Voices That Matter: Neil S. Suslak, Braemar Energy Ventures
MSN: Business on Main
By Susan Schreter
September 30, 2009
Clean technology could be the next big thing for small-business owners. So what is it exactly?
Clean technology includes renewable energy such as solar and wind power, innovative transportation solutions, “green” building materials, biofuels, and other services that reduce the costs, emissions or waste associated with energy production.
To find out how small businesses can benefit, Business on Main spoke with top venture capitalist Neil S. Suslak, a founding partner of Braemar Energy Ventures. We asked Suslak about the fast-changing clean tech market and how ambitious business owners can appeal to venture capitalists for startup and expansion funds.
Business on Main: A few years ago, there were only a handful of clean tech funds in the marketplace. Today there are over 80 venture capital funds that publicize an interest in reviewing clean tech business plans. How does the greater availability of capital affect the overall funding market for business owners?
Neil S. Suslak: On balance, I think the increased number of funds that are focused on clean technologies is a good thing for the industry. It brings more attention to the sector, more capital and more opportunities for co-investors to participate in good deals.
We think it is always helpful to have a background in energy, but we also recognize that venture capitalists with other backgrounds such as biotech or IT can add a lot to a company's development.
Is there the potential for an innovative clean tech company to be a home-run deal and become the equivalent of a Microsoft, Intel or Amazon within its sector?
I think the winners in the energy markets on the technology side will become very large companies, but they may not grow to dominate a market in the same way that information technology companies have. In Braemar and in previous firms in which we've been associated, we've invested in about 50 companies. We've had a number of companies that have returned over 30 times the original investment. It will be harder to find the types of super returns of the IT space. But you can build a portfolio that has very good middle returns with less risk and losses than perhaps in other sectors of the venture capital community.
What areas of the clean tech sector are especially attractive to you right now?
I can give you a sense of where we are today. We have made a very large bet in making existing energy markets, such as hydrocarbon and coal, more efficient through new technologies. We have made large investments in efficient lighting, advanced batteries and managing power devices through advanced computing and advanced microchip technology. Another important focus for us is alternative fuels.
As investors, your job is to back good businesses, not just good ideas. How do you separate the two?
Particularly in the energy field, there are a lot of great ideas that never see the light of day largely because the entrepreneurs may not appreciate the important distinctions in the ways the energy markets work. Often the best technologies don't win, but the smartest companies win. What's required is to look at the competitive landscape and understand your capital and other resource needs over the timeframe it takes to commercialize a technology. All of this affects how a great idea and a great technology can become a great business.
Is the clean tech market vulnerable to the same valuation excesses that were characteristic of the dot-com-era bubble?
It certainly is a risk, and in the last couple of years you have seen certain subsectors perhaps get ahead of themselves in terms of valuations. What's interesting and exciting about the clean technology market is that it is very broad. The areas that may get overheated are balanced by other areas that are overlooked. Although there is a lot of money coming into the clean technology sector, it is a drop in the bucket compared to the size of the larger fuel market, power market and transport energy markets in a broader sense.
Money is money. Should businesses with promising technologies care about where they get funding?
They definitely should. You want to make sure that the venture capital firm that is funding them has a long-term commitment to the space and been successful investors. In the broader VC world there aren't a lot of venture capitalists with a lot of experience in the energy area. We've been doing it since the early 1980s.
What is your minimum target return on invested funds?
Well, it's really about the balance between risk and reward and stage of the company's development. The farther along a company is in terms of developing and commercializing its technologies, the lower the risk to us. We don't expect as high a return on these companies as we do with very-early-stage or seed companies that involve more risk.
About how much will your fund deploy in new investments during the next 18 months?
About $50 million or so.
What traits do you look for in a company's management team?
In our experience, the knowledge and track record of an entrepreneur is the biggest indicator of success. But this is not always the best guide, because we've also been pleasantly surprised by people who didn't have a strong prior industry track record. Certainly, qualities like single-minded drive to achieve goals, ability to adapt as situations change, and having experience in the sector can be an advantage.
What are the leading reasons why business plans are turned down by Braemar?
Let's go through them: The technology won't scale; the opportunity to get the technology to market is too challenging or capital-intensive for our venture capital portfolio; the management team is not well equipped to manage the opportunity; or the market size for the company's technology is too small.
What do business founders misunderstand about the work of venture capitalists?
The good ones recognize that we are on the same side in that if they are successful then we all are successful. Often friction can develop when we don't operate as a team — whether it is the VC's fault or the entrepreneur's fault. It's helpful if the venture capitalist has an appreciation for the challenges that the entrepreneur faces on a daily basis, which can be immense.
Business founders always worry that they will lose control of their companies once they accept money from VCs. If companies take in money from VCs, what should they expect?
They should expect that the venture capitalist will help them in a way that can most benefit the company. VCs are not involved in the daily operations of a company but should be employed by the manager to focus on strategic direction, financing decisions and longer-term thinking that can assist the manager in getting the job done. We are always on the board of directors of our companies and we have regular conversations in between board meetings.
I should also say that if you have a good company and are a skilled entrepreneur, you should want your investors to be helpful beyond the dollars. We would expect you to really understand what our value might be to your company and employ that same judgment to other investors that you invite in.
In June you participated in a business roundtable with Vice President Joe Biden about the impact of the Recovery Act. Did you get an opportunity to speak directly to Biden?
I did. We talked about the goals of the stimulus package and impact on jobs. What's important in the role of government money is not so much in funding new technologies but temporarily helping to close funding gaps from current constraints in the lending and project finance markets for companies with proven technologies.
Venture capitalists are well equipped to finance the development of new technologies. But once technologies are proven out, the government can assist in the form of a very modest array of grants and loan packages to help companies scale up to compete in world markets. Without temporary stimulus assistance, it will take longer for these companies to grow and promote new energy technologies, which over time can speed up job growth at home, too.
Which is more fun for you: identifying your next portfolio company or selling a company at a big profit?
Initially it is finding the company, but you are so nervous after you do it that you never sleep properly. So it's probably the latter!