NewNet Investor Profile: Jim Pettit, Navitas Capital

4 December 2008

Jim Pettit

Jim Pettit discusses investing in green construction, the difficulties facing a new sector and the need for efficiency in the built environment.

Navitas Capital is a US early stage venture capital firm within the cleantech space, focusing exclusively on the green buildings sector.

Jim Pettit is a co-founder and managing partner of Navitas Capital. Previously, he worked as a principle at Bancroft Capital where he oversaw the launch of Bancroft Opportunity Fund I. Prior to that, Pettit was a managing director at JPMorgan after receiving a bachelor’s degree from Berkeley University, with an emphasis on finance and real estate.

Why cleantech?

‘My partner Travis Putnam and I began looking at cleantech investments and the building sector a number of years ago, and our first direct investment was in 2005.

For me personally, however, investing in cleantech, specifically green buildings, has been an evolution of my professional experience. After being involved in a real estate development project in Colorado, which is a very eco-conscious city, I came to realise the environmental urgency of green buildings. It became apparent to me that cleantech within buildings was not going to be a fad, but was going to move into the mainstream. I believe we need to take the lead from countries in Europe such as Germany and Norway who show great advancements in this technology.’

What is your focus?

‘We are very unique as we are 100 per cent dedicated to working with and looking for entrepreneurial talent and innovative technologies in green buildings.

I think for many, this sector is seen as niche. However, although buildings may not have an exhaust pipe, so to speak, they expel a great deal of waste and emissions over their life cycle. The majority of mainstream interest currently falls on cars and the pollution they are creating, while buildings tend to be overlooked. Buildings are the single largest contributor to global warming worldwide, responsible for over 50 per cent of all greenhouse emissions, in comparison to cars, which are responsible for ten per cent. In short if we are going to win the “war” on global climate change, we are going to have to address the single biggest problem – the efficiency of the built environment.

Specifically within this sector, we focus our attention on sustainable building materials, building automation and intelligence, water management and onsite renewable energy.

Our first direct investment was with a company called Serious Materials in 2005. They manufactured the first eco-friendly replacement for standard dry-wall. Although not an obvious cleantech investment opportunity, dry wall is a substantial contributor to global warming each year. I think it is these numerous, smaller niches, and perhaps less fashionable areas, where there are good investment opportunities to be found in the future.’

What type of investments do you make?

‘We are a newly-formed venture capital firm that is primarily focused on early stage companies, in the series of A and B rounds. We would look to invest between $1m and $3m in each investment.’

Where are the best opportunities to be found?

‘The exciting aspect is that we are in the first phase of the transformation of this industry. We have seen very little innovation over the years so there are tremendous growth opportunities across every component of the sector and every region of the world.

Even in today’s economic uncertainty, the green buildings sector has seen dramatic growth. In the northwest area of the US, there has been fantastic progress. We look ahead at countries within Europe such as Germany and hope that we can replicate their success.

In terms of other favourable locations the UAE poses a very attractive opportunity, purely because of the climate. Also, the Far East, and specifically China and India are growing significantly. In the US, California represents a very exciting market. Every component within this sector is poised to change.’

What difficulties do you face?

‘Broadly speaking, any cleantech company with a capital-intensive business model is clearly experiencing some level of anxiety. This is particularly problematic for any company who had hoped for a near-term exit.

For the buildings sector, the most obvious challenge is that it is still at a nascent stage, with no high profile IPOs or large exits documented yet. Another issue for green buildings is the adoption of ideas; the construction industry is very resistant to change. As a result, there has been little movement or innovation over decades. We at Navitas are very committed to building a platform of world-class partners to help source, evaluate and promote new innovative tools and technologies. Our strategic partnership with Webcor Builders, arguably the premier green general contractor in the US, is a good example of how we differentiate our approach. Our collaborative industry network is evolving and includes leading builders, designers, developers and scientists.’

What are the advantages of this industry?

‘The advantage of this space is that because it is so young, it is exciting in terms of its growth potential and tremendous size. We are so early on in what I believe will be a cycle of change that will be upon us for decades.

From a economic perspective, we believe there is a great opportunity to see outsized returns by investing in companies with innovative and green technologies and materials.’

How do you find out about potential investments?

‘We are just getting started but our deal flows have been quite robust already, especially given the nascent aspect of the sector. We are seeing in the order of between ten and 25 opportunities a month.

I would attribute our deal flow momentum to a number of factors, including: early brand recognition as result of high-profile investments in our space, wide and deep industry contacts and a collaborative approach with respect to working with other venture capital firms.’

What makes you want to invest?

‘One consideration would be the capital efficiency of the business model. In addition, we look at the readiness of the product. Beyond that, one needs to look at the quality of the management. We like to ask ourselves whether the new technology and team is scaleable. Does it perform to a good standard? Does it fulfil its relevant role? What is its environmental dynamic and impact?

Also, cost is a huge issue, because we live in a world where everyone wants to talk about the returns on an investment, especially in today’s economy. It is paramount that a new technology has a cost point that is comparable or even favourable to a current solution.’

What is the biggest issue facing the industry?

‘The financial downturn is certainly a key issue because we are facing a difficult economic climate, possibly for the next couple of years. However, green buildings are projected to grow globally over the next several years.’

How do you see the market evolving?

‘We are seeing more news and awareness, as well as a greater adoption of new technologies worldwide. Especially in the US, there is both a push and a pull effect. Cities are mandating new developments and ensuring that products fulfil a certain amount of requirements before production can commence. We are in the midst of seeing companies that are manufacturing and delivering materials that are price-competitive which means that the financial returns are compelling.

Looking ahead, we will see a continued evolution in the green buildings sector, moving from the fringe in some markets to the mainstream in every region of the world. I think that over time we will not even be discussing the green building sector in specific terms, but rather it will be all-pervading and an absolute requirement.’

Will the hype surrounding cleantech affect the valuations?

‘Our interest is genuine and results from thinking about this space for a number of years. I think that in today’s economy, one of the opportunities that exist is having a knowledge base of where real estate development converges with finance. I believe the economy will certainly have an impact but will also allow for more realistic valuations of early-stage companies in the green building sector. I understand that some of the bigger venture capital firms are retracting from new early stage investments, focusing on their existing portfolios.

We, however, will continue to look aggressively for investment opportunities, with an eye towards the capital efficiency of the model. You need to provide enough runway to help get through these difficult economic times.’

Copyright © 2008 newnet

Tags: cleantech, green construction, investor profile, venture capital

This story was published on Thursday, December 4th, 2008 at 4:48 pm and is filed under profiles. You can follow any responses to article entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “NewNet Investor Profile: Jim Pettit, Navitas Capital”

1. Chetan Shukla says:

   28 July 2009 at 2:45 pm

   I am involved with the Green Building Movement in India. I am a specialist in the area of Air and Water Management in buildings. I have recently formed a consultancy with a JV with an American Firm in the area of providing LEED Certification for Buildings in India. So our job on the one hand is to provide the consultancy to the client and on the other hand provide specialised building materials to the developer that are Green in Nature. These products are the type that will help the developer earn credits on the LEED Score Sheet.

   We are looking at seed stage investment to the tune of US$ 1 million

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