CMEA’s Maurice Gunderson Talks Tactics

As the stimulus and the recession both leave marks on the cleantech industry, cleantech investors, along with entrepreneurs, are adjusting to a new landscape. And CMEA Capital is one venture capital firm that seems to be navigating it successfully, so far. The company backed A123Systems, the lithium-ion battery manufacturer whose much-celebrated initial public offering surpassed expectations in the midst of an IPO drought in September, as well as Solyndra, the thin-film solar startup that received the first renewable-energy manufacturing loan guarantee from the U.S. Department of Energy.
We recently sat down with Maurice Gunderson, senior partner at CMEA, who previously co-founded venture-capital firm Nth Power, to discuss his thoughts on the future of the greentech industry, and the how CMEA – and its portfolio companies – are prepared to thrive in the new economy. Here are some excerpts from our conversation:

Q: How have your tactics changed in the recession?
The question is how do you keep small companies covered and lay out a financing plan from beginning to exit? Certainly we’ve had to be creative and make lots of adjustments to our operating plans. In general, people are looking for more capital efficient investment opportunities and are figuring out ways to scale back or be smarter about how to grow the size of the business. You don’t get to have a long run if there’s no short run. We’re generally looking at plans that require less cash than if we were looking in 2008. And we’re a lot more flexible about where to look for capital.
Q: What do you see as some of the long-term impacts of the industry focus on Washington?
Wall Street has not moved to Washington. It’s moved to the emergency room, which happens to be in Washington. But it will move back to Wall Street in a more rational way. The thing about government is it’s very helpful, but it doesn’t require the same kind of returns that we do. With the feed-in tariff in Germany, if you were a solar producer when it started, you could sell all you could make, and it didn’t matter if you were a low- or high-cost producer. That was a good thing.
But [as the tariffs decline] and the market goes back to normalcy, high-cost products go away and low-cost products thrive. It’s the same thing here. If you invest in a company that doesn’t have a path to grid parity, the only way it can survive is through subsidies. But if it has a path to grid parity and subsidies help it grow, cool.
Q: One difference is that the feed-in tariffs in Germany declined steadily to help make renewable electricity competitive, while the stimulus programs are short-term. How will that impact the industry?
Feed-in tariffs in Germany were designed to stimulate the market over a preset period, while the government subsidies we’re seeing now were designed to avoid the second Great Depression. We certainly wouldn’t want to slow it down. Everybody’s got to realize this is explicitly a short-term thing. You’ve got to design your strategy accordingly.
Q: If companies are changing their business plans to take advantage of government programs, could that backfire once the programs disappear?
Yes, this distorts people’s business plans. It’s an extraordinary situation. To take advantage of this, companies had to change their business plans and maybe distort them. If the stimulus and the reaction to it has the effect of hatching a lot of clean-energy companies that wouldn’t be there anyway, it’s not a bad thing if there’s a little distortion. If you’re going to take advantage of a short-term thing that was not [available] before, yes, you’ve got to change tactics.
Q: Does this mean we’ll see a dip once the stimulus funding ends?
You bet. Entities that were propped up by it will go away and those that were incubated by it will survive.
Q: What are some of the biggest potential future opportunities?
I see three big breakthroughs in the future that will change everything about the energy landscape. No. 1 is fusion, which is the farthest out there. If we get fusion to work, we don’t need solar or other renewable generation. But it requires fundamental breakthroughs and it’s a harder challenge than humankind has ever taken on – it makes Apollo look like a weekend project. Say it’s 100 years off.
No. 2: grid scale storage. New chemistries that enable bulk storage on the same economic footing as power generation would turn renewables into dispatchables, which triples the value of the power. It also says we can build all we want because we don’t have to worry about grid balancing problems. That would probably make a 10-to-1 difference in the amount of wind we could develop and use. It’s huge, and it’s 10 – 15 years away.
No. 3, the nearest term, is cheap nuclear that lets us get off coal — and that’s now.
Q: Many companies are developing energy storage for the grid today. Why do you believe it’s still 10 – 15 years away?
People are trying warmed-over chemistries and are making a lot of incremental advances, but the technologies don’t have the economics and don’t have the life [needed for bulk storage]. I haven’t seen one yet that really could solve this problem, but I know of several breakthroughs coming in the 10-15 year time frame.