Clean tech investor David Anthony from 21Ventures explains how clean tech entrepreneurs get funding.
A plucky little country, is how the late Princess Diana once described Israel to Shimon Peres. About the size of New Jersey, Israel has a disproportionate number of clean tech companies and investment in clean technology compared to its size. And now businessman and investor David Anthony from 21Ventures in the US is about to reveal his trade secrets and insider information about clean tech investing in Israel. These tips, of course, can apply anywhere. If you are itching to become a clean tech entrepreneur, this is must-read information.
Unlike Silicon Valley and the high-tech industry, the clean tech market today has no center of excellence, Anthony tells Green Prophet. In the last 50 years of venture capital investing there has been a saying: Never fly over your company –– meaning one shouldn’t invest in a company that isn’t within a 60 mile radius of the office. But without a center for clean technology, explains Anthony, a VC fund now has to dig into new territory to find the golden investment egg. Investors need to cross borders and turn over new stones.
To help Green Prophet readers better understand what American investors are looking for, we’ve asked Anthony for some tips. Compared to any other country in the Middle East, Israel is a clear and defined leader in this market, so we’ve focused on Israel. Most of Anthony’s tips could work in other non-US locales as well.
First a short background on Israel:
According to Anthony, clean technology researchers are not the same scientists that the traditional Israeli technology environment was founded on. Focused primarily on IT and telecom, Israel’s high-tech success came about as a result of Israelis joining the army and getting an electrical engineering degree. But this is not the case anymore in clean tech: “What did Israel need to succeed?” Anthony asks. “Telecom was critical. They needed to tap Arafat for 30 years. IT security obviously is critical for Israel so necessity has driven the Israeli technology economy to focus on IT and telecom.”
But today, Israel and the world has bigger problems than Arafat, says Anthony: “Global warming and over-population and the combination of global warming and over-population is greatest problem of the 21st century. There are different types of scientists solving these problems like physical chemists and fluid dynamicists.
“These are individuals who have not traditionally participated in the technology economy of Israel for the last 20 years. There is a disconnect between the entrepreneurs and the technology refugees because there are little opportunities now in IT and telecom,” he says. Usually management types with electrical engineering backgrounds, this kind of training and background might not be applicable when “scouring scientists of major universities in Israel,” says Anthony.
How to bridge the divide and disconnect? Anthony, offers his trade secrets:
1. Scour universities. Troll these places before technology refugees get to them. Entrepreneurs are not digging deep enough at Israeli universities –– at the Weizmann Institute, The Technion, Bar Ilan University or Tel Aviv University. Entrepreneurs, he says, need to go out in the field and do their research. They need to meet with tech transfer officers to find out what’s interesting.
“One of the great mysteries is why doesn’t Israel have a leading solar energy company,” Anthony asks. “Luz I was a failure . . . Israel is not on the map of the Top 10. Why is Germany a big leader? Germany doesn’t have sun.”
It’s because the entrepreneurs in Israel have not mined the scientists or scoured or searched deep enough, he reasons. Time to get busy:
Read Science Daily, a compendium of scientific released from universities around the world.
Go and visit the tech transfer offices, like Ramot at Tel Aviv University.
Contact scientists directly. Tell them: I would love to sit and talk with you about the potential for commercializing your research.
“What I do isn’t brilliant or insightful,” says Anthony. “It’s like being a basketball scout: but at universities you are dealing with scientists instead of 16-year-old seven footers.”
2. Be less practical and forget about getting to the top. According to Anthony Americans are less practical than Israelis might think. Living in 7,000 square foot homes, Israelis who live in 4-room apartments don’t see how impractical Americans really are, he says. Even though milestones and pilot projects are developed in Israel through connections and limited funds, “adopting technology quickly doesn’t always win.”
Instead of wasting years and money developing a pilot in Israel, one needs referencable customers in the US to attract US investment. The Israeli military mentality doesn’t translate well in America, North America or Asia. Nor does aspiring to get to the top quickly, says Anthony.
“Let’s forget about going to the top. Israelis are good at tinkering and improvising and getting a prototype. . . If I tell someone my security software is defending the Israel Defense Forces, Americans want to know who is your US customer.”
The bottom line: don’t bank on pilot projects in Israel.
3. Bet your life on your research. Israeli scientists, unlike those in the US, are not as quick to leave the comfort of academia. Being a scientist and having a position at a university commands more respect in Israeli culture than in the US, meaning the Israelis are less likely to leave their tenure.
“But if I am investor and you’re at Bar Ilan University or the Technion, am I supposed to put my money in you if you aren’t betting your life?” asks Anthony. “This is something that IT scientists understand, but I don’t think it has reached the clean tech researchers yet. I want a CTO full-time.
“There is something about betting your life on a business. If you don’t, then it’s hard for me as an investor, with an investment ranging from $10 to $15 million over a set of milestones.”
4. Build a business plan and milestones with teeth. The last tip, Anthony offers is for entrepreneurs to build a solid business plans with milestones mapped out. This demonstrates to him the increasing value of the company.
“In today’s market, my most difficult job negotiating is not the price, but the teeth of the milestones. That to me is always the weakness in business plans and I see it in presentations: someone will say I need $4 to 10 million. This needs to be broken down into 4 or 5 milestones over 3 or 4 years. Thinking out those milestones, commercial milestones, collaborative milestones ahead of time is the best way to get my attention,” he says. “If you have an opportunity and solve a huge problem, then I am interested. If you thought out the milestones well, then I have a compatibility with you.”
David Anthony is the founder and manager of 21Ventures, a virtual clean technology incubator focusing on the ideas and innovations that will dominate the 21st century. You can follow him on Twitter at http://twitter.com/DavidAnthony21