toledoblade.com --

FOR A promising solar-energy start-up launched in a research laboratory at the University of Toledo, investment cash has poured in from California's Silicon Valley, Zurich, and Amsterdam.

"We are excited to have the opportunity to make this investment and look forward to supporting the company with its growth ambitions," Adam Anders, of the Netherlands' Rabo Ventures, said in announcing it was taking the lead in a large investment in Toledo's Xunlight Corp. The investment, $11 million, was the Dutch fund's first outside Europe.

It was part of $40 million that private investors have committed over the past 16 months to the solar panel developer and manufacturer on Nebraska Avenue.

And Xunlight has plenty of company.

As world attention has increasingly turned to new ways to keep lights burning, cars moving, and air clean, firms involved in alternative energy have reaped the benefits.

In the three-month period ended June 30, venture capital firms' investments in such firms in North America, Europe, China, and India zoomed 58 percent from the same period a year earlier, according to a group that tracks the sector.

Some investors are comparing the trend to the dot-com investing craze of the late 1990s.

"It's a feeding frenzy, it's so hot now," said Greg Knudson, who heads a local fund called Rocket Ventures at Toledo's private Regional Growth Partnership.

Technician Jerry Logsdon tests voltage emitted from Xunlight's solar-cell material at its Nebraska Avenue plant.
( THE BLADE/DAVE ZAPOTOSKY )

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And solar companies and other alternative-energy ventures in northwest Ohio are well positioned to cash in on the bonanza because of the success of Arizona-based First Solar Inc., a Toledo-born company that had the fastest-growing stock on Wall Street last year. The firm's lone U.S. factory is in Perrysburg Township.

Its success has attracted attention to the area's budding solar-energy industry including a respected research institute at UT and several start-up companies. "It's putting us on the map and helping build momentum," said Mr. Knudson.

Rocket Ventures is working with 10 firms involved in alternative-energy and related areas that eventually could attract venture capital firms. If the local businesses can prove their worth, there will be no shortage of potential pools of cash for them to try to tap.

Seventy-four percent of investments made by venture funds in the second quarter, or $1.5 billion, went to U.S. firms, according to Cleantech Group LLC, San Francisco.

The firm said that major beneficiaries are companies developing solar thermal systems, which use steam to power turbine engines to make electricity.

Other big winners have been companies using algae, plant stalks, and other noncorn sources to make gasoline alternatives.

Investors have even coined a new term for this category of company benefiting from the trend: "clean tech" or clean technology.

It includes solar panel producers like Xunlight, firms involved in making and installing windmills, companies developing long-range batteries for automobiles, producers of biofuels, and manufacturers of advanced materials with the potential to reduce consumption of fossil fuels.

Ownership stakes

The people making the investments are not tree huggers focused primarily on a greener world but hard-nosed banks, pension funds, and other institutional investors eyeing potential profit, observers said.

In exchange for their infusion of cash, they typically take an ownership stake in the company.

Rocket Ventures, of Toledo, invests up to $1 million in promising firms, assists with management, and later helps find traditional venture capital financing, said the fund's Mr. Knudson. The fund was financed by $15 million in grants from the Ohio Department of Development and $7.5 million in contributions from companies in the region.

All the start-ups that Rocket Ventures is working with are too new for traditional venture capital financing, Mr. Knudson said.

But the local fund helped nail down $2.3 million from venture investors in Madison, Wis., for a pair of UT researchers working on a drug to treat Alzheimer's disease.

Although research operations continue to be based here, the firm, now known as Mithridion Inc., has administrative offices in Wisconsin.

So-called venture capital fairs, which bring together entrepreneurs and financiers, have become commonplace, Mr. Knudson said.

First Solar, known as Solar Cells when it was founded by Toledo industrialist and inventor Harold McMaster in the 1980s, received assistance from a venture capital investor.

Potential pitfalls

The firm was struggling in the 1990s when True North Partners LLC, of Scottsdale, Ariz., arrived on the scene. Led by retailing heir John Walton, now deceased, the firm pumped in $58 million to make Mr. McMaster's dream a reality.

But people who work in venture capital financing warn of potential pitfalls for the investors as well as recipients of their cash.

Many clean technology ventures are likely to fail.

"There is going to be a winnowing-out process," said Mark Heesen, president of the National Venture Capital Association. "Only the leanest and meanest firms are going to survive."

And clean-technology companies themselves are rolling the dice.

The arrival of a venture capital investor usually involves a vocal - and sometimes impatient - new "partner" monitoring sales and profitability. Funds typically like to cash out with a profit after four years or so.

But clean-technology companies, with the exception of some solar-related firms, aren't likely to begin to pay off for seven to 10 years, venture capital experts said.

Jeff Culver's Sylvania Township firm, Solargystics Ltd., is too new to even contemplate seeking financing from venture capital funds.

The enterprise, which is developing flexible solar panels that could be installed on houses in place of roofing shingles, is receiving assistance in writing grants and in other areas from the Regional Growth Partnership. So far, financing for the company has come from the principals themselves and wealthy local investors.

"We've had venture-capital conversations," Mr. Culver said. "We've never been overly interested. They put in large amounts of money … and take a large percentage of your company."

'Mathematical approach'

Solargystics has no need for a huge stash of cash yet, he noted. And "with venture capital guys, it's all about how much are we going to invest, how much are we going to get back, and how fast are we going to get it," Mr. Culver said. "It's a very mathematical approach to the business."

Xunlight has no complaints about its investors.

"We have had a great relationship with the venture firms we have been working with," said Todd Armstrong, company spokesman.

Its four-member board consists of Xunming Deng, founder and chief executive, and three investors.

The Xunlight Web site said Markus Moor represents Emerald Technology Ventures, Zurich; Mark Iwanowski represents Trident Capital, of Palo Alto, Calif.; and David Buzby is a private investor from San Francisco.

Xunlight hasn't disclosed investors' ownership stakes.

Founded in 2000, Emerald, a Swiss fund, is a leader in clean technology.

Rabo Ventures, Xunlight's newest investor, is an offshoot of Amsterdam-based Rabobank, a large and diverse financial institution that began in the late 19th century as an agricultural lending cooperative.

Spokesman Bram Ledeboer said that, as Rabo Ventures' third investment, Xunlight "is a very important component of our portfolio."

Other investments are in two Dutch firms: EWT, which designs and manufactures wind turbines and installs wind farms, and Econcern, which operates businesses across the clean technology sector.

Xunlight is one of the highest-profile players in the Toledo area's budding solar-energy industry.

The industry got its start as a result of Toledo's long expertise in glass manufacturing.

Typical solar panels are made with glass, although Xunlight and a number of other local researchers have joined scientists and manufacturers using other materials.

Popular segment

Solar-energy firms remain a popular area for venture-capital investing because solar "is an easy concept for everyday investors to understand," said Mr. Heesen, of the National Venture Capital Association.

"The whole clean-tech area is booming."

Of the $35 billion invested by venture capital funds annually in the United States, 12 percent - $4.2 billion - goes to clean-technology companies, he added. That is up from 3 percent, or $1.1 billion, just a few years ago.

Rocket Ventures, the quasi-public local fund, has invested $2 million since its inception four months ago, the director said.

Firms involved in alternative energy development have collected about 20 percent, and bioscience companies have received 40 percent.

A few venture capital funds started in the past few years invest exclusively in clean-technology firms, although most also put money into companies involved in communications, information technology, and medical devices.

Mr. Heesen agreed that venture capital funds often take a large role in firms in which they invest. But he sees that as a good thing.

"They work hand in hand with management," the association leader said. "We don't just invest and walk away. We sit on the board. We help with overall strategy. We're helping to find customers."

The industry's sudden interest in clean technology isn't difficult to understand, he said.

"The world population is understanding that the energy sources we have are woefully inadequate for the planet. Governments of the world are saying, 'We need change.' And consumers are saying, 'We are willing to pay a little more for long-term solutions to the energy crisis.'•"

Contact Gary Pakulski at:
gpakulski@theblade.com
or 419-724-6082.

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