Meet the Manager: Neil S. Suslak

Private Equity Central

February 13, 2006

Not-So-Alternative Energy

After the recent State of the Union address, alternative energy has been on everyone’s mind. However Neil S. Suslak has been thinking about it since at least 2002. That’s when his firm, Braemar Energy Ventures, was founded. The firm focuses on energy technology and communications. Investments include a battery company, a fuel cell test equipment manufacturer and a company that makes coal burn cleaner. Suslak recently spoke with PrivateEquityCentral.net about the growing opportunity in the sector.

PrivateEquityCentral.net: Clean energy technology is obviously a growth area now. Is there a particular driver behind that push?

Neil S. Suslak: There are a couple of drivers, stemming from the search for alternative fuel solutions based on the fact that many of the current fuels we use today are polluting and are a finite resource. We’re looking for solutions that can get us away from volatile parts of the world with solutions that are less polluting and more renewable. We also focus on the fact that the global power industry is, in a large-scale sense, deregulating and restructuring, largely because it was set up many years ago in a somewhat antiquated form that’s not really appropriate for today’s digital economy. Now that deregulation is occurring, it’s causing more need for technology along the power system. If you just look at the price volatility of those underlying commodities, that’s also put enormous attention on trying to find more solutions which can better serve both consumers and businesses with less volatility to operate their businesses.

PEC: Do you think the President’s comments in the State of the Union Address will help spur activity in the sector?

NS: If you look at what the President said, a lot of what he addressed were technology solutions for these problems. He’s coming at it right now with a focus from the government on trying to find new technologies which will help us solve these issues. That’s a very important step, but the actual dollars the government is devoting to this area, although meaningful-sounding from the government’s standpoint are actually pretty small. The government can act more as a focal point and an umpire for some very large industries that have to maneuver and can spotlight a number of the technologies that markets might move toward to find some dramatic changes that have to occur over the next 20 to 50 years.

PEC: Other people I’ve talked to in this space have said there’s a new corporate interest in these types of technologies as they look to diversify their revenue stream or clean up their own operations. Is that something you’re seeing as well?

NS: Very much so. I think if mentioned the phrase alternative energy five to seven years ago, it had a very different context than it has today. Today, the biggest movers in alternative energy are companies like GE, Siemens, British Petroleum and Shell. Those companies now have large scale efforts in many of these industries. The biggest player today in wind is General Electric. The biggest players in alternative fuels today are the major oil companies. There’s a huge focus by these companies, in terms of recognizing opportunity for them and the liability from further regulation, they have to be ahead of the curve in trying to find solutions that will be both clean and self sufficient and supply us with energy and power for the next 50 years.

PEC: Are the companies you invest in looking to be acquired by the larger corporations, or at least sell products to them?

NS: In a number of our deals, we’ve partnered with large corporations who are interested in the space. They can be acquirers and in some cases have bought some of the companies we’ve invested in. There’s definitely much more interest from them in looking outside their own R&D departments to acquire the best technologies. Many of those technologies, we feel, will come from venture-backed companies as they’ve already started to.
There’s also a lot more dollars at work by these companies in these sectors, which are still relatively small parts of their overall business. But the fact is they’re larger and can act as an acquirer of full-scale companies rather than inventing them themselves from the ground up.

PEC: Would you say you invest in early stage companies and if so, are they more advanced now than they were a few years ago in terms of their overall business plan?

NS: Braemar is an early stage investor in technology and we believe that serves us well because we understand the industry and the technologies that are important in the sector. We think we get the best value for our investors by recognizing [those technologies] and being in them in the early stages. That being said, though, a lot of these companies we’re investing in, even though they’re early stage, are somewhat advanced in terms of the technology development that’s gone on prior to a venture round. There’s a lot of government money available. There’s a lot of research and development done in government and university labs that take the business to the level to where some of the technology risk is minimized. Many of these businesses take quite a bit of time to gestate. When we come in during the early stages, we come in beyond the idea stage and we’re really looking at prototypes and proven technologies that either have to harden or scale up to a level that can then take them on a path to commercial development.

PEC: Do you see the level of investment growing in this area?

NS: Very much so. We have seen many more business plans that are fully developed than we had seen even a few years ago. There is more capital coming into the market, not just from firms that specialize like ourselves, but some of the larger venture funds are partnering with firms like ours and putting an effort into this sector in a measured way. This is still the early days of energy technology in terms of the venture world, yet it is also a market that has enormous opportunity when you look at some of the [problems] they’re trying to solve. There’s still a tremendous imbalance between opportunity and capital and we think the opportunities are going to continue to develop at a measure pace to match the amount of capital coming [into the space].