which analyzed how 100 of the world’s

largest companies are addressing the business challenges from climate

change. 
private organizations.

There also can be mechanisms created that will enable an “open door” of

easy communication with senior members of the investment community on a

continuing basis. One way would be to create an advisory panel that includes

members of the investment community so they can participate in studies and

give advice to the Administrator. Another way is to periodically meet for a short

period with the most senior members of the investment community, which would

permit a “taking of the pulse” of concerns, needs, approaches, and other issues.

The Administrator is also uniquely able to bring both policy and technology

issues into discussions with venture capitalists. The plans for and status of regulations and enforcement are important types of information that the investment

community needs and wants. This ranges all the way from the question of carbon taxes and “cap and trade” to municipal wastewater treatment plants.

These issues have important consequences for the venture capital community’s

investment in innovative technology development and commercialization.

Investors’ risk calculations sometimes include the likelihood of a new government regulation being put into effect and the lead time needed to develop

breakthrough technologies. The intelligence that EPA senior management can

offer in this regard coupled with the Agency’s understanding of the most important technology needs and the existence of new ideas and approaches are very

important for these investors. Companies have staff members who concentrate

on a specific technology area and whose job is to find out this type of information. The more proactive EPA can be in helping companies to find this information, the more relevant those companies will view a continuing relationship with

EPA.

Need for Communication Follow-Through

Venture capital firms would be interested in knowing what the Agency cares

about and what its resources are in terms of technology, technical expertise,

facilities, testing capabilities, etc. EPA can provide this information to the venture

capital community in part by attending and making presentations at investor

conferences and other meetings. These are opportunities to describe the most

important environmental problems EPA is addressing and what the technology

needs are to solve them, as well as some of the latest EPA and non-EPA technology developments that EPA has found.

38
Programmatic follow-through between EPA laboratories and venture capital

companies can be through the development of cooperative research and

development agreements (CRADAs). As EPA works more closely with the investment community, there will be increased opportunities for third party funding of

the development of innovative technologies.

Interviewees noted that CRADAs have been useful in commercializing technologies that have originated from government laboratories. M2E Power is an

example of a technology that originated in the DOE Idaho National Laboratory

and was commercialized using a CRADA (see the description of M2E Power on

page 40). 

If there is a good relationship a venture capital firm and an EPA laboratory,

for example, the venture capital firms may bring companies they have found

that are developing new technologies to the laboratory to create a working relationship among all three parties. This could result in new cost-sharing arrangements. 

There is a great need for EPA to invest more in its current technology development and commercialization-related programs and to create new types of

supports for these purposes. 

Current programs include the SBIR program and the ETV program. EPA could

increasingly encourage and assist the use of third-party evaluations. EPA could

support technology demonstrations at federal facilities. Air purification, water

membranes, and sterilization may be areas where technology demonstrations

could be conducted at federal facilities. There is less

interest in federal remediation demonstrations by investors because the exit

strategy for these companies is difficult.

EPA can look at new ways of creating a “stamp of approval” for technologies, which can include recognition through programs like Energy Star and

through awards and public statements. EPA could consider an Energy Star program for plants and manufacturing facilities. If manufacturing plants realized

that additional energy efficiency or more pollution reductions would merit EPA

recognition, this could make a major difference (e.g., raise employee morale).

Public recognition can be a strong personal and corporate motivator.

39
EPA can investigate “Entrepreneur-in-Residence” and “Entrepreneurial

Fellows” programs as a means of exposing successful entrepreneurs to environmental technologies (see description in the text box on page 41).

EPA can develop new ways to provide financial backstopping for innovative

technologies. These include providing seed funding to small companies at the

early stages of technology development. It can include grants that are more

substantial at later stages. It can provide loan guarantees so if investment and

utilization of innovative technologies fail, there can be financial support to lessen

the cost to the investor. There also can be use of revolving funds.

40

@Ventures

Principle (energy produced via motion of a magnet through a wire coil),

but with changes in the magnetic architecture that have broad applicability to many sizes of motor generators.

In November 16, 2007, @Ventures, the clean technology venture capital

business of CMGI®, Inc., announced that it made a $2.0 million investment in M2E Power, Inc. @Ventures participated in the company’s $8

million Series A financing round, along with OVP Venture Partners,

Highway 12 Ventures and existing investors.

M2E Power will use the funds to speed commercialization of its M2ETM

technology, which has the potential to fundamentally transform the way

military and consumer mobile devices are powered. M2E’s core technology also is potentially applicable to large-scale power generation,

such as wind, wave, and most other electromagnetic induction-based

generation technologies. 

M2E is an eco-friendly, cleantech solution that can significantly reduce

carbon emissions in larger applications. Depending on usage, it may

not need to draw from power grids to recharge itself. It eliminates up to

30 percent of the highly toxic heavy metal contained in typical batteries

and—by doubling battery life—cuts in half the number of batteries discarded in landfills.
E. Actions of Venture Capital Firms to Help EPA Encourage

Environmental Technology Development and Demonstration 

Interviewees identified several actions that venture capitalists could do to

encourage environmental technology development and demonstration. These

actions include:

Conduct Direct, Routine Communications with Key EPA Managers and

Staff About Legislative or Environmental Policy Issues Affecting Clean

41

The EIR pilot program involves placing venture capital-sponsored and selected

entrepreneurs in three of DOE’s national laboratories to identify laboratorydeveloped technologies funded by DOE’s Office of Energy Efficiency and

Renewable Energy, and to develop business cases for their commercialization.

DOE has selected Kleiner, Perkins, Caufield & Byers in Menlo Park, California, to

work with DOE’s National Renewable Energy Laboratory, ARCH Venture Partners

in Chicago, Illinois, to work with DOE’s Sandia National Laboratory, and

Foundation Capital in Menlo Park, California, to work with DOE’s Oak Ridge

National Laboratory. Each laboratory will host one entrepreneur-in-residence for

an initial period of 1 year, and DOE will support this work by providing up to

$100,000 for each entrepreneur to help defray salary and other expenses.

Each firm will match DOE funding and may contribute additional funds to support its entrepreneur’s work. Using their vast business expertise, the selected firms

will be permitted to give proven start-up entrepreneurs the opportunity to work

directly with laboratory staff for a hands-on look at various, commercially viable

technologies. 

Entrepreneurs will conduct technology assessments, evaluate market opportunities, formulate preliminary business cases, and propose business structures in an

effort to bring cutting-edge technologies to market.

Upon selecting a technology for commercialization, entrepreneurs-in-residence

and their venture capital sponsors would negotiate a license to use the laboratory-developed technology. Working with their respective entrepreneur, the venture capital sponsors will form and finance a start-up business based on the

licensed technology. The foundation of each start-up’s business plan would be

the commercialization of licensed clean energy technologies.

To further accelerate the commercialization process, the EIR pilot program seeks

to utilize a Standard License Agreement—built off the structure of successful university licenses—that is tailored for entrepreneurs and small businesses. The

Standard License Agreement includes a provision that would permit the EIR to

offer partial ownership of the start-up company as full or partial payment for the

license. This provides the opportunity for a start-up company to use its initial

resources to grow the company rather than to make substantial up-front cash

royalty payments. 
42

Laboratories—Several interviewees suggested that EPA review the DOE

NREL and MIT Entrepreneur-in-Residence (EIR) programs for possible application in the EPA labs. Potential “pools” of entrepreneurs could be identified and vetted through partnerships with private-sector organizations.

Supporting private-sector organizations for EIR partnership could include:

non-profit organizations such as the New England Clean Energy Council;

venture capital firm(s); or national trade associations such as the National

Venture Capital Association, the National Association of Small Business

Investment Companies, and others.

Broker Partnerships Between DOE and EPA or EPA and the Small Business

Administration (SBA) on Technology Development Issues—Several interviewees noted that their portfolio companies have already “spun out” technologies from DOE national laboratories and in some cases combined

innovative technologies across laboratories or “brought innovative technology ideas” into national laboratories for investigation. Venture capital

firms could broker technology concepts between DOE and EPA laboratories and possibly co-fund development of these technology demonstrations. 

The SBA has licensed Small Business Investment Companies (SBICs) for

over 50 years. Although no interviewees were SBIC-affiliated firms, officials from these firms through their trade association—the National

Association of Small Business Investment Companies (NASBIC)—might be

able to identify environmental technologies of mutual interest between

SBA and EPA. 

Invite EPA Officials to Visit Environmentally Beneficial Venture Capital

Sponsored Technology Demonstrations—Several interviewees had portfolio companies that were developing innovative environmental technologies or technologies that were being commercialized based on prototypes developed at DOE national laboratories or academic institutions.

Visits of EPA experts to these portfolio companies could offer the Agency

an opportunity to review these technologies and give EPA officials examples of how similar technology demonstrations might be conducted

based on EPA sponsored prototypes. 

Volunteer to Participate on EPA Advisory Boards and Committees—Several

venture capitalists acknowledged that they actively serve on advisory

boards for DOE national laboratories. These interviewees also expressed

interest in serving on EPA advisory boards to provide advice to the
43

Invite EPA Officials to Speak at Cleantech Conferences, Forums, and

Meetings—Several interviewees said that EPA officials have been noticeably absence from cleantech activities. National trade association meetings and regional venture capital or investor forums may offer opportunities for Agency representatives to make presentations and/or routinely

participate in networking activities. 

San Francisco, California, and Boston, Massachusetts, are the two most

active U.S. regions in cleantech investments. Six of the nine interviewees

had offices in one or both of these locations and routinely participated in

local venture capital forums and conferences. 

Review and invest in EPA Small Business Innovation Research (SBIR)

Program Technologies—Nearly all of the interviewees were familiar with

the federal SBIR Program. Although none of the interviewees had portfolio

companies that commercialized an SBIR technology, several interviewees

expressed interest in reviewing EPA’s SBIR-sponsored technologies. 

The venture capital community also could advertise through its networks

SBIR solicitations and awards, as well as potentially advise SBIR recipients

where additional funding may be available. Venture capital representatives also expressed interest in serving on an EPA advisory committee on

SBIR activities.
44
gcoss, ad eoeacosequeces ocabobased eegyso o

concern are the decreasing availability and increasing costs of other essential

resources such as clean water. An expanded interest in environmental responsibility stimulates interest and awareness of new technologies, and the global marketplace increasingly strives to recognize the business as well as social costs of

negative environmental consequences. 

Many individual and institutional investors are seeking opportunities to invest

in the growing environmental technology sector. There is a vast amount of capital available for investment. Returns on investment, however, still must compete

with other investment options. Therefore, it is critical to investors that areas of

investment risk—often based on regulatory uncertainty and unpredictability—be

identified and reduced. 

Horizons for investment contemplate long-term potential for the technology,

and a predictable forecast of the regulatory environment is essential to reduce

uncertainty. Moreover, the new challenges that will be solved by emerging technologies often require a new regulatory framework. Delays in establishing that

regulatory framework impede investment in new technology by perpetuating the

risk of an uncertain, unpredictable market. 

For these reasons, effective stimulation and adoption of new technology

requires timely regulatory action. EPA must accelerate its engagement with new

technology developers and investors, and commit to a credible, long-term advocacy of new technology. 

The venture capitalists interviewed in this study and the Work Group members

identified some specific actions that EPA and the venture capital community can

take to stimulate early-stage investment and improve the promotion and adoption of new technology. 

It is important that the Agency initiate action promptly to signal its commitment to stimulating and supporting the development of new technology solutions. Some low-cost but highly visible actions could have immediate impact

and result in immediate gains. Others will require a long-term commitment by the

Agency. Some of the recommendations will require funding, while others

depend on leveraging the Agency’s regulatory authority or its cumulative technical and scientific know-how to influence the market and investors. The

Environmental Technology Subcommittee urges EPA and the venture capital

community to consider the following recommendations and take timely action to

implement them.

45
b. Include in the Strategic Plan a focus on technology objectives that

address environmental consequences related to climate change. 

c. Host a Climate Change Technology Symposium with regulators

and investors to discuss new technology solutions to the environmental challenges of climate change. 

d. Publish long-term regulatory outlooks for other emerging technologies in such market segments as alternative energies, nanotechnology, and pharmaceuticals.

2. Forge and sustain communications with the early-stage investment 

community. 

a. Host a recurring event for venture capital investors to meet with

senior EPA officials, including the EPA Administrator, the Assistant

Administrator for Research and Development, the EPA Science

Advisor, the EPA Laboratory/Center Directors, the Senior

Environmental Technology Officer, and the Regional Environmental

Technology Advocates, and announce EPA’s commitments to

developing new technologies to solve environmental problems. 

b. Host open, accessible events that facilitate communication and

dialogue among aspiring technology developers, investors, EPA,

other regulatory bodies, and partners and reflect EPA objectives. 

c. Encourage headquarters program and regional office officials to

attend investor and new technology events sponsored by organizations such as: 

Angel Capital Association 

National Venture Capital Association 

National Association of Seed and Venture Funds

National Business Incubator Association 

d. Encourage EPA managers, scientists, and engineers at all levels to

engage with new technology developers and investors, including

personal visits to early-stage firms, particularly those developing

and commercializing technologies funded by venture capitalists. 

e. Establish a Technology Investment Advisory Board, as an independent advisory body or a standing committee of NACEPT or the

EFAB. 

f. Encourage the Environmental Technology Council and Action

Teams to invite the investment community to participate in discussions of desired technologies.

46

*“Protect and improve the air so it is healthy to breathe and risks to human health and the environment are reduced.

Reduce greenhouse gas intensity by enhancing partnerships with business and other sectors.” Goal 1. Clean Air and

Global Climate Change. U.S. Environmental Protection Agency. 2006-2011 Strategic Plan: Charting Our Course. EPA190-R-06-001. Washington, DC, 2006. Available at http://www.epa.gov/ocfo/plan/plan.htm.
ETV Program. 

e. Provide loan guarantees to new technology companies. 

f. Increase EPA laboratory research funding by 20 percent annually

and designate this funding to specifically support technologies

that can be commercialized. 

g. Offer research grants to colleges and universities to pursue commercialization of technical solutions to solve specific EPA technology challenges. 

h. Substantially increase the number of CRADAs that EPA laboratories

establish with private-sector partners. Fund grants for demonstration, pilot testing, and initial commercial deployment of technologies related to addressing climate change concerns.

4. Take steps to streamline permitting for commercial scale-up of new, innovative environmental technologies. 

a. Issue policy for streamlining the permitting process for commercial

scale-up of new, innovative environmental technologies to

encourage capitalization for taking these new clean technologies

to commercial scale. During this commercialization phase, streamlined permitting and consistent enforcement become increasingly

important. 

b. Seek opportunities to work with regions, states, tribes, and municipalities to pilot a streamlined permitting process to address priority

problems. Such an approach was used by Region 1’s Center for

Environmental Industry and Technology in collaboration with the

Interstate Technology and Regulatory Council to address septic

systems, arsenic removal technologies, and site characterization. 

5. Enforce environmental regulations consistently, to clarify needs and avoid

uncertainty.

a. Establish long-term regulations to reduce regulatory risk in a timely

manner. When environmental regulations are reliably enforced,

investors are able to gauge the potential market for new technology penetrations. 

b. Maintain a vigorous enforcement policy and drive technology

through laws and regulations; this reduces uncertainty in the marketplace. 

47
The following additional recommendations will further spur EPA support for

environmental technology development and commercialization. 

1. Establish and promulgate management and policy changes within EPA to

encourage internal support for new technology development.

a. Publicly announce appointments of the EPA Senior Environmental

Technology Officer and Regional Environmental Technology

Advocates. 

b. Use internal and external communication mechanisms to recognize successful technology adoptions throughout EPA. 

c. Encourage the Environmental Technology Council and Action

Teams to invite the investment community to participate in discussions about technology development and commercialization

issues. 

d. Recognize and reward EPA employees responsible for solving environmental problems through successful new technology applications. 

e. Create incentives for EPA research laboratories to support the

development and commercialization of environmental technologies arising from EPA research.

2. Increase public advocacy for new technology.

a. Announce EPA interests to identify possible technology solutions to

address high-priority environmental problems. Publish and maintain

an active list of specific problems for which new technology solutions are sought. 

b. Establish policy advocating support for innovative technology

approaches to solve the most critical environmental problems. 

c. Publicly advocate for new technologies that solve environmental

problems; communicate the sense of urgency for new technologies development and use. 

d. Use the EPA Science Forum as an opportunity to review new technology initiatives and to recognize EPA staff and partners for technology achievements. 

e. Create a public electronic database of successful new environmental technologies. 

f. Establish a Web-based “clearinghouse” or database that serves as

a referral service for technology investment opportunities and

challenges. 

48
through the Base Realignment and Closure (BRAC) program.

4. Model EPA technology support activities after other successful programs.

a. Adopt technology development programs demonstrated effective

by the DOE national laboratories. 

b. Address Intellectual Property Rights issues for government

researchers. The government should find some way to allow these

researchers to share in invention royalties. 

c. Link EPA laboratories with business incubators, other entrepreneurial

development organizations, and the investment community. 

d. Open EPA laboratories to visits by venture capitalists to allow them

to learn about technology developments and establish a relationship that could result in future co-investments. 

e. Establish an Entrepreneur-in-Residence program at EPA laboratories

similar to that underway at three DOE national laboratories. 

f. Investigate and coordinate with technology development and

investment programs in other countries and consider adopting the

most successful approaches to improve technology development

in the United States.

5. Clearly state technology development and commercialization objectives.

a. Include technology development objectives in the EPA Strategic

Plan as well as the Agency’s other plans. 

B. Recommendations for the Venture Capital Community

1. Collaborate with EPA to establish metrics and monitoring strategies for

new technologies to measure and document demonstrated actual performance of these technologies.

a. Consider metrics and monitoring measurements to document the

effectiveness of new technologies. 

b. Collaborate with EPA to see that the performance measurements

address metrics that are related to anticipated regulations and

standards. 

49
ers, investors, and EPA.

a. Sponsor Entrepreneur-in-Residence (EIR) programs for possible

application in the EPA laboratories. Potential “pools” of entrepreneurs could be identified and vetted through partnerships with private-sector organizations. 

b. Support private-sector organizations for EIR partnerships, which

could include: non-profit organizations such as the New England

Clean Energy Coalition, venture capital firm(s), or national trade

associations such as the National Venture Capital Association, the

National Association of Small Business Investment Companies, and

others. 

c. Alert EPA officials to venture capital investment considerations to

better understand commercialization opportunities for environmental technologies. 

d. Meet with the Senior Environmental Technology Officer (SETO) and

other EPA officials in Washington, DC, to discuss venture capital

investments in clean technologies. 

e. Meet with the EPA Regional Technology Advocates and other

regional officials to maintain mutual awareness of new technologies. 

f. Invite EPA officials to visit environmentally beneficial venture capital sponsored technology demonstrations. 

g. Invite EPA officials to participate in investment organization conferences and events. h. Participate in EPA advisory boards, councils,

and committees.

4. Provide opportunities for EPA to financially support promising new environmental technologies through existing and new financial support programs.

a. Propose loan guarantees or grant approaches that would

enhance investments in environmental technologies. 

b. Encourage firms to seek funding support through EPA’s SBIR

Program and verification support through EPA’s ETV Program. 

c. Introduce EPA to market mechanisms that would allow regulators

and investors to work together to address high-priority environmental problems (e.g., the joint meetings among the California

Environmental Protection Agency (CalEPA), the California Public

Utilities Commission (CPUC), and CalPERS that have been conducted for the past 2 to 3 years to address California energy and

environmental issues). 

50
51

Dan Watts, Ph.D.

NACEPT Council Liaison

Executive Director

Otto H. York Center for Environmental

Engineering & Science

New Jersey Institute of Technology

University Heights

Newark, NJ 07102-1982

Tel: 973-596-3465

E-mail: watts@njit.edu

John Hornback

Executive Director

Metro 4, Inc. and Southeastern States

Air Resource Managers, Inc.

526 Forest Pkwy, Ste F

Forest Park GA 30297-6140

Tel: 404-361-4000

Fax: 404-361-2411

Cell: 770-605-3059

E-mail: hornback@metro4-sesarm.org

Robin Newmark, Ph.D.

Director, External Relations

Global Security Principal Directorate

Lawrence Livermore National

Laboratory

L-640 PO Box 808

7000 East Ave, Livermore, CA 94550

Tel: 925-423-3644

Fax: 925-423-6305

E-mail: newmark1@llnl.gov

Karen Riggs

Battelle Memorial Institute

Advanced Monitoring Systems Center

Columbus, OH

Tel: 614-424-7379

E-mail: riggsk@battelle.org

E-mail: r.andrew.depass@citi.com

Bryan Martel

Managing Partner

Environmental Capital Group LLC

355 Crown Point Circle, Suite D

Grass Valley, CA 95945

Tel: 530-274-1191

E-mail: bryan@environmentalcapitalgroup.com

Frank McGrew, IV

Managing Director

Morgan Joseph & Company, Inc.

102 Woodmont Boulevard, Suite 450

Nashville, TN 37205-2287

Tel: 615-238-2308 (office)

615-364-3720 (cell)

Fax: 615-238-2301

E-mail: FMcGrew@morganjoseph.com

John Preston

Senior Lecturer

MIT Entrepreneurship Center

One Amherst Street, E40-196

Cambridge, MA 02142

Tel: 508-324-6411 (office)

617-306-5759 (cell)

Fax: 508-324-6401

E-mail: preston@mit.edu

John Wise

EPA Environmental Financial Advisory

Board (EFAB) Liaison

20591 Honey Hill Rd

Hidden Valley Lake, CA 95467

Tel: 510-501-5374 (cell)

707-987 -3742 (home)

E-mail: jcwise@mchsi.com
Paul Shapiro, Project Officer

Senior Environmental Engineer

National Center for Environmental

Research

Office of Research and Development

U.S. Environmental Protection Agency

(8722F)

1200 Pennsylvania Avenue, NW

Washington, D.C. 20024

Tel: 202-343-9801

Fax: 202-233-0678

E-mail: shapairo.paul@epa.gov

Sally Gutierrez

Director

National Risk Management Research

Laboratory

Office of Research and Development

U.S. Environmental Protection Agency

(MC 235)

26 West Martin Luther King Drive

Cincinnati, OH 45268 

Tel: 513-569-7683

E-mail: gutierrez.sally@epa.gov

Teresa Harten

Chief, Environmental Technology

Assessment and Verification Staff

National Risk Management Research

Laboratory 

Office of Research and Development

U.S. Environmental Protection Agency

(MC 208A)

26 West Martin Luther King Drive 

Cincinnati, OH 45268 

Tel: 513-569-7565

E-mail: harten.teresa@epa.gov

Beverly Campbell

President

The Scientific Consulting Group, Inc.

656 Quince Orchard Road, Suite 210

Gaithersburg, MD 20878

Tel: 301-670-4990

Fax: 301-670-3815

E-mail: bcampbell@scgcorp.com

Gregory Ondich, Ph.D.

The Scientific Consulting Group, Inc.

656 Quince Orchard Road, Suite 210

Gaithersburg, MD 20878

Tel: 301-670-4990

Fax: 301-670-3815

E-mail: gondich@scgcorp.com

Andrew Paterson

Subcontractor to SCG

Director, Economics & Finance

Consulting/North America

Econergy International

1850 M Street, Suite 1050

Washington, DC 20007

Tel: 202-822-4980 x311 (office)

619-807-3267 (cell)

Fax: 202-822-4986

E-mail: adpaterson@econergy.com

52
53

funding from the private sector if they are to be commercialized and used to

protect public health and the environment.

In its second report, EPA Technology Programs: Engaging the Marketplace,

May 2007, also available on the ETOP, the Subcommittee emphasized the need

for EPA to partner with outside organizations to develop and commercialize environmental technologies, and to help put them into use. This means that EPA

should work with the private sector to find ways to increase investment in the

commercialization of environmental technologies.

As a result, EPA wants to open communication with the investment community to get its advice on actions that EPA and the investment community could

take and partnerships they could create to achieve the goal of greater private

sector investment in the commercialization of environmental technologies over

the long-term.

II. Content of the Study

The study should address the following questions:

A. Current Investment Practices. What is the nature of current private sector

investment in environmental technology? Who are the investors? How do they

differ in their investments? How much are they currently investing? How do

investors and developers find each other? How do investors manage their investments? How do they judge the success of their investments? Give examples of

successful investments by different types of investors in environmental technology.

B. Future Investment. What are the prospects for investment in environmental technology in the future? What are the determinants of this prospective

future? What sectors or applications of environmental technology will be likely to

attract investment and why? What is the likely magnitude of these investments?

Are there likely to be new or improved mechanisms to help investors and developers find each other? What is hindering and helping the development of dedicated environmental funds? What could industry do—either by itself or with EPA

as a partner to enhance investment in environmental technology?

C. Current EPA Role. To what extent and how is EPA a factor in current

investment decisions? When have EPA regulations helped and hindered investment (give examples)? Do EPA voluntary programs lead to investment (give

examples of those that work)? What is the role of technology assessment and
remove to encourage investment? Are there actions EPA can take to facilitate

investment? What kinds of long-term partnerships between EPA and the investment community would be useful—with whom, for what purposes, and using with

what mechanisms?

III. Process for Carrying Out the Study

The Subcommittee is being asked to create a small work group consisting of

members of the Subcommittee and members of the investment community. The

work group will meet by teleconference and conduct its work by telephone and

email, unless otherwise specified by EPA.

The work group members will use existing reports about investment in environmental technology, their own experience, and contacts with knowledgeable

people in the investment community to gather, analyze, and write up contextual

and background information on venture capital investment in environmental

technology. This material will inform the work group’s discussions and can be

used in the work group’s report both as part of the text and in an appendix.

The work group will conduct structured interviews of no more than nine individuals who comprise an informed group of venture capitalists and others with

complementary experience and knowledge of investment in environmental

technology. The work group, with EPA support, will design and do a limited pretest of the questionnaire that will be used for these interviews.

The product of this work group will be a letter report to the EPA Administrator

that gives background, findings, and recommendations. It is not expected that

this report will be bound, but that will depend on its length and other considerations at the time of its completion.

It will be useful to have at least one early draft of the outline and initial information and thoughts reviewed by the Subcommittee by January 15, 2008. The

work group must complete it final report, including obtaining Subcommittee

approval, by March 30, 2008.

54
55

Interviewee Biographical Sketches

Rob Day, Principal, @Ventures 

www.ventures.com 

Rob Day, joined @Ventures in 2007, and operates out of the company’s

Boston-area office. He currently holds an observer seat on the boards of Powerit

Solutions and M2E Power. 

Prior to joining the @Ventures team, Mr. Day was an investor with Expansion

Capital Partners for more than 2 years, where he was an investment principal

responsible for various aspects of that firm’s clean technology venture capital

activities, including investments in Tiger Optics, SensorTran, and Orion Energy

Systems. 

Mr. Day was formerly a consultant with Bain & Company, where he worked

with companies and evaluated private equity transactions in the energy/utilities,

telecommunications, information technology, health care, and retail industries.

Earlier in his career, Mr. Day was a founding member of the World Resources

Institute’s Sustainable Enterprise Program, where he developed partnerships with

companies across a wide range of industries to foster new business opportunities

with economic, environmental, and social benefits. 

Mr. Day is the co-author of The Next Bottom Line: Making Sustainable

Development Tangible, co-leads the Renewable Energy Business Network

(www.rebn.org), and authors the Web site Cleantech Investing (www.cleantechvc.com). Mr. Day also serves on the boards of the New England Clean

Energy Council and GreenTech Media. Mr. Day received his M.B.A. at Kellogg

Graduate School of Management (Northwestern University), and his B.A. at

Swarthmore College.

Texas Pacific Group

Rosemary Ripley NGEN Partners $250 million

TOTAL CAPITAL UNDER MANAGEMENT $3.13 billion
Environmental Protection Agency. Previously, Mr. DeVillars served as Secretary of

Environmental Affairs for the Commonwealth of Massachusetts, Chairman of the

Board of the Massachusetts Water Resources Authority, and Chief of Operations

for Massachusetts Governor Michael Dukakis. From 1991 to 1994, he was Director

of the Environmental Services Group for Coopers & Lybrand, where he initiated

and led the firm’s environmental management systems group. 

Mr. DeVillars holds an M.P.A. from Harvard University and a B.A. from the

University of Pennsylvania. He serves on the Board of Directors of Clean Harbors,

Inc., and the Massachusetts Environmental Trust as well as several other privately

held energy and environmental corporations and nonprofit organizations. 

Hank Habicht, Managing Partner, SAIL Venture Partners 

www.sailvc.com

Hank Habicht joined SAIL Venture Partners in 2005 and works in the company’s Washington, DC office. Mr. Habicht is the Chief Executive Officer for the

Global Environmental & Technology Foundation (GETF), a 501(c)3, not-for-profit

corporation that fosters innovation in environmental management and applications of clean technology that make business and environmental sense. He is the

Co-founder and Principal in Capital E, LLC, a management consulting firm that

works with energy technology companies in areas such as solid oxide fuel cells,

photovoltaic modules, combined heat and power projects, and bio-energy

plants. 

Previously, Mr. Habicht was Senior Vice President of Safety-Kleen, and served

as Deputy Administrator and Chief Operating Officer at the U.S. Environmental

Protection Agency. He is a co-founder of the American Council on Renewable

Energy and an advisor to the Secretary of the U.S. Department of Energy. Mr.

Habicht received his bachelor’s degree from Princeton and a law degree from

the University of Virginia.

56
with the design and implementation of a series of Environmental Investment

Initiatives in the Private Equity, Real Estate, Global Public Equity, as well as

Corporate Governance segments of the fund’s $211 billion investment portfolio.

In 2004, he was elected to the boards of Audubon California and Sustainable

Conservation. In 1998, the Sacramento County Board of Supervisors appointed

him to the Board of the $5 billion Sacramento County Employees’ Retirement

System (SCERS); he was recently appointed to another 3-year term. 

From 1987 to 1996, Mr. Hickox was a Managing Director and Partner with

LaSalle Investment Management, a major force in the world’s real estate capital

markets, and at that time the largest manager of CalPERS real estate assets. 

Kef Kasdin, General Partner, Battelle Ventures 

www.battelleventures.com

Kef Kasdin is a General Partner at Battelle Ventures and Innovation Valley

Partners, where she focuses primarily on investments in communications and

emerging energy technologies. She currently serves on the Boards of Directors of

Aldis, Inc.; Multispectral Imaging, Inc.; Planar Energy Devices, Inc.; and Rajant

Corp.

Ms. Kasdin has been involved in developing and executing strategy for hightechnology companies for more than 20 years. In the 1990s, she held a number

of positions of increasing importance at 3Com Corporation in Santa Clara,

California. Among the titles she held at 3Com were: Vice President of Marketing,

Desktop Products Division and Vice President and General Manager of the $1-billion Ethernet Products Division. In the fall of 1998, Ms. Kasdin was named 3Com’s

first Executive in Residence, Office of the Chairman, driving key strategic and

operational initiatives for the company.

At the close of the decade, Ms. Kasdin moved to New Jersey and was a business and marketing consultant to a dozen technology start-ups. One of her key

clients was Sarnoff Corporation, where she worked closely with senior executives

to identify spinout opportunities and areas for future investment.

Early in her career, Ms. Kasdin was a consultant with Booz, Allen and Hamilton

in San Francisco, California. She received a B.S.E degree in Operations Research

from Princeton University in 1985, and an M.B.A. from the Graduate School of

Business, Stanford University, in 1989.

57
Executive Officer of AE Biofuels, an ethanol and biodiesel company focused on

the development of 2 billion gallons of ethanol production in Nebraska and

Illinois, and 800 million gallons of biodiesel production in the United States and

India. AE Biofuels was founded by Mr. McAfee in 2005 and taken public in mid2006. 

In 1986, Mr. McAfee graduated as the Dean’s Medalist from the Fresno State

University (FSU) Business School. He lectured as the 2001 Entrepreneur-inResidence at FSU and earned the Business School Alumni of the Year Award in

2002. Mr. McAfee is a 1993 graduate of the Stanford Graduate School of Business

Executive Program, and completed the Harvard Business School Private Equity

and Venture Capital Program.

Chuck McDermott, General Partner, RockPort Capital Partners 

www.rockportcap.com

Chuck McDermott began working in the energy and environmental area in

1984, when he joined Citizens Energy Corporation as Manager of Project

Development, helping to pioneer the creation of the nation’s first bulk electric

power trading company. He later served as Campaign Director and then as

Chief of Staff for a U.S. Congressman from 1986-1990, directing all political, constituent, and legislative matters. In 1990, Mr. McDermott joined the government

relations staff of Waste Management, Inc., the world’s largest environmental services company, and was made Vice President and Corporate Officer in 1993

responsible for the company’s federal advocacy before the White House, U.S.

Congress, and federal agencies. He relocated to Boston in 1998, and helped

form RockPort’s Merchant Bank in that year and the venture fund in 2001.

He currently serves on the Boards of Directors of Advanced Electron Beams,

Renaissance Lighting, Soliant Energy, and Tioga Energy. He also is a Member of

the Board of Directors and President of the Coalition to Advance Sustainable

Technologies, a member of the Board of Advisors to the Cleantech Venture

Network, Chairman of the Gridwise Alliance, and Board Member of the Flax Trust,

a business incubator in Belfast, Northern Ireland.

Mr. McDermott studied at Yale University before becoming a producer, performer, writer, and music company executive, recording three albums, and

founding Homecoming Records with John Stewart in 1982.

58
Chair of the National Commission on Energy Policy, Chair of the Advisory Board

for the Nicholas Institute for Environmental Policy Solutions at Duke University,

Chair of the Board for the Global Water Challenge, and a Director of the

Packard Foundation, the American Academy in Rome, and the National

Geographic Society. He also serves on the Board of Directors of DuPont,

ConocoPhillips, and Royal Caribbean International. In 2007, Mr. Reilly was elected to the American Academy of Arts and Sciences. He holds a B.A. degree from

Yale University, a J.D. from Harvard, and an M.S. in Urban Planning from Columbia

University.

Rosemary Ripley, NGEN Partners 

www.ngenpartners.com

Rosemary Ripley was asked to be a Member of NGEN in 2007. She joined

NGEN as an Entrepreneur-in-Residence in 2006 and shortly thereafter joined the

Board of EnviroTower. Ms. Ripley brings to NGEN substantial experience in strategic planning, acquisitions, and public and private market transactions.

Responsible for corporate business development at Altria Group (previously Philip

Morris Companies) from 1990-2005, Ms. Ripley helped spearhead and execute

numerous expansionary growth plans for the operating companies. She led

teams that invested heavily in Central and Eastern Europe and Asia and transformed Kraft Foods with the $19 billion acquisition of Nabisco and subsequent

$8.5 billion initial public offering. Ms. Ripley also developed the strategy and led

the transformation of Miller Brewing Company from a domestic business to part of

an international enterprise with the merger with South African Breweries.

Prior to joining Altria, Ms. Ripley was a Managing Director at Furman Selz,

responsible for the Retail and Consumer Group, and prior to that she was a Senior

Investment Banker at L.F. Rothschild, Unterberg, Towbin, where she also ran the

Retail and Consumer Group.

Ms. Ripley has been an active individual investor for years and co-founded Circle Financial Group, a multi-family office in 2004. Ms. Ripley received both

her B.A., cum laude, and M.B.A. at Yale University.

59
create a Work Group to carry out a Venture Capital Study. The Subcommittee

has previously submitted to the Agency two reports—EPA Technology Programs

and Intra-Agency Coordination (May 2006) and EPA Technology Programs:

Engaging the Marketplace (May 2007), which may be viewed at

www.epa.gov/etop. One of the key findings of the first report was that EPA has

no programs specifically directed at commercialization of innovative technologies. One of the main recommendations of the second report was that EPA

should partner with the venture capital community to increase private sector

investment in the commercialization of environmental technology. ORD is seeking guidance for that effort through this Venture Capital Study.

Process

1. The following pre-interview instrument is divided into four parts: A. Current

Investment Practices; B. Future Investment Outlook; C. EPA Activities; and

D. Open-ended Questions. At least 3 days before the interview, we are

asking each interviewee to rate items identified under Parts A, B, and C

and return these ratings by e-mail or by fax to Andy Paterson, Econergy

(contact information provided in #5 below). Part D. Open-ended

Questions are offered as guides to identify the areas that will be discussed

during the telephone interview. 

2. We realize that you may have more to say in response to certain questions than others; that is okay, we will concentrate on the ones where you

are most knowledgeable. Feel free to tell us if we have missed important

issues that we should discuss with you.

3. We will make rough transcriptions of each interview. These will be for use

only by members of the Work Group. You will not be directly quoted in

the Work Group report.

4. We will give you an opportunity to review the Work Group’s report to see

if your views are accurately reflected; however, the report must be submitted to the Subcommittee before March 31, 2008.

5. If you have any thoughts, questions, or useful information for us before or

after the interview, please contact Andrew Paterson (Econergy) at TEL:

(202) 822-4980; FAX: (202) 822-4986; E-mail: adpaterson@econergy.com or

the EPA ORD Work Assignment Manager for this project, Paul Shapiro

(EPA/ORD) at TEL: (202) 343-9801; E-mail: shapiro.paul@epa.gov.

60
Rate: General ET segments (rate “attractiveness” based on scale above)

___ Monitoring and assessment technologies

___ Pollution prevention and control

___ Remediation and restoration technologies

___ Renewable or clean energy technologies and systems

Rate: Cleantech ET subsegments, excluding energy (rate based on scale above):

___ Agriculture (i.e., natural pesticides, land management, and aquaculture)

___ Air pollution control (cleanup, emissions control, monitoring – SOx, NOx, Hg,

PM) 

___ Low carbon projects, carbon offsets, monitoring technology for CO2, greenhouse gases (GHGs)

___ Manufacturing and industrial (advanced packaging, smart or “green” production)

___ Materials and industrial efficiency (i.e., “nanotech”, biomaterials, chemicals)

___ Recycling and hazardous or solid waste treatment

___ Water & wastewater (water treatment, conservation, and wastewater treatment).

2. Factors Affecting Attractiveness of Environmental Technology Segments

Rate using: 1 = strongly Disagree; 2=disagree; 3=maybe; 4=agree; 5=strongly Agree

Note: Factors affecting attractiveness are stated in a negative voice because the premise of

the survey is that environmental technologies historically have failed to garner significant levels

of investment.

Technology Factors / Challenges

___ Venture capital investment in ET (versus “clean energy”) lags its potential.

___ The EPA R&D budget is not at a level that can move ET to market effectively.

___ Private industry funding of R&D in ET is inadequate, limiting innovative potential. 

___ Interaction between private industry and government environmental R&D

programs and EPA Labs for commercializing ET must be improved (e.g., more

resources, better focus, etc.).

___ The rigor of intellectual property protection in ET, in general, lags other technology areas.

___ Linkage between industry and permitting is weak.

61

1 Examples of cleantech or clean technologies that include both environmental and energy technology segments are

attached. This definition was created by the Cleantech Group, LLC.
promising, public and private spending is not growing fast enough for venture financing.

___ Water treatment plants as customers are “risk-averse” toward new technologies.

___ Remediation / waste management are low growth sectors with low margins.

___ Management teams in ET business plans generally lack experience, especially in marketing and manufacturing expertise, and for managing growth

of new technology ventures.

___ Investment exit strategy for ET is more difficult than energy-related Cleantech

segments.

Regulatory & Policy Factors / Challenges

___ A lack of new environmental legislation (e.g., Clean Air Act, RCRA) limits

upside growth.

___ EPA’s budget has been declining since 2004, reducing resources for enforcement, which in turn has muted market growth for ET.

___ Big equipment makers and engineering firms hamper the pace of ET adoption by favoring traditional, proven technologies over innovative ET.

___ Climate change legislation still has not been enacted, so it is not a driver yet.

___ Climate change legislation, if it occurs in the next five years, will provide

more stimulus for renewable energy than ET (list above). [i.e., Of dollars

invested in Cleantech, more will go into energy than into ET.]

___ Lack of familiarity with applications of ET technologies by federal / state regulators hinders use.

___ Other: _______________________________________________________

B. Future Investment Outlook (next 3 years)

1. Which of the following ET subsectors do you expect to invest in over the next 

3 years? 

Rate each one for “High” (5), “Medium” (3) or “Low” (1) level of investment compared to the

total amount of investment your firm expects to be making over the next 3 years.

General ET segments (rate based on scale above):

___ Monitoring and assessment technologies

___ Pollution prevention and control

___ Remediation and restoration technologies

___ Renewable or clean energy technologies and systems

62
___ Voluntary educational campaigns for wider use of technologies (e.g., EPA,

state outreach)

___ Corporate environmental commitments (voluntary or share-holder driven)

___ Expedited permitting, verification programs, or ISO Standards. for innovative

ETs

___ Federal mandates, e.g., appliance standards, fuel requirements, water treatment regulations

___ Government purchasing programs for innovative “green” technologies

___ Federal agency funded R&D/Demos, followed by technology transfer programs with industry

___ Government grants to ET technology firms for innovative devices (SBIR, R&D

contracts)

___ Revolving loans, credit support (lower interest rates) for systems that employ

ETs

___ Subsidies for investment, e.g., Investment Tax Credits, accelerated depreciation, R&D tax credits

___ Federal subsidies for innovative technology performance, e.g., production

tax credits

___ Taxes on traditional usage, e.g., taxes on fossil fuels or GHGs, increased water

rates

___ International collaboration programs in ET

C. EPA Activities

Which of the following EPA programs, policies or actions provide value added

information for ET investment decisions? 

(Rate all on 1 to 5 scale, where 5 = “best”, 3 = “some impact” and 1 = “least impact”

___ Programs (such as the Diesel Retrofit Technology Verification Program) that

approve specific technologies for a given set of emission reduction credits?

___ Grant or other financial incentive programs that link monetary support

directly to a class of technologies?

___ Reports of the performance of ET such as results of a verification or demonstration in the field in real world situations?

___ Technologies that have been through Phase I and II of the SBIR program

where the technology has been peer reviewed?

___ EPA approved analytical methods?

___ Training and technical support of state regulatory personnel, consulting

groups or others on what technologies are available and their efficacy?

63
or both?

3. Do you think ETs have a more difficult entry and/or exit investment strategy than other clean technologies? If so, what can be done to make it

easier?

4. Are there characteristics of ET technologies and markets that need to

change to attract venture investment? 

5. Which ET segments (e.g., climate change, water technologies, etc.) have

the greatest potential to generate investments in the next few years?

6. Are there “crossover” opportunities for certain technologies to support

both ET and energy technologies?

7. What can EPA do to reduce the ET investment risks? 

8. What EPA activities present significant barriers to ET investment?

9. Are there some successful technology development and commercialization programs that EPA learn from? If so, what are the programs? 

10. How can EPA continue a dialogue with the investment community in the

future?

64
reactions; nanomaterials; composite materials; thermal

regulating fibers and fabrics; environmentally friendly

solvents; nanotechnology components for electronics,

sensor applications, and energy storage; electrochromic glass; thermoelectric materials.

Energy Generation

Distributed and renewable energy generation and

conversion, including wind, solar/photovoltaic,

hydro/marine, biofuels, fuel cells, gasification technologies for biomass, and flywheel power systems.

Energy Infrastructure

Wireless networks to utilities for advanced metering,

power quality monitoring and outage management;

integrated electronic systems for the management of

distributed power; demand response and energy management software.

Energy Storage

Batteries, e.g., thin film and rechargeable; power quality regulation; flywheels; electro-textiles.

Energy Efficiency

Energy management systems; systems that improve

output of power generating plants; intelligent metering;

solid state micro-refrigeration; control technology for

HVAC systems; automated energy conservation networks.

Recycling technologies; waste treatment; internet marketplace for materials; hazardous waste remediation;

bio-mimetic technology for advance metals separation

and extraction.

Advanced packaging; natural chemistry; sensors; smart

construction materials; business process and data flow

mapping tools; precision manufacturing instruments &

fault detectors; chemical management services.

Hybrid vehicle technology; lighter materials for cars;

smart logistics software; car-sharing; temperature pressure sensors to improve transportation fuel efficiency;

telecommuting.

Water recycling and ultra-filtration systems (e.g., UV

membrane and ion exchange systems); sensors and

automation systems; water utility sub-metering technology desalination equipment.

65

Energy

Recycling & 

Waste

Manufacturing/

Industrial

Transportation

Water & 

Wastewater

Source: Jones, et al., 2007 and Parker, et al., 2007
2. What is driving ET investment—EPA activities, private sector activities, or

both?

EPA activities such as compliance/enforcement, voluntary programs, industry partnerships, technology assessment/verification

programs?

Private sector activities such as global competitiveness, shareholder pressures, institutional investors, sustainability, socially responsible investing?

3. Do you think ETs have a more difficult entry and/or exit investment strategy than other clean technologies? If so, what can be done to make it

easier?

How much “draw” from institutional investors are you seeing for

investment in ET?

4. Are there characteristics of ET technologies and markets that need to

change to attract venture investment? 

One frequently mentioned concern for cleantech, especially ETs,

is the slow rate of market utilization and adoption. Innovative

cleantech companies frequently try to sell their products

upstream against competing, deeply entrenched traditional

approaches.

Is there a fundamental deficiency inherent to ET that limits the likelihood of profitability and thus investment in this sector?

What are the elements of ET companies, technologies, and markets that account for less venture investing in certain years compared to investments in other categories?

Is the level of technology advancement in ETs sufficient to attract

venture investment?

5. Which ET segments (e.g., climate change, water technologies, etc.) have

the greatest potential to generate investments in the next few years? 

You rated the following categories “high” ______________________.

Why ?

What technologies should be invested in to mitigate and adapt

to rapid climate change?

What can EPA do to work with the investment community in getting climate change-related ETs to market?

Have you seen increases in venture capital investments into companies in the areas of water treatment, filtration, and purification;

conservation and efficiency; and wastewater treatment and

reuse? If so, what do you believe has driven this sustained and

increased investment?

66
Leadership in science and advocacy for technology?

Research and development?

Verification protocols?

Use of EPA’s grant or loan (i.e., State Revolving Fund) funds to promote/pay for technologies?

Compliance assistance and technology promotion?

8. What EPA activities present significant barriers to ET investment?

Regulations specifying control technologies (Effluent Guidelines,

Best Available Control Technology, New Source Performance

Standards, etc.)? 

Methods—sampling, analysis, and instrumentation? 

Compliance assurance and enforcement?

9. Are there successful federal and/or private sector technology development and commercialization programs that EPA can learn from? Is so,

what are the programs?

Department of Energy?

Department of Defense (e.g., DARPA)?

National Laboratories?

University-based technology promotion offices?

Small Business Administration?

State Departments of Commerce?

Consortia and/or public-private partnerships such as SEMATECH

(SEmiconductor MAnufacturing TECHnology) and CalStart?

Do you have any examples to suggest or experiences to share?

10. How can EPA continue a dialogue with the investment community in the

future?

Having this opportunity to interview you and other senior members

of the investment community is very helpful to us. We would like

to devise a way that we could continue getting this type of

advice on a regular basis.

Would creating an advisory panel consisting of senior members of

the investment community work? 

If so, how should the membership be determined? 

What are the best ways to have ongoing working relationships

and partnerships with individuals, associations, and others? 

Are there conferences and/or seminars where information could

be shared between government and private sector representatives?

67
Chuck McDermott, General Partner–RockPort Capital Partners

William Reilly, Founding Partner–Aqua International Partners/

Texas Pacific Group

Rosemary Ripley, Member–NGEN Partners

A summary of the interviewees’ responses follows: 

Current and Future Investment Trends for Environmental Technology

Segments—Clean energy was rated highest for current and future investment. Several high profile clean energy deals went public in 2006 and

2007, creating broader venture capital interest. EPA actions related to air

emissions and water resource impacts have a direct bearing on clean

energy options. Within environmental technology segments, “low carbon” projects drew the highest levels of interest given heightened

prospects of legislation, while back-end remediation was seen as low

growth and rated lowest.

Observations About Factors that Affect Investment in Environmental

Technology—There was wide agreement that EPA’s research budget was

not adequate relative to the challenges and opportunities at hand. There

was some sense that improved industry and government laboratory interaction could lead to more technologies finding their way to the marketplace. Most interviewees view engineering firms and big equipment makers as more risk-averse to new technologies, perhaps because they are

more invested in the current approaches, and there is little incentive to

risk trying new approaches absent some elevated enforcement or new

regulations. Likewise, POTWs (sewage treatment plants) were seen as riskaverse customers with little to gain from going beyond current regulations. Although climate change legislation could be an interesting driver,

the lack of consensus on specific measures is causing uncertainty.

Nevertheless, it is a heightened area for investment interest.

Viewpoints on Activities for Promoting Environmental Technology More

Broadly—Many investors noted that although investment deals could not

be totally dependent on regulations, new mandates help form markets.

Government grants and other subsidies also could help new technologies

cross the proverbial “valley of death” from laboratory to commercial use.

The interviewees saw taxes on conventional fuels and water as encouraging adoption of environmental technology because they would increase

68
presented below.

Ratings for Interviews

A. Current Investment Practices 

A1. Overall “Attractiveness” of ET Market Segments

Avg (9)

General ET segments

Monitoring and assessment technologies 3.3

Pollution prevention and control 3.3

Remediation and restoration technologies 2.8

Renewable or clean energy technologies and systems 4.9

Cleantech ET subsegments, excluding energy

Agriculture (i.e., natural pesticides, land management, aquaculture) 3.3

Air pollution control (emissions control, monitoring) 3.4

Low carbon projects, carbon offsets, monitoring for GHGs 4.1

Manufacturing and industrial (packaging, “green” mfg.) 3.8

Materials & efficiency (“nanotech”, biomaterials, chem) 3.7

Recycling and hazardous or solid waste treatment 2.8

Water & wastewater (treatment, conservation, recycling). 3.8

Overall average 3.6

A1 Observations on Current Investment

Overall, renewable energy related deals have attracted the most investment.

Low carbon projects were rated highest among the ET segments, perhaps

because of the elevated interest in the “climate change” issues as a driver for

new market niches and for growth of expenditures to curtail carbon emissions.

Recycling and hazardous waste rated lowest as a back-end business that saw a

lot of bankruptcies in the 1990s.Water treatment rated just higher than average,

could attract more capital with better growth prospects.

69
Engineering firms lack incentives to promote ET technology. 4.2

ET lacks a level of breakthroughs to merit venture investment. 2.8

Market Factors / Challenges

Market growth for ET is less attractive than other sectors. 3.2

Market growth for ET is less attractive vs. renewable energy. 3.9

Water market spending not growing fast enough for venture financing. 4.1

Water treatment plants are “risk-averse” customers on ET. 4.9

Remediation / waste mgmt suffer low growth, low margins. 4.0

Mgmt teams in ET lack experience for managing growth. 3.1

Investment exit strategy for ET is more difficult than Cleantech energy. 3.9

Regulatory & Policy Factors / Challenges

Lack of new environmental legislation limits upside growth.

EPA’s budget (down since 2004) reduces enforcement, growth for ET. 3.4

Equipment makers, engineering firms hamper ET adoption. 3.9

A climate change bill not enacted, so it is not a driver yet. 4.3

Climate change legislation (by 2012) will provide more stimulus for 

renewable energy than ET 3.6

Lack of familiarity with ET by regulators hinders use. 3.6

Overall average (for A2) 3.8

A2 Observations on Factor Ratings

There was wide agreement that EPA’s R&D budget was not adequate relative to the challenges and opportunities at hand. Perhaps related to R&D funding is a sense that Industry and government lab interaction can be improved so

that more of the R&D funding actually finds its way into the marketplace, a key

issue in “bridging the gaps” to investors and industry.

Many interviews see engineering firms and big equipment makers as more

risk-averse to new technologies, perhaps because they are more invested in the

current approaches, and there is little incentive to risk trying new approaches

absent some elevated enforcement or new regulations. Likewise, POTWs

(sewage treatment plants) were seen as risk-averse.

70
Pollution prevention and control 2.7 3.3

Remediation and restoration technologies 1.9 2.8

Renewable or clean energy technologies and systems 5.0 4.9

Cleantech ET subsegments, excluding energy:

Agriculture (i.e., natural pesticides, land management, 

aquaculture) 3.0 3.3

Air pollution control (emissions control, monitoring) 3.0 3.4

Low carbon projects, carbon offsets, monitoring for GHGs 4.3 4.1

Manufacturing and industrial (packaging, “green” mfg.) 3.0 3.8

Materials & efficiency (“nanotech”, biomaterials, chem) 3.6 3.7

Recycling and hazardous or solid waste treatment 2.0 2.8

Water & wastewater (treatment, conservation, recycling). 3.2 3.8

Overall average (for B1) 3.2 3.6

B1 Observations on Future Investment

Energy related deals will continue to attract more investment, while remediation has become less attractive as a market that has plateaued, and one where

technology is not seen to be as applicable to a high growth niche. Low carbon

projects were rated high across the board based on broader market activity.

Manufacturing or industrial packaging fell in attractiveness going forward.

B2. Which might best promote market use or adoption of ET? 

(Rate all on 1 to 5 scale, where 5 = “best”, 3 = “some impact” and 1 = “least impact”)

Avg (9)

Voluntary educational campaigns for use of ET 2.7

(e.g., EPA, state outreach)

Corporate environmental commitments 3.7

(voluntary or share-holder driven)

Expedited permitting, verification programs, or ISO Standards. for ET 4.1

Federal mandates: appliance standards, fuel regulations, water 4.7

regulations

Government purchasing programs for innovative “green” technologies 3.9

Federal agency funded R&D/Demos, technology transfer with industry 4.2

Government grants to ET firms for innovative devices (SBIR, R&D) 4.4

71
regulations, new mandates help form markets. Government grants and other

subsidies could also help new technologies cross the proverbial “valley of death”

from lab to commercial use. All saw taxes on conventional fuels and water as

encouraging adoption of ET. International collaboration rated low universally, as

most were focused domestically. 

C. EPA Activities

Which of the following EPA programs, policies, or actions provide value

added information for ET investment decisions? 

(Rate all on 1 to 5 scale, where 5 = “best”, 3 = “some impact” and 1 = “least impact”)

Avg (9)

Programs approving specific technologies for emission reductions 3.9

Grant or other incentives to directly fund a class of technologies 3.9

Reports of ET field performance (verification or demonstration) 3.4

Technology peer review (after Phase I and II of SBIR program) 3.6

EPA approved analytical methods 2.9

Training and technical support of state regulatory personnel, consultants 3.3

Correspondence from EPA Program Offices to EPA Regions for ET 3.0

Rules, regulations, technical guidance specifying use of selected ET 4.0

Info on technologies from EPA researchers 2.8

Overall average (for C) 3.4

C Observations on EPA Activities

Mirroring the notion that mandates can help create markets or demand for

ET, technical guidance specifying use of ET was rated highest among EPA activities. Grants could also be useful, perhaps for feasibility analysis. Some of the ratings of EPA activities were muted by incomplete awareness of EPA programs and

activities by some interviewees.

72
RockPort Capital Partners

Advanced Electron Beam (AEB), a Wilmington, Massachusetts company, has

developed a breakthrough electron beam technology—the AEB Emitter—that is

10 times less expensive and 100 times more compact in size than conventional

electron beam units. While electron beams have historically been used in industrial applications to replace chemical and thermal processes, adoption has been

limited because of high equipment and operating costs, complex implementation, and the huge size of conventional electron beam technologies. By contrast, the AEB Emitter makes it possible to integrate this clean energy source into

a wide array of applications that was never before technically or economically

feasible.

The small size of AEB Emitters allows electron beams to be easily integrated

“in line” into existing manufacturing and production equipment, bringing the

beam to the production line for maximum process efficiency. Available in 10-inch

and 16-inch models, AEB Emitters can be aligned in multiples to produce a beam

of any desired width and are small enough to be directed at any angle.

Additional geometries to increase coverage area, electron dose and process

throughput also are possible. AEB Emitters have an operating voltage of 80-150

kV and weigh less than 30 pounds. Moreover, the approach requires no active

vacuum pumping equipment, offers a compact, solid-state power supply, and

requires no in-plant engineering or maintenance expertise. 

AEB Emitters offer the opportunity for a variety of manufacturers to transform

their production processes. Many companies in large industries are very interested in reducing manufacturing costs, saving energy, and eliminating pollution and

those are the benefits offered by this new technology. AEB Emitters can address

a range of applications across the sterilization, pollution abatement, and curing

and polymer treatment sectors. Specific AEB Emitter applications include: the

destruction of airborne viruses and bacteria; the extension of shelf life of foods;

generation of hydrogen for fuel-cell vehicles; the modification of recycled tires

into high-quality engineered plastics; and the removal of hazardous gases, such

as sulfur and nitrous oxides (SOx/NOx), from fossil-fuel burning power plants. 

In March 2007, Advanced Electron Beam announced it has received $17.5

million in a Series B funding round led by RockPort Capital Partners, with participation from existing investors Atlas Venture and General Catalyst Partners. The funding will be used to accelerate AEB’s efforts to commercialize its AEB Emitters as

73
has constructed and is developing nextgeneration ethanol and biodiesel pro

duction worldwide. AE Biofuels is seeking to become the first independent vertically integrated biofuels company in the world. The company is developing biofuels production from both nonfood and traditional materials. AE Biofuels has a

new cellulosic ethanol plant in Montana, three biodiesel plants operating or

planned in India, and six U.S. ethanol plants—five plants in Illinois and one plant in

Nebraska. 

On December 19, 2007, President Bush signed the Energy Independence

and Security Act of 2007 (EISA, Public Law 110-140). This new law covers a wide

range of energy topics with extensive attention to biofuels, including ethanol and

biodiesel. Key biofuels-related provisions include: a major expansion of the

renewable fuel standard (RFS) established in the Energy Policy Act of 2005

(EPAct) expansion and/or modification of tax credits for alternative fuel refueling

infrastructure, and for ethanol and renewable diesel fuels; grants and loan guarantees for biofuels research, development, deployment, and production; studies

of the potential for ethanol pipeline transportation, expanded biofuel use, market

and environmental impacts of increased biofuel use, and the effects of biodiesel

on engines; and reauthorization of biofuels research and development at the U.S.

Department of Energy (DOE) and the U.S. Department of Agriculture (USDA).

Title II of EISA requires a dramatic expansion of the RFS under EPAct 2005.

Instead of the 5.4 billion gallons required in 2008 by the EPAct, EISA requires 9.0

billion gallons. By 2022, EISA will require 36 billion gallons of renewable fuel in

motor fuels annually, compared to an estimated 8.6 billion gallons under the

EPAct. Of that, 21 billion gallons must be “advanced biofuel,” defined as biofuel

produced from feedstocks other than corn starch and having 50 percent lower

lifecycle emissions than petroleum fuels. Advanced Biofuel has three different

subcategories: cellulosic biofuel, biomass-based diesel, and other. 

On February 7, 2008, EPA published new RFS regulations to comply with the

EISA 2008 provision for 9 billion gallons of ethanol use. The new RFS is 7.76 percent

ethanol in gasoline for 2008. Section 211 of the Clean Air Act (CAA), as amended by EISA, requires EPA to annually determine an RFS that is applicable to refiners, importers, and certain blenders of gasoline, and publish the standard in the

Federal Register. This standard is calculated as a percentage, by dividing the

amount of renewable fuel that the Act requires to be blended into gasoline for a

given year by the amount of gasoline expected to be used during that year. EPA

originally set the RFS for 2008 at 4.66 percent based on the RFS requirement of 5.4

billion gallons in 2008 in the EPAct of 2005. 

74
plants. 

AE Biofuels is supported by Cagan McAfee Capital Partners, a Silicon Valleybased venture capital organization. Eric McAfee, Managing Director, Cagan

McAfee Capital Partners, also is the Chairman and Chief Executive Officer of AE

Biofuels, Inc.

Aldis, Inc. and Planar Energy Devices

www.aldiscorp.com and www.planarenergy.com

“Technology ‘Spinouts’ from Government Laboratories”

Battelle Ventures

Battelle Ventures, LP, and its affiliate fund, Innovation Valley Partners (IVP),

have committed nearly $8 million in start-up financing to two energy-related

companies, Aldis, Inc., and Planar Energy Devices, Inc., which are direct spinouts

of the U.S. Department of Energy’s national laboratories managed by Battelle

Ventures’ sole limited partner, Battelle Memorial Institute (Battelle). 

Aldis, a traffic management technology company focused on energy efficiency, has a joint development agreement with Oak Ridge National Laboratory

(ORNL), and Planar Energy Devices (Planar), a power-storage company developing thin-film batteries, is a spinout of DOE’s National Renewable Energy

Laboratory (NREL), as well as a licensee of both NREL and ORNL technology. 

Aldis and Planar are examples of how Battelle Ventures has acted as

“founder capitalists,” building technology companies from the ground up. With

Battelle as a limited partner, Battelle Ventures cannot only deploy a unique set of

company-building capabilities, but it also can leverage its position as a bridge

between early-stage businesses or technology entrepreneurs and the Battelle

network to add value to Battelle Ventures’ portfolio companies.

Battelle Ventures investments in Aldis and Planar unfolded differently. For

Aldis, assurances of the management team capability came before the technology. The idea for advanced traffic management came from the Aldis

cofounders, who Battelle Ventures took to visit ORNL, where some related projects were in development. 

75
@Ventures

M2E Power, Inc., a Boise, Idaho company, has developed a micro-generator

that converts everyday human and vehicle motion into enough energy to power

mobile electronic devices. The company expects its technology—an advance

on the technology found in devices like self-winding watches and battery-free

flashlights—will eventually power cell phones, digital cameras, and portable

entertainment players. For now, however, the company is focusing on powering

mobile devices on the battlefield.

The patent-pending M2ETM (Motion to Energy) technology originated with

Department of Energy-funded research at the Idaho National Laboratory (INL).

Inventor Eric Yarger and his team at the INL sought to ease the military’s battery

dependence for mobile power and offer soldiers a way to generate power as

they move around. It leverages the well-proven Faraday Principle (energy produced via motion of a magnet through a wire coil), but with changes in the

magnetic architecture that have broad applicability to many sizes of motor generators.

In November 16, 2007, @Ventures, the clean technology venture capital business of CMGI®, Inc., announced that it made a $2.0 million investment in M2E

Power, Inc. @Ventures participated in the company’s $8 million Series A financing

round, along with OVP Venture Partners, Highway 12 Ventures and existing

investors.

M2E Power will use the funds to speed commercialization of its M2ETM technology, which has the potential to fundamentally transform the way military and

consumer mobile devices are powered. M2E also may provide significant economic benefits for larger-scale generator applications such as wind and ocean

wave power.

M2E also is an eco-friendly, cleantech solution that can significantly reduce

carbon emissions in larger applications. Depending on usage, it may not need to

draw from power grids to recharge itself. It eliminates up to 30 percent of the

highly toxic heavy metal contained in typical batteries and—by doubling battery

life—cuts in half the number of batteries discarded in landfills.

76
address the needs of underserved communities around the world. Both patented technologies have been subjected to air and water pollution testing procedures developed by EPA to validate their pollutant reductions claims. 

Testing has proven that ORYXE RFT provides significant reductions in particulate matter emissions while keeping NOx neutral and improving furnace heat

transfer. Residual oil-fired plants experience reduced black smoke emissions from

their exhaust stacks and improved overall efficiency with the use of ORYXE RFT.

The efficiency improvement often offsets the cost of the additive, thus providing

users with an emission reduction program that requires no large capital expense

and little to no operational expense.

Dr. Ashok Gadgil, Vice President of Scientific Affairs for WHI, developed UVW

at the DOE Lawrence Berkeley National Laboratory. Through a multi-stage filtration process coupled with a proprietary ultraviolet disinfection technology, contaminated water is converted into clean, potable water that exceeds the World

Health Organization’s standards for potable water. The UVW-based system effectively purifies and disinfects water contaminated with a broad range of

pathogens, including polio and roto viruses, oocysts, such as Cryptosporidium

and Giardia. Low maintenance requirements, high efficiency, and high throughput make UVW systems capable of delivering affordable, high-quality drinking

water even to remote and rural markets that have previously been under served. 

ORYXE Energy’s new technology already has been proven to reduce emissions in diesel fuel. The technology was used to develop an alternative diesel formulation, approved by the Texas Commission on Environmental Quality, to meet

the new Low Emission Diesel standards in Texas. The immediate success of this

product, called ORYXE LED, also proves ORYXE Energy’s ability to meet its promise

to supply a revolutionary new additive to the market.

77
Ethanol’s goal is to achieve 220 million gallons per year of ethanol production

capacity in 2008, and to increase total production capacity to 420 million gallons

per year in 2010. 

In February 2006, Fortune Magazine called Pacific Ethanol the only publicly

traded pure-play ethanol maker and commended the company for its ability to

raise a private equity total of $111 million, including $84 million from Bill Gates.

Based on DOE estimates, Fortune predicted that, by 2030, ethanol could replace

up to 30 percent of the projected gasoline usage at that time. 

On December 19, 2007, President Bush signed the Energy Independence and

Security Act of 2007 (EISA, Public Law 110-140). This new law covers a wide range

of energy topics with extensive attention to biofuels, including ethanol and

biodiesel. By 2022, EISA will require 36 billion gallons of renewable fuel in motor

fuels annually, compared to an estimated 8.6 billion gallons under the former

Energy Policy Act. Of this 36 billion gallon requirement, 21 billion gallons must be

“advanced biofuel,” defined as biofuel produced from feedstocks other than

corn starch and having 50 percent lower lifecycle emissions than petroleum fuels. 

In January 28, 2008, the U.S. Department of Energy announced that Pacific

Ethanol would receive a matching grant award totaling $24.32 million to build

the first cellulosic ethanol demonstration plant in the Northwest United States. The

pilot plant is designed to produce 2.7 million gallons of ethanol annually. The

plant will employ a technology to produce ethanol from wheat straw, wood

chips, and corn stover and will be co-located at the site of Pacific Ethanol’s existing corn-based ethanol facility in Boardman, Oregon. Pacific Ethanol’s partners

in winning this competitive process were, BioGasol ApS and the Joint BioEnergy

Institute (a consortium of academic institutions and DOE laboratories including

the Lawrence Berkeley National Laboratory and Sandia National Laboratory).

BioGasol ApS has developed the proprietary technology and the Joint BioEnergy

Institute will be providing support and specific research and development on

enzyme technology. 

The two principal founders of Pacific Ethanol were Eric McAfee, Cagan

McAfee Capital Partners, and Bill Jones, former Secretary for the California

Environmental Protection Agency.

78
uring and calculating 19 different water parameters in 6 minutes. Key water

quality tests that the WP 870 can perform include measurements for pH, Free

Chlorine, Total Chlorine, Ammonia, Total Dissolved Solids, Calcium Hardness, and

other water parameters. The Water Point system enables municipalities and

industrial customers to monitor their water in real-time, helps them pinpoint the

extent of contamination quickly and efficiently, and allows users to perform postevent monitoring while still the field.

From April through July 2007, the WP870 was tested by the EPA Environmental

Technology Verification (ETV) Program evaluating the following parameters:

accuracy—comparison to results from standard laboratory water reference

analyses; precision—repeatability from sample replicates analyzed on the same

day; inter-unit reproducibility—comparison of results from two identical sensors

and handheld units; field portability—operation during remote field site analysis;

and ease of use—general operation, data acquisition, set-up, consumables used,

and purchase and operational costs. In September 2007, EPA released its ETV

Report on the Sensicore WP870. The report is available on line at

http://www.epa.gov/etv/pubs/ vrSensicoreWS.pdf. 

Sensicore was founded in November 2000, in partnership with researchers

from the University of Michigan, to explore new applications for solid-state sensors. The initial goal was to create a means of liquid profiling that took full advantage of sensor technology and emphasized greater convenience and ease of

use than traditional methods. 

By the end of 2003, the company met its first major challenge with the development of a disposable micro-sensor that was cost effective and easy to

replace. Based on this success, the company assembled a broader team of international water industry experts to apply sensor technology in a commercially

viable product. Water POINTTM, a hand-held device for point source water testing, was launched nationally in the first quarter of 2005. In March 2006, Sensicore

announced the availability of the WP870, its second generation hand-held water

testing system. 

Sensicore is supported by a group of Venture Capital organizations including:

NGEN Partners, Santa Barbara, California; Aridest, Ann Arbor, Michigan; Capital

Management, Palo Alto, California; Technology Partners, Palo Alto, California;

and Topspin Partners, Roslyn Heights, New York.

79
In contrast to the other photovoltaic concentrator modules on the market

today, the Heliotube panel includes concentration and solar tracking within the

traditional form factor of a 4’ x 6’ solar panel. Heliotube’s integrated tracking

mechanism provides more uniform power output than traditional flat panels and

eliminates the substantial efficiency losses associated with fixed low-concentration modules. In addition, the Heliotube tracking system is self powered and

plug-compatible with conventional “flat plate” x-Si products. As a plug-compatible alternative to standard solar panels, Heliotube conforms to the existing standards and practices of the large, established channels of solar installers, integrators, project managers, dealers, and distributors. 

In March 2007, Soliant Energy (previously Practical Instruments) was awarded

a $4 million grant from the U.S. Department of Energy (DOE) Solar America

Initiative (SAI). The DOE SAI grant will allow the company to accelerate development of its HeliotubeTM product platform. Soliant’s project partners in the SAI

award included: Spectrolab, the DOE Sandia National Laboratory, SunEdison,

and the Massachusetts Institute of Technology. 

Soliant’s DOE SAI award is expected to allow the company access to more

private equity support if needed in its photovoltaic product line development.

Currently, Soliant is funded by leading energy and renewable technology

investors, including RockPort Capital, Trinity Ventures, Nth Power, Silicon Valley

Bank, and Rincon Venture Partners. A RockPort Capital General Partner serves on

the Board of Directors of Soliant Energy. 

212 Resources

www.212resources.com

“Securing Long-Term Debt Financing for an Environmental Technology”

@Ventures

The focus of @Ventures’ current fund, formed in 2004, is on investments in the

cleantech sector, including alternative energy, energy storage and efficiency,

and water purification technologies. In early 2007, @Ventures made a $3 million

investment in 212 Resources (formerly H2Oil Recovery Services), a natural

80
The 212 Resources company name reflects the “resource recovery opportunities at the boiling point of water (212°F)” and how the company focuses on helping to address one the world’s most serious problems—water conservation. 

The 212 Resources’ well-site service enables oil and gas companies to develop reserves, reclaim and purify water, and add incremental revenue by enhancing hydrocarbon recovery. The company employs a patented vapor compression flash evaporation system that separates 

wastewater generated by oil and natural gas exploration and production

into clean water, brine, methanol, and natural gas condensate. 

Recovering valuable byproducts, while generating clean water, allows the oil

and natural gas industry to lower its water management costs. In addition to protecting fresh water aquifers in production fields, the negative environmental

impacts of trucking and impounding wastewater are reduced. The company

has several plants in Wyoming under construction to treat more than 9,000 barrels

of water per day at different oil and gas sites. 

81
ties. Environmental Capital Group (ECG) provides environmental due diligence,

performance monitoring, and reporting services that account for the real environmental impacts created by the private equity investments in clean energy

and technology. 

Environmental Due Diligence

The purpose of environmental due diligence is to answer two key questions:

1. If the technologies of the portfolio companies are successfully commercialized, will the fund result in significant net environmental benefits?

2. Does the fund management have the capability and willingness to implement its environmental strategy and measure the resultant environmental

benefits? 

Each candidate fund responds to a set of questions about the fund’s potential environmental benefits, environmental strategy, prior experience in environmental investments, environmental and technical expertise, and experience and

knowledge of measurement of environmental results. For a fund to be recommended, it has to meet expectations according to specific criteria in each of the

following categories:

Priority and scope of environmental problems addressed.

Magnitude of potential environmental benefits.

Environmental strategy of fund.

Likely environmental performance of fund.

Management team environmental experience.

Environmental performance monitoring capability.

Successful Investment Proposals

The most successful investment proposals have the following characteristics:

The prospective portfolio companies are likely to result in significant environmental benefits because of the potential for breakthrough technologies and/or because the technology might be transferred to multiple

companies.

The fund management demonstrates an understanding of: a) the environmental problems that it will address, b) the importance of considering

positive and negative environmental impacts, c) the legal/regulatory

environment, and d) the need to have a plan to commercialize technologies to achieve actual environmental benefits.

82
only the environmental impacts of the companys technology, but also of the

technology that it seeks to replace. It also requires establishing the boundaries of

the analysis and considering significant positive and negative environmental

impacts within those boundaries. For example, when analyzing how an electric

car benefits the environment, we must first answer the question: “Compared to

what?” Usually, the comparison is made to the industry standard or typically-used

product, which we call the “base case”. We must then address the question of

how the new technology compares environmentally to the base case, both positively and negatively. The diagram below shows potential sources of environmental benefits relating to consumption of energy and raw materials and manufacture of product and by-products.

83

3. Manufacturing 

or EnergyProduction Process 

2. Energy Raw 

Materials Process energy 

4. Product 

Functionality 

AIR 

WATER 

LAND 

5. ByProducts 

(Emissions)

Embodied 

energy 

1. Product 

Raw 

Materials 

1. Product Raw Materials: The technology may require either a smaller

amount of raw material or a more environmentally benign raw material to

achieve the same result compared to the industry-standard (e.g., a manufacturing process that recycles by-products to be used as raw material).

2. Energy Raw Materials: The energy used to make the raw materials

(embodied energy) or to convert the raw materials to the final product

(process energy) may be from a renewable energy source instead of a

fossil carbon energy source (e.g., liquid fuels produced from agricultural

waste). 
combustion to produce the electricity also means the absence of greenhouse

gas and other air emissions. In addition, the energy raw material (the sun) is

renewable, so fossil carbon resources aren’t depleted. However, the solar panels

are manufactured from product raw materials that consume energy to produce

(embodied energy, which may be fossil carbon based and which will vary in

amount and type depending on the panel technology employed). The amount

of energy produced in the energy-production process will also depend on the

technology employed. 

Clearly, the extent of conducting such an analysis depends upon the detail

in which each area is considered (do you count the energy required to make the

machinery for a manufacturing process?) and the boundaries selected for the

analysis (do you count the fuel burned by the workers driving to an ethanol

plant?). This process has to be mindful of the costs associated with capturing and

accounting for the net environmental benefits. Toward this end, ECG considers

only those elements that significantly affected the results compared to the base

case, what we call the “80/20 rule”. For example, for a portfolio company producing a new building insulation product from recycled materials, we included

the savings in product raw material embodied energy because making the recycle-based product required at least 20% less fossil carbon-based raw materials

than making the traditional material. We also included the difference in product

functionality (insulating capability) because the insulating capability of the recycle-based product was at least 20% better than the traditional material, resulting

in building energy savings and reducing associated air emission by-products. We

did not go to the detail of comparing the embodied energy of the machinery

used to produce the recycle-based and traditional products. In most cases, we

only considered the direct raw materials and energy used in the manufacturing

process and the direct emissions from the process, not raw materials, energy and

emissions further downstream or upstream. As we follow these companies over

the investment period, we will continue to check if we are capturing all the

material net environmental benefits.

Another example of our approach is small-scale wind-powered electricity

generation. These wind turbines are sold throughout the US. We selected as a

base case the production of electricity from all sources in the US (natural gas,

coal, nuclear, etc.) and assumed that any power generated from the wind turbines would displace power generated from a weighted average of these

sources. We then calculated the total amount of power displaced and an associated reduction in air emissions (e.g., CO2, NOx, SOx, Hg) based on the weighted

average emissions from all sources. This is obviously an approximation. If we could

determine exactly where each wind turbine was installed, we could identify

84
energy type and requirements, end-product functionality, by-products, etc.). 

Environmental Performance Reporting System

To move from concepts about environmental benefits to specific results for

each portfolio company, ECG developed an Environmental Performance

Reporting System (EPRS). The objectives of this system are to: 

1. Measure the net environmental benefits of each fund and portfolio company investment; and

2. Establish an environmental performance basis for proactively choosing

future clean energy and technology investments.

The first step in this process takes place upon the initial investment in each

portfolio company. During due diligence, the General Partner of the fund identifies the significant environmental impacts of each company and determines

whether they are consistent with the overall environmental objectives of the fund.

Within 90 days of the initial investment, the General Partner establishes an environmental performance framework for each portfolio company, including selecting the appropriate base case and preparing a sample net environmental benefit calculation. 

The calculation of net environmental benefits can be thought of as an engineering or technical report that links a business result, such as the number of

product units sold or amount of material processed, to the associated environmental result, such as tons of emissions avoided or gallons of water saved. ECG

works with the General Partner to conduct this analysis, including assessing which

environmental impacts should be included, identifying respected literature

sources, and checking the analysis for consistency with similar technologies

based on our broad understanding of the market. In some cases, the analysis is

reviewed with an expert in the appropriate field. 

At the end of each fiscal year, the General Partner collects business results

data from each portfolio company and calculates the associated net environmental benefits using the analysis framework established at the time of investment. ECG collects and reviews this information and works with the General

Partner to update and refine the analysis framework. 

85
“Indirect environmental impact”

The effects on the natural environment as a secondary result of the company’s technology and activities, such as improvement in the environmental performance of its suppliers or customers.

“Environmental performance indicator”

A measure of environmental performance used to monitor that performance

over time. Example indicators might be pounds of materials recycled, gallons of

water saved, tons of emissions avoided, etc. per unit sold, produced, or installed.

“Sustainability”

Meeting the needs of the present without compromising the ability of future

generations to meet their own needs.

“Base case scenario”

The assumptions about the environmental impacts that would have happened in the absence of the portfolio company’s existence. Often the industry

standard will serve as the base case scenario.

“Net environmental benefits”

Improvements in the absolute sustainability or quality of the natural environment as a result of a company’s environmental performance. This is obtained by

considering both positive and negative changes to environmental systems that

result from a company’s products, by-products and technologies, above and

beyond the base case scenario. 

86
DOE U.S. Department of Energy

E2 Environmental Entrepreneurs

ECG Environmental Capital Group

EERE Energy Efficiency and Renewable Energy

EFAB Environmental Financial Advisory Board 

EIR Entrepreneur-in-Residence 

EISA Energy Independence and Security Act of 2007

EPA U.S. Environmental Protection Agency

EPAct Energy Policy Act of 2005

EPRS Environmental Performance Reporting System

ETV Environmental Technology Verification 

FSU Fresno State University 

IETO Interagency Environmental Technologies Office

INL Idaho National Laboratory 

IPR Intellectual Property Rights 

ITA International Trade Administration 

IVP Innovation Valley Partners 

LEEDs Leadership in Energy and Environmental Designs

LLNL Lawrence Livermore National Laboratory

MIT Massachusetts Institute of Technology 

NACEPT National Advisory Council for Environmental Policy and Technology

NASBIC National Association of Small Business Investment Companies

NASVF National Association of Seed and Venture Funds

NRDC Natural Resources Defense Council

NREL National Renewable Energy Laboratory 

NRMRL National Risk Management Research Laboratory 

OETD Office of Energy and Technology Deployment

ORNL Oak Ridge National Laboratory 

PNNL Pacific Northwest National Laboratory 

RFS Renewable Fuel Standard 

ROI Return on investment 

RTA Regional Technology Advocate

SACERS Sacramento County Employees’ Retirement System

SBA U.S. Small Business Administration 

SBICs Small Business Investment Companies 

SBIR Small Business Innovation Research 

SEMATECH SEmiconductor MAnufacturing TECHnology

SESARM Southeastern States Air Resource Managers, Inc.

SETO Senior Environmental Technology Officer

TRI Toxics Release Inventory 

USDA U.S. Department of Agriculture

87
EPA Technology Programs: Engaging the Marketplace. Washington, DC. May

2007. 

National Association of Seed and Venture Funds. “Seed and Venture Capital:

State Experiences and Options.” May 2006. 

National Science and Technology Council, Interagency Environmental

Technologies Office. “Bridge to a Sustainable Future: National Environmental

Technology Strategy.” Washington, DC, 1995. 

National Venture Capital Association and PricewaterhouseCoopers. “Venture

Capital Investment Volume in Q2 2007 at the Highest Level Since 2001.” August 7,

2007.

Parker N. Presentation at the U.S. Environmental Protection Agency, Office of

Research and Development, National Risk Management Research Laboratory,

Clean Water Partnership Summit, Cincinnati, OH. “Cleantech in 2007: An Industry

Emerges,” Cleantech Group, LLC, September 5, 2007.

Paterson A. Environmental Business Journal Data. Presented at the Environmental

Industry Summit, Coronado, CA. February 20, 2008.

Stack J, Balbach J, Epstein B, Hanggi T. “CleanTech Venture Capital: How Public

Policy Has Stimulated Private Investment.” Environmental Entrepreneurs and the

Cleantech Group, LLC. 2007. 

U.S. Department of Commerce, International Trade Administration.

“Environmental Industries Facts.” Washington, DC. 2007.

U.S. Environmental Protection Agency. 2006-2011 Strategic Plan: Charting Our

Course. EPA-190-R-06-001, Washington, DC, 2006. 

U.S. Environmental Protection Agency. “Venture Capital Support for

Environmental Technology: A Resource Guide. Prepared by The Scientific

Consulting Group, Inc., under EPA Contract No. EP-C-05-015, December 2007

(Draft).

88


C3