NewNet Investor Profile: Kirk Washington, Yaletown Venture Partners

20 April 2009

Kirk Washington

Yaletown Venture Partners is a Canadian early stage venture capital cleantech investor. The firm operates primarily across Western Canada and the Pacific Northwest US.

Kirk Washington is a founding partner of Yaletown Venture Partners responsible for cleantech investments. Prior to joining Yaletown, Washington spent 13 years with Ballard Power Systems. While at Ballard, Washington was also a member of the investment committee of Chrysalix Energy Management, a clean energy venture capital fund. Washington currently sits on the boards of Microstaq, NxtGEN Emission Controls and 6N Silicon.

Which areas do you focus on?

‘I have been in cleantech since 1989, before it was even called cleantech. My role here at Yaletown is a reflection of what I have been doing for the past twenty years. We come from the Warren Buffet school of trying to stay close to what you know.

I personally tend to gravitate towards the transportation sector, including alternative vehicle propulsion systems and alternative fuels, but also feel comfortable working with distributed power generation and certain other opportunity areas.’

Looking ahead, is there a space you would particularly like to get involved in?

‘Of course we have made our requisite investments in the solar space. Both wind and solar are the obvious big winners and are starting to emerge as bona fide industries and no longer niche markets. But as a venture fund, you must be clever about the way you participate – we invest in technology-enabled businesses, not project financing.

What about location?

Location-wise, from a standpoint of origination we will remain focused in the Pacific Northwest area of North America so we blend ourselves in with Washington, Oregon, and Alberta, but we will also look across Canada. However, with regard to the markets those companies might target, they span the world. We think of companies by their type of innovation: either evolutionary or revolutionary. Evolutionary technologies and solutions tend to be focused within North America while revolutionary projects have better prospects for adoption in developing nations.’

Is Asia an attractive location for you?

‘I am not particularly active there, but we recently initiated an effort in collaboration with certain of our LPs to determine if we should strengthen our ties with Asia. However, their dominant growth in energy supply and demand is still in fairly traditional solutions which contain all the problems and will make all the mistakes that we have made in the West.’

What are the difficulties you face?

‘I would say two things. One is management talent; there is a constant tension between managers with start-up experience and those with industry experience. Two is due to the sheer breadth of the sector. Gaining leverage from experience you gain from one deal or one sector and applying that elsewhere is not an easy task. I find myself having to learn from first principles over and over again which makes it more challenging.’

Is the cleantech space starting to fill with inexperienced players?

‘I think there are going to be some spectacular train-wrecks and when I talk to people within my network we seem to name the same names over and over again. When that occurs, because these are companies that have attracted remarkable amounts of capital, I will be curious to see how the LP community reacts and whether people can stomach those losses and stay with the sector or whether it will lead to a mass abandonment. I live in fear of that day because it is probably coming.’

What are the upsides to working in this field?

‘Where do I begin? The notion of doing well financially, while doing good for the world is a real factor. It is intellectually challenging and rewarding because you feel as though you are giving something back. The people you get to work with are fantastic. I cannot think of a better place to be right now.’

Will this market be hit hard with the global recession?

‘Given the current economy, government spending around the world will help us to weather the storm. There was a time when I first started investing in this space that my colleagues in the venture industry turned their noses up at things such as government subsidies and incentives and viewed investing in regulated markets as somehow impure as capitalists. Perhaps safe-haven is a bit of a strong term, but it looks like this sector will keep its legs firmly beneath it.

There is no doubt that everyone is cutting back but there remain examples where mandatory, regulatory requirements are sustaining demand despite the economy. I think it is definitely more promising than other sectors but it is premature to forecast what may happen as this crisis is nowhere near over.’

Has the drop in the oil price had an effect?

‘I have grown tired of hearing the price of oil linked to the emergence of renewables because that is irrelevant. Electricity has nothing to do with oil or the cost of oil. Back in the 1970s, those markets were well segregated and coal was the big winner. Now electricity is this incredibly well-diversified resource with coal, nuclear, natural gas, hydroelectric, and now renewables. Oil has no bearing whatsoever and that is what insulates a big part of the economy from major oil price fluctuations.

When you look at oil, we are really looking at the transportation sector so it comes back to my favourite area of focus. I would never bet against history and in this industry, everything old is new again. What so many people view as new trends is actually just history repeating itself. In the past when oil prices have receded, interest in renewable and alternative energy has waned.

However there is a difference in 2009. Because of climate change, regulators are active. In California, there was a time when they fought with the Federal Government to legislate CO2 emissions. I believe the Obama Administration has dropped its opposition to California regulating the automotive industry and in fact has linked some of its Federal financial assistance to the industry to increasing vehicle fuel economy. I think there is a regulatory trend that will sustain the effort this time which was lacking previously. I also believe oil prices will go right back up as soon as the economy recovers.’

Has President Obama had a big impact on clean energy?

‘Absolutely. We happen to be in a circumstance where he needed to spend $800bn to stimulate the economy, which allowed him to progress his agenda, perhaps not in the manner he would have liked but nonetheless, his thinking and his priorities are well-reflected in his spending.’

How does Canada compare to the US in this area?

‘Because Canada has a reputation for being rich in natural resources and a very pristine natural landscape, what most people do not know is that we actually have a higher energy use per capita than the US does. So we are right in line with North American thinking, which itself is behind the times. We are trying to think through how to change that fact but change is occurring slowly and we are not a terribly enlightened in that regard.

Oil sands, for instance is the big issue in Canada right now because they possess some of the single largest point sources of CO2 emissions in the world.’

How do you see the market evolving?

‘I believe that over the next ten to twenty years we will see chaos. That is frankly the environment in which venture capitalists thrive. I believe we are going to see wide-spread proliferation of numerous technology options that seek to solve the various problems we face. There will be fool’s gold in those many options but over time the winners will become clear and we will see consolidation down to primary solutions which will become the providence of large industrial corporations. If the truth be told, the cycle in which venture capitalists can participate will diminish over time.’

What is the biggest issue facing cleantech players today?

‘It is very information-inefficient. There is a lack of clear understanding and as I mentioned earlier, a lot of fool’s gold to be found. There are multiple solution pathways to our various problems. Frankly this is where countries like China have a bit of an advantage because of their hybrid of capitalism with communist central planning. In North America we thrive on competition which can be wasteful when there are multiple solution pathways. We will continue to go through a cycle of spending money in the wrong direction until we get on the right track.’

Copyright © 2009 newnet

Tags: cleantech, solar, venture capital

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