I recently wrote an article on Cleantech startups and Commercialization Executives for VentureBeat. Let me know if you have an example or a counter example. The article is pasted below or you can find it on VentureBeat by clicking here.
Warning: Trite Statement to Follow: The leadership at a start-up makes or breaks the success of the company.
Yes, you’ve heard it a million times. There are multiple reasons for this, and that topic alone calls for a whole different article. Right now let’s focus on one particular skill-set of a leader that has been a positive indicator of success time and time again for energy and ‘cleantech’ venture-backed companies: a successful energy investment requires a Commercialization Executive.
Many venture capitalists will tell you that this is not so, and there are examples where a technical founder is the right CEO to lead the company from start-up through the early growth phase, through a public offering and beyond. There are even studies showing that founder-led companies tend to outperform professionally led firms three years after an IPO. However, these studies usually look at high-tech companies creating new products for new markets. Having worked with and sat on the board of many energy and materials companies for years, we have observed that this sector necessitates this particular commercialization skillset.
Why? The energy industry is dominated by large incumbents with years of experience delivering a commodity product with extraordinary reliability and a high degree of safety at a reasonable cost. Think about it – when was the last time you stopped to question if a light bulb was really going to work before flipping the switch? Or when did you stop to wonder if the gas you are putting in your car will get you to where you need to go? The energy industry is not one in which you can throw a beta version out to the market and see how customers respond. New products must meet the same reliability and safety requirements of existing offerings on day one.
Additionally, selling a product in this industry means dealing with one or more of these large incumbent companies as a customer, distributor or partner. Doing this successfully requires company leadership with personal experience in working with these companies. Being a Commercialization Executive does not necessarily mean that the person doesn’t have a technical background or is not a company founder. However, it always means that the executive has business experience, relationships, and a successful track record in either the exact same or a closely-related industry.
Take for example, the recent successful IPO of biofuel company Amyris. Amyris was founded by UC Berkeley professor Jay Keasling and key members of his lab to design anti-malaria drugs, biofuels and chemicals sought by the market. When the investors brought in a new CEO in 2006, they selected John Melo who was president of the $30 billion U.S. Fuels Operations business unit of British Petroleum, in addition to his experience in the refining and marketing segments of the business. John not only focused the company on biofuels, but also squarely on diesel production (the world’s most widely used transportation fuel) instead of the in-vogue ethanol. Within six weeks, the company had its first yeast strains ready to produce a diesel precursor.
This was someone with first-hand knowledge of the fuels industry on a commercial scale – a Commercialization Executive.
CMEA Capital has applied this lesson to our portfolio companies, including Danotek Motion Technologies. Danotek makes permanent magnet generators, largely for the wind industry. The founder developed the initial innovative technology and successfully led the company through the development stage. Now that the technology is proven and it is time to grow the company, we have added an experienced Commercialization Executive. Don Naab was most recently a Group President with Broadwind Energy, running a $120M business in Gearworks and Energy Maintenance. His success in the wind industry gives him the authority and contacts needed to develop Danotek as a major supplier to that industry. As a result, he has been able to multiply the sales pipeline by more than 10X since coming on board. In talking to customers, many have mentioned that their prior relationship with Don is the reason that they are confident in the success of their contract.
Are there exceptions to this lesson? Of course! Lots of them. One notable exception is in the area of customer-facing energy software products. This sub-sector of the overall energy industry looks much more like high tech, where a founder with sufficient high-tech experience is probably more valuable as a leader than a senior executive from a utility’s IT department. Should we not invest in a company where the technical founder is still leading the company? No, but an ongoing conversation needs to be started. As the company begins to grow, a plan must be in place for the leadership of the company to get through the critical commercialization phase.
As recent NVCA statistics show, significant VC money is still flowing into energy companies. Do you have examples that either meet or contradict this perspective on a Commercialization Exec?
Rachel Sheinbein is a Principal in the energy and materials practice at San Francisco investment firm CMEA Capital. She is also a board member for Expanding Your Horizons, which encourages girls to pursue careers in math, science, engineering and technology. Twitter: @RachelSheinbein