Two of the key early investors in Tesla have a new fund

Two early backers of electric car company Tesla — Nancy Pfund and Ira Ehrenpreis — are teaming up to invest a new fund, for which they’ve been in the process of raising $300 million, according to a SEC filing as well as sources we’ve spoken with. Dan Primack first reported the filing in his newsletter last Thursday.

Pfund joined JPMorgan in the mid-1980s, and later founded DBL Investors, which was a spin-out of JPMorgan’s Bay Area Equity Fund I. DBL stands for “double bottom line,” and the firm has been one of the very few over the past few years that has been really successful when it comes to investing in cleantech companies.

Investor Nancy Pfund getting into her Model S at the Tesla factory on the day of the launch of the Model S.

Investor Nancy Pfund getting into her Model S at the Tesla factory on the day of the launch of the Model S. Image courtesy of Gigaom/Katie Fehrenbacher

The fund invested in Tesla (back in 2006), solar installer SolarCity, and online music company Pandora (which all went public) as well as energy data company eMeter, which was bought by Siemens, and solar installer PowerLight, which was bought by solar giant SunPower. DBL has also backed quickly growing companies solar thermal startup BrightSource and space travel company SpaceX.

Back in 2012, I called Pfund “the most successful (and positive) greentech VC you haven’t heard of.” According to an article in the New York Times a couple months ago, five of the 18 companies in her first fund went public. DBL raised a second fund of $150 million in 2010 and that fund is almost fully invested now with around 23 companies.

This fund that Pfund and Ehrenpreis are raising now will be DBL’s third fund, and it’s called DBL Partners III, according to the filing. I’ve heard that the duo has also been considering raising up to $400 million.

Elon Musk, CEO of Tesla, unveils the dual engine chassis of the new Tesla 'D' model at the Hawthorne Airport October 09, 2014 in Hawthorne, California. (Photo by Kevork Djansezian/Getty Images)

Elon Musk, CEO of Tesla, unveils the dual engine chassis of the new Tesla ‘D’ model at the Hawthorne Airport October 09, 2014 in Hawthorne, California. (Photo by Kevork Djansezian/Getty Images)

Ehrenpreis has been a General Partner with Technology Partners and has headed up their cleantech practice. He led Technology Partner’s investment in Tesla back in 2006 (Technology Partners was the lead investor in Tesla’s third round along with Tesla CEO Elon Musk) and Ehrenpreis also runs the World Energy Innovation Forum, which was held at the Tesla factory earlier this year.

I’ve also heard that Technology Partner’s General Partner Marc van den Berg, who joined Technology Partners in 2012 from VantagePoint Venture Partners, will be joining DBL Investors, too.

One of the biggest things that Pfund and Ehrenpreis have in common in their history, of course, is backing Elon Musk. Obviously through their investments in Tesla, but for Pfund, this also includes for her investments in SolarCity and SpaceX. Given that connection, I wouldn’t be surprised if a limited partner in their new fund was Musk himself, but since I don’t know the details of their fund raising, that’s just speculation.

Pfund and Ehrenpreis declined to comment for this article.

Taking the long view on cleantech investment

The slew of struggling cleantech companies, particularly in solar and battery technology, combined with the headline grabbing bankruptcies that have accompanied these struggles has led to a general gloominess surrounding cleantech investing.

And yet significant long term macro trends remain that indicate that the global energy market is shifting away from strict fossil fuel dominance, creating a myriad of opportunities for new energy companies to profit. Ira Ehrenpreis, who runs the cleantech investing group at Technology Partners, spoke with Pike Research recently about why he remains bullish on the sector. Ehrenpreis believe we’re experiencing short term problems which have been exacerbated by non cleantech specific weakness in the global economy, but that the cleantech thesis is still solid.  So first let’s review some of the macro factors that Ehrenpreis spoke to and which have others still believing in cleantech.

The Macro Factors

The Energy Market is massive: It’s a trillion dollar market and Americans spend more on energy than wireless communications, ecommerce and medical devices.

Energy demand is increasing: IEA projects global energy demand increasing 40 percent by 2035. 6 Terawatts of generation will have to built over the next 25 years, more electricity generation than currently exists worldwide. Ehrenpreis is hopeful that renewable energy will provide half of that new production.

Investment has grown: 2012 was the year of the trillionth dollar invested in cleantech since 2004. Investment has grown 29 percent annually since 2004 from $52 billion annually to $243 billion today.

There’s room for innovation: In the U.S., energy industry spending on R&D is 0.3 percent of sales compared to 11 percent for the software industry and 14 percent in biotech, suggesting there’s actually a great deal of room for innovation resulting from long term chronic underinvestment, particularly on the electrical grid.

My concerns

There’s no guarantee that renewables will win: Cheap natural gas is the largest current issue as its relatively lower carbon emissions and large deposits have many folks seeing green, so much so that in a few years the U.S. will become in an exporter. Bottom line is that renewables will always carry hydrocarbon pricing risk. The key is to narrow it to the point that it’s less of an issue.

Subsidies are still on people’s minds: Yes, the playing field is unfair with fossil fuels getting six times what renewables get in subsidies. But the rollback of subsidies in North America and Europe is unlikely to change as the developed world faces an unprecedented debt crisis. Others, like solar analyst Paula Mints, have written that the push for grid parity is hurting the solar industry and that consumers need to adjust to paying a higher price for electricity. That may works in a place like Germany that is so culturally supportive of renewable energy. But the growth markets, like India and China, will always weigh the economics of any energy generation first and foremost.  People, I believe, will still get behind investment in cleantech but accepting higher energy prices, either via subsidies or higher end market prices, will always be an uphill battle.

Investment is currently slow: The Cleantech Group’s analysis showed that in the second quarter cleantech investing declined 25 percent year over year, even if it has growth historically. Combine that with the almost nonexistent IPOs in the U.S. and things look rough.

Reasons to be optimistic

Global demand: Ehrenpreis said that “while I’ve never been more bearish on U.S. cleantech overall, I’ve never been more bullish on global cleantech.”  Chinese cleantech investment soared 92 percent to $18.3 billion in the second quarter. China is no longer where companies go only for flexible and inexpensive labor. It’s a key endmarket for products, opening up an exciting new market. Add India’s massive power needs, highlighted by its historic blackout recently, is another catalyst driving energy growth.

Cleantech investment exits don’t take any longer than other sectors: Venrock Capital’s Matthew Nordan has analyzed the time from funding to IPO for cleantech and it’s 8.3 years, actually less than the 9.4 year average, quoted by the National Venture Capital Association. There are also lots of cheap assets right now for strategic investors as so many cleantech startups, which require lots of scaling capital, have produced IP that can’t be scaled without investment.

The generalists are getting out: It’s a somewhat overlooked factor, but many of the generalist VCs that had been interested in cleantech are getting scared off by headlines and Solyndra-like failures. This tremendously favors the firms that truly understand the sector and more importantly, it means there will be less competition for the best deals at a time when valuations will be lower due to the cloud over cleantech. That’s a good scenario for investors.

The question, to my mind, has always been when. When will the market be there and when is the right time to make the investment so that one is neither too early nor too late. The macro factors will take over and prevail, because hydrocarbon prices should rise and because clean energy solutions are both improving and riding a cultural shift. But timing this energy transition is the art.

Question of the week

What’s the most important macro factoring impacting cleantech?

Where to sell next-gen energy tech: India

The worst blackout in a decade hit Northern India on Monday forcing 370 million people to go without power. While blackouts are a huge problem for the country, they’re a massive opportunity for next-generation energy technologies like clean power, and the smart grid.

Today in Cleantech

Ernst & Young released its 2011 cleantech VC investment numbers this morning. The headline is that investment declined 4.5 percents to $4.9 billion in 2011, though Jay Spencer, Ernst & Young’s Cleantech Director, remains somewhat bullish, saying that “more money will flow into the sector.” Spenser also think 2012 numbers will be comparable to 2011. I’m much less optimistic there, mainly because I’m in the camp of Ira Ehrenpreis, an investor at Technology Partners, who spoke this morning at the Clean-Tech Investor Summit, saying  “While I’ve never been more bearish on US cleantech, I’ve never been more bullish about global cleantech.” The opportunities in this market are foreign, particularly India, China, Japan and Eastern Europe. And I think the domestic market has a rough few years ahead of it.