Q&A: Greenhouse Capital Partners Founder Peter Henig

In a former life Peter Henig, founder and partner of Greenhouse Capital Partners, was a hard hitting business journalist. But like other famous reporters-turned VCs — like Sequoia’s Michael Moritz — Henig took the potentially lucrative leap to the investing side and now uses his fund to invest in a variety of greentech startups.

Compared to many of the greentech VC community, Greenhouse’s small portfolio already has a decent win. Solaicx, an 8-year-old maker of silicon wafers for solar cells, was bought by silicon wafer maker and solar project developer MEMC Electronic Materials in May. The deal included $66 million in cash, and up to $10 million on top of that “based on incoming investment,” as well as a commitment to another $27.6 million in cash and MEMC stock if Solaicx meets certain performance targets this year and next.

Here’s an edited interview with Peter Henig on how getting in early, working with larger funds and getting lucky can deliver.

Q). What’s it like moving from the journalism world to the VC world?

A). People say that journalism is an untraditional way to get into VC. Partly it is, but there have been a number of VCs that have done that. Most famous was Mike Moritz at Sequoia. As a journalist you meet and talk with so many companies you develop a good radar for what looks to be a good story. When you write a story, you’re doing VC-type due diligence, you look at the same things: the market, founders, tech, value you can add etc. Especially in early stage and seed stage investing, when it’s just two guys and dog or three guys in a molecule.

Q). You guys had a big win with Solaicx, how big was it for Greenhouse?

A). Solaicx is the most recent win for us and a validation point. Even though the fund was an investor in it at a later stage. Personally and through a loose connection of Angels, I had been investing in the company since 2003. So we could show that we basically got into the company at a very fundamental level, stabilized it over 7 years and later it was acquired by a pretty well-known name brand. I wouldn’t call it “a homerun type deal” but “a nice validated exit for us.” It was rewarding.

Q). What is the fund’s investing strategy?

A). We describe ourselves as primarily a cleantech firm, though not exclusively focused on cleantech. When we started out raising a fund in 2006, green was getting hot but having been a journalist and having written about booms and busts before, it was also at the back of my mind that the bubble could end in disaster. So we didn’t want to be exclusively focused on cleantech. Now we’re about 2/3 cleantech and 1/3 noncleantech.

The other thing was we were worried about if oil was trading at $100 or above, then the cleantech market looks like gold. But if it’s $50 oil or below, then we wondered if people would forget about the green market.

Things are moving so fast in the cleantech space. What has been invested in — or over invested in — we’re trying to stay clear of. Particularly for seed or early stage deals. The four areas that we’re looking closely at now are energy efficiency/smart grid, things that are water related, green consumer goods, and then the green building materials space.

We’re also really searching for and interested in highly capital-efficient deals, like investing $100,000 to $1 million, which can break even with like $2 to $3 million in revenues. At that level there are a lot of different options. We could sell it early at like $30 to $50 million, which might be a tiny exit for some, but with an early stage funds like ours, that deal can do really well. As funds get really large, it’s hard for them to place smaller amounts of money, because they have to deploy a certain amount of money per deal.

Q). How do you work with institutional investors?

A). A lot of times well look at seed or early stage companies and we’ll show it to our friends in larger funds like DE Shaw (an investor in Solaicx). They may not be ready to invest but it gives us a good indication of what they’d like, so then we can act almost as a feeder fund. The larger fund can indicate if they think the company needs something, more products, or new management etc. It’s important to us to work with larger funds that can do a lot of the heavy lifting.

Q). Have you seen a greentech bubble emerge like you were worried about?

A). I think we’ve seen the full cycle of it already. We were legitimately worried about it and I think we’ve seen a lot of that a couple years ago with valuations overinflated. It was never as bad as the web bubble.

The other thing is we never felt that you could just invest in cleantech and money would just fall from the sky. The market still needs to prove itself as a market. It needs to show that there is a good enough supply of acquiring companies, not just IPOs. Needs to show that there’s an ecoystem for exits.

Q). Have you seen the acquisition opportunities getting better?

I think so. Take 2010, the pace of IPOs and volume of M&A is really picking up. We’ve been reasonably lucky. Our strategy is it’s less about home runs, but more about increased success – single, doubles and triples. We all know that it’s a challenging game.

For more research on cleantech financing check out GigaOM Pro (subscription required):

Cleantech Financing Trends: 2010 and Beyond