VC Opens Boston Office, Targets Green Energy Sector

Boston Business Journal
By Jesse Noyes, Journal staff

November 2, 2007

Dennis CostelloDennis Costello, managing director Braemar Energy Ventures, is overseeing a startup Boston office.

Dennis Costello was working on green energy technologies well before green was the in color.

One of the original staff members of the U.S. Department of Energy's National Renewable Energy Laboratory in 1976, Costello later became chief investment officer for Boston-based Advent International Corp.

So when New York-based venture capital firm Braemar Energy Ventures decided to open a Boston office earlier this year, Costello, along with fellow managing director George Reichenbach, was a natural choice to get things started. It was Reichenbach, after all, who hired Costello to work at Advent.

But Braemar's entry into the market signifies more than just a new job for Costello. It is also a nod to the strength of the Bay State's emerging role as a top market in the clean technology sector.

The pace of VC funding in everything from alternative energy to energy efficiency has been growing rapidly in Massachusetts. Statewide the level of investment in clean tech has been growing in the double digits annually since 2002. The amount invested in 2006 was $161.67 million, more than four times the $34.4 million invested in 2002, according to Dow Jones VentureOne. So far this year's third quarter, $73.5 had been invested in the sector.

In fact, the clean tech sector is on track to become the 10th-largest industry cluster in the state, surpassing textiles, with an expected 20-percent growth rate in jobs next year, according to a recent study released by the Massachusetts Technology Collaborative.

Braemar's arrival will no doubt add to those figures.

In late September the firm announced it had closed its second fund — Braemar Energy Ventures II LP — at $250 million. And a significant portion of that fund could very likely end up in the hands of local entrepreneurs.

“Because of (the Massachusetts Institute of Technology) and the energy complex and the energy infrastructure that's around New England, we expect to do a lot of the fund in the New England area,” Costello said. “There's an intellectual base here in both engineering and nanotechnology and also in biotech and chemical engineering. We're seeing a lot of deals that contain one or more of those elements.”

The firm made about 11 investments with its first fund. Around a quarter of those deals were in New England. One of those included Boston-based EnerNOC Inc. (Nasdaq: ENOC), which filed for an initial public offering in late October.

It's not just Braemar's interest in the Massachusetts market that bodes well for the local industry; it's also the interest of its limited partners, such as Springfield-based MassMutual Financial Group, a partner in both Braemer funds.

In an e-mail, MassMutual spokesman Mark Cybulski said the company doesn't comment on the specifics of its investments, but added it believes “that the Braemar team's experience and knowledge of the market for new technologies in conventional and alternative energies create an excellent investment opportunity for MassMutual's policyholders.”

Many VC firms have been earmarking funds for the clean tech sector, but a few are primarily dedicated to the space.

Waltham-based CMGI Inc.'s @Ventures formed a $50 million fund for clean tech investment in 2004, and Boston-based Rockport Capital Partners invests heavily in the sector.

“It really boils down to this is going to be a category that will not have a short life to it,” said Marc Poirier, managing director for @Ventures.

The interest in the area is spurred by two trends: an increased demand for energy and decreasing supply of energy resources, he said.

To date, Braemar's investments have been a fairly balanced mix of energy efficiency, waste energy conversion and technologies aimed at maximizing the efficiency of fossil fuels, Costello said. Going forward, Costello said he sees more focus on lighting efficiency.