Q&A on Startups and Investing Strategy with Massachusetts Clean Energy Center’s “State Angel” Arif Padaria

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be interesting enough. At the same time, I don’t have a deep enough pocket to continue to fund it. I will always remain a small investor and not get in the way of that growth.

[In terms of federal funding] the ARPA-E grants are much, much larger. They have an impact in a completely different way. The first investments we did were because of the fact that these [companies] were thoroughly validated by ARPA-E, got ARPA-E funding—1366 and FloDesign, for example. As it makes sense to keep them here [in Massachusetts], we added to the ARPA-E investment by giving them some additional investment components. All the good stuff that comes out of MIT and other top Massachusetts universities can quite easily move to other states.

X: What are the goals and issues, for both you and the startup, when you make a typical deal?

AP: My goal is not so much follow-on investments. I hold on to some equity, but I can kick it up to the right guys at the next level. The issue I’ve found in cleantech is the two Ps. Pricing and policy. Fundamentally you’re not going to get away from policy or government or rebates. With FloDesign, we gave them rebates, and helped them with the siting of their pilots. One issue was to keep FloDesign here, and not have them move to California. So I kept a hook in the deal. Two out of three [company facilities] have to be in Massachusetts: headquarters, research and development, and manufacturing.

X: What’s your advice for entrepreneurs and investors who are making the transition from IT or life sciences to cleantech?

AP: The whole environment is very different—how you execute, what the partnerships look like, what the sales and development cycles are. Instead of jumping in and wanting to start a company, which is very challenging, I think going in and working for a year or two at a larger, more established energy company is important. Even if it’s a coal, oil, or natural gas company, [it’s useful] to get a grounding in the value chains and sales cycles, and not just be getting excited about the technology and saying, ‘Hey if we build it, they will come’—that doesn’t happen.

The other real issue is that life sciences is not exactly comparable, because the exits are large pharmaceutical companies—there’s a pipeline there. Here, we don’t have an automatic pipeline in terms of acquirers, and certainly the IPO markets are very challenged. The other exit is through a strategic buyer, which is very small. In the next year or so, we’ll see a lot of roll-ups happen. It’s starting to … Next Page »

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