As part of our ongoing “Cleantech Startups 101” blog series, this week we interview Keith Gillard, General Partner of Pangaea Ventures Ltd. Keith has been investing in cleantech and advanced materials start-up companies since 2001, initially with Mitsubishi Corporation and then as President of BASF Venture Capital America Inc. He is also a Foresight board member.
What’s your background and how did you become involved with Foresight?
KG: I’ve had what you might call a “non-linear” career. I’m an entrepreneur by nature. Right out of university I worked with a boutique investment banking firm, but was running a record label evenings and weekends, which I soon turned full time by quitting the day job. From there I founded a series of software companies before being headhunted by Mitsubishi to run their Canadian venture capital activites. At that time everyone was still thinking “internet”; it was all software, software, software. Everything changed in 2001 after the bubble popped. I re-focused on fuel cells and other alternative energy solutions – which weren’t known as “cleantech” until years later. I joined Pangaea after establishing the BASF Venture Capital America office in Silicon Valley, and haven’t regretted my decision. Pangaea is the best in the world when it comes to advanced materials.
I knew Neil Huff [Foresight’s Managing Director] when he worked at Ballard, and we stayed in touch over the years and throughout our various ventures. My partners and I agreed that being on the Foresight board of directors was a good thing – Foresight is focused on adding value to the local cleantech ecosystem, which is aligned with what Pangaea is trying to do. I like to help other entrepreneurs as much as I can, even if I’m not investing in their ideas – by making introductions, giving feedback, adding value.
Cleantech has struggled as an investment class in the past; do you see any signals that this is changing or about to change?
KG: There is definitely a signal-to-noise issue. There have been some massive failures that have obscured the successes. There are tremendous investment opportunities within cleantech, but historically most of the dollars have been directed into capital-intensive plays that were highly dependent on oil prices being $100/barrel and up. Or into capital-intensive plays that didn’t anticipate China moving directly into the solar market.
As a result, “cleantech” can be a tough sell right now in venture capital (VC) circles. Less so for advanced materials, which is perceived to be a subset of cleantech that cuts across all industries. Most of our investments have a cleantech angle but, because of our expertise and defined focus, our current fund hasn’t been impacted by cleantech being out of favour. The challenge for active investors in the cleantech space is that it has become more difficult to syndicate deals; you have to think about who else would invest in each round. The good news is that the investors still playing in the space understand it and can add a lot of value. It’s smart money.
In terms of how cleantech entrepreneurs have responded, some have pivoted (like to “clean web”), others have focused on designing and communicating their value proposition so that it demonstrates their idea/product has a large market with customer traction – the focus isn’t on cleantech alone.
What are the greatest cleantech investment opportunities right now?
KG: Agriculture and food technology, for starters. There is tremendous urgency around this, and a lot of acquisition activity. There are more people in the middle class and more mouths to feed that want better, richer, more “American” food – and there’s greater awareness of the environmental effects of fertilizers and pesticides, which are necessary to achieve a high yield. About 70% of pesticides are being phased out as a result, and moving in to replace them is the next generation of bio-pesticides, microbial plant stimulants, better fertilizers, and all sorts of new technologies. They’re promising to not only replace the old technologies but also deliver a better performance. There’s no trade off.
Energy storage is another growth area. Batteries are at the heart of the mobile application, cell phone, drone, and electric vehicle industries. There’s an even bigger potential market for flow batteries, which will make solar, tidal, other intermittent energy sources into good baseline power providers.
What advice would you give to cleantech entrepreneurs?
KG: I’d tell them three things.
Market segmentation is critical. You need to understand the broad, world-wide market but you also need to segment that market. Figure out exactly where your product can compete effectively and go after that market. It could be the largest, it could be the fastest, but focus on the low-hanging fruit. The other markets you can license out. Foresight and their Executives in Residence (EIRs) can help you with market segmentation, or you can tap into the Industrial Research Assistance Program (IRAP).
Protect your IP. A lot of entrepreneurs baulk at the cost of filing and prosecuting a patent. But keep in mind that, if anyone finds out what you’re doing and files a patent – even if they’ve done none of the work themselves – it will block your ability to patent your work. At a minimum, you should file a provisional patent. The clock on your protection starts from the moment you file, and it gives you 12 months to gather enough data to finalize the patent. Be smart about what you disclose to people – do not put your IP in jeopardy.
When you’re raising money, keep in mind that there are different types of investors – and each type of investor has a different timeline and a slightly different motivation. Angel investors can often be more patient money that will nurture your company, but they only invest locally. VCs operate on 10-year time horizons, and where they are in their timeline will determine whether they make early- or late-stage deals. For example, if you talk to a VC in year 1 of their fund, that VC has 9-10 years before that investment matures and exits; if you talk to a VC in year 5 of their fund, they only have five years to watch that company mature and exit. There’s a perception that VCs are greedy because of their expected rate of return but keep in mind that no profit is guaranteed and they have to expect a high rate of company failure. VCs are going to compare your opportunity to every other one we see or have seen before, so the upside potential had better be enormous, or we’ll choose another deals. VCs take big risks, and can add an enormous amount of value, for which we hope to be rewarded!
Cleantech is a focus of the GLOBE 2016 Innovation Expo, which is taking place March 2-4 in Vancouver alongside GLOBE 2016. Foresight will have a booth at the Powerhaus Pavilion and will also be holding an event on March 2nd in the Foresight Presentation Theatre: the Foresight-ARCTIC Showcase: Fast-tracking Cleantech Innovation in the Resource Sector.
For more information, see the GLOBE 2016 website