The clean technology industry (or simply cleantech) is at a crossroads. On the one hand, there is huge business potential, given the urgent need to build alternative energy sources for a more sustainable future. Then again, while several areas in hardware, including cleantech, are in investors’ crosshairs right now, the available capital may be realigning in the aftermath of the COVID-19 crisis.
In our latest ConZoom event, we were joined by two veterans in the hardware space: Matt Taylor, managing partner of MTT Ventures, and Mike Lightman, whose background includes running a cleantech incubator, helping cleantech companies around the world, and supporting investors in the space. ConZoom is a virtual event that is part networking (you’ll meet at least a half dozen high calibre startup players) and part purposeful (you’ll ConZoom new ideas).
Here, we explore with Matt and Mike how cleantech is shaping the world, and how the technologies are expected to take off in a post-crisis environment.
Cleantech in the Spotlight
Cleantech involves technologies that help reduce the negative environmental impacts of harnessing energy, and it’s one of the things that investors are keeping an eye on right now, according to Mike.
“Diving deeper into the cleantech side of hardware or just cleantech in general, I think that cleantech is like the perfect example of [the] right time being the most important component. The majority of the cleantech things that I’ve seen, it’s really been a crescendo,” Mike said.
In the future, policies are likely to drive the demand for green technology, especially in progressive locations opting to regulate cleantech. An example of this is the Local Law 97 in New York City, which applies tariffs on energy efficiency in buildings. “If you’re a building over 25,000 square feet, you have to be something like 85 percent more energy efficient in the next couple of years, or the city slaps you with a fine. So whatever it is that ends up coming out, my guess is going to be those more energy-intensive facilities,” he anticipates.
Mike also sees more technology today around the Internet of Things (IoT) of managing various buildings, including simple technologies, “Better heaters, better insulation, and then even like better windows – so I’d say building technology is one.”
Grid-related cleantech is seen to soon dominate the market, as well. “Battery backup is blowing up right now. Anything to do with capturing energy during off-peak hours, and helping something with the energy curve,” Mike said.
Environmental Technologies On the Rise
Clean energy is one of the few affordable resources that can help mitigate the effects of the pandemic on people’s livelihoods and local economies. Amidst the fallout of the coronavirus emergency, the United Nations Development Programme (UNDP) highlighted the importance of clean energy in helping countries “prepare, respond, and recover” faster from the pandemic.
Mike agrees that there is great potential in developments aimed at the environment, and is particularly curious to see how water technology and agriculture technology will develop in the coming years. “Shipping containers that have hydroponic gardens in them that you can just drop next to a grocery store, for obvious reasons – that’s become more popular now. And then also, the solar panels that will collect water instead of energy, so you can have a remote water supply.”
“I like to joke about it, but ‘zombie apocalypse preparation’ technologies that can impact large scale infrastructure are becoming increasingly popular,” Mike shared in jest.
Other Trends in Hardware We’re Seeing in 2020
In the hardware sector that MTT Ventures operates, Matt says the interest right now is in three areas: medical devices, consumer goods, and consumer privacy.
“I think we’ve seen [that] just in the last two months alone, there are 25 med device deals that can run the gamut. It’s a pretty broad space, but we’ve seen a lot of deal flow there,” Matt observed.
Matt pointed to Psyonic, an Illinois-based tech company that develops prosthesis medical devices, as one hardware manufacturer that is seeing a lot of investment right now. Psyonic incorporates its products with unique bionic abilities that surpass human capabilities for people with limb differences.
As for consumer packaged goods (CPG), Matt mentioned Michigan-based hardware company Inductive Intelligence, which uses induction to find more convenient, safer, and more sustainable ways to heat and cook food.
Matt also zeroes in on how consumer privacy is becoming more of a staple in the hardware industry, citing Winston Privacy as an example. This VPN alternative is a hardware that encases filtering algorithms that protect a user’s online privacy. “Coincidentally, an exact same company [as Winston Privacy] exists in ATDC in Atlanta. So you have two hardware products around consumer privacy in two different cities doing almost the exact same products. I thought that was pretty interesting,” Matt noted.
How Investors are Financing Tech, Hardware Companies
When asked about how investors are generally financing hardware companies during this time, Matt and Mike agreed that most investors only do equity.
“We only do equity financing. In terms of debt, we’ll do convertible notes. But this eventually converts to equity. And our partners that we syndicate our deal flow to, as well, only do equity financing. So we’re not going to help facilitate any venture debt with a partner such as a Silicon Valley Bank,” Matt shared.
Mike, who is not a venture investor himself but helps with fundraising, echoed Matt’s view: “Right now, almost all the venture folks that I know, in fact all of them, are strictly equity or convertible note. I think it’s becoming increasingly popular. [This is because] a lot of investors don’t want you to be losing any of your cash flow. And with a loan, like with any kind of debt, you’re immediately losing that, which can become dangerous.”.
Matt Taylor is the managing partner of MTT Ventures in West Chicago. Alongside his partner, Manuel Magallanes, he manages 18 of their limited partners’ funds, and their main focus is at the pre-seed stage. They currently have nine investments, three of them are in hardware, and advise one other med device hardware startup.
Mike Lightman has had his hand in various cleantech and hardware related companies over the last decade. He has worked with a small VC concentrated on hardware and manufacturing medical devices, and also spent three years working with the World Bank for a program that builds startup ecosystems around the world. He is currently consulting for NYSERDA.
Want to connect with the right hardware and cleantech companies that you need to keep an eye on? Don’t hesitate to reach out.