NewNet Investor Profile: Steve Westly, The Westly Group

23 December 2009

Steve Westly

What is the focus of The Westly Group investments?

‘The Westly Group is a cleantech venture capital firm. I founded the firm in January 2007 and quickly realised that you could only cover a small fraction of the clean tech field with the three people we had. Fortunately, one of our early portfolio companies became public on NASDAQ and our first fund was profitable.

Based on this success we expanded the firm in 2008 to six full time investment professionals each one of whom covered a specific area including:  solar and wind,  energy efficiency and utilities including AMI & smart grid;  clean building materials; biofuels; batteries and electric vehicle technology;  recycling technologies. ‘

Why clean energy?

‘I’ve been passionate about this space for 30 years. I worked for President Carter in the Office of Conservation and Solar at the Department of Energy in the late 70s and then worked for the president of the California Public Utilities Commission where I published two books on alternate energy.

I founded our company on the premise that LPs would favour venture capital firms whose people have deep experience, and didn’t simply jump in six months or a year ago because it was trendy. If you were to turn the hands of time back three or four years, you would find that the cleantech space in venture investing was almost non-existent, it was virtually an asterisk.

When I was the state controller in California I helped push through a large cleantech initiative with our pension funds – CALPERs and CalSTRS- the first and second largest public pension funds in the US. I was a fiduciary for them, overseeing almost one third of a trillion dollars. We got PERs to commit a billion dollars to sustainable or cleantech investment, and a big piece of that went to venture firms which helped to create the cleantech sector. We didn’t quite realise it at the time but it turned out to be something quite historic with far reaching magnitude.’

How did those investments fare?

‘We are still waiting to hear the verdict but I believe over time they will do well. This is still a nascent industry but we are very close, probably two or three quarters at the most, to a series of cleantech IPOs.

When we started as a three person firm in 2007, our first fund was profitable within the first eleven months – this was very rare and we were one of the first cleantech firms to have a profitable first fund. It is largely because one of our firms Akeena Solar went public on NASDAQ. We have made 12 investments in our current fund, and we’re proud that we’re one of the few 2008 vintage funds that has already appreciated.

We are pleased with that because the average 2008 fund according to Cambridge has been marked down quite a bit, so we’re heading in the right direction and we’re hoping for our first liquidity event next year.’

What does clean energy offer private equity?

‘It offers two things, first, an opportunity to create above average returns. Second it has the subsidiary benefit you can feel very good about what you’re doing: your investments can help hasten the solution of one of the most gripping problems facing the world today.’

How has your time in public and private service informed your investments?

‘It has been very helpful. It is important to step back a minute and say, in Silicon Valley there have been many chapters to the technology story: we started with semi-conductors, and then PCs, then the software revolution, then an internet revolution, and even a life sciences and biotech revolution. With all of them, to be successful, you largely needed people with PhDs from MIT, Caltech, Stanford, Berkeley, or the IIT’s in India.

This revolution in cleantech is quite different. What people are realising is that while it never hurts to be smart, most of our entrepreneurs need someone who can navigate government because so much of this industry is government based and government dependent. I might add the very same story applies in China and India: industry is utterly intertwined with government and, if you will, our firm has developed a franchise in terms of understanding government interaction.’

Are you confident about the Copenhagen’s aftermath?

‘I am very optimistic about what needs to happen because the UK, Germany, Japan are already there. People need the US and China to step-up and I believe both nations will. I go to China quite often and just in the last year there has been a historic understanding in China that they need to move very quickly to transfer to more of an alternative energy based economy. I think Obama understands this and I think it’s a good thing for the planet.’

Do you think California is a state leader in the US?

‘California has clearly been a leader not just over the last ten years but since the 1970s when we did something truly historic- to be the first state in the country to pass catalytic converter legislation. People asked, How can one state mandate different requirements to the automotive industry? The fact is, we forced the issue and literally the entire global automotive industry made cleaner cars because of what California did. California has repeatedly led the way on environmental issues, most recently by passing the million solar homes initiative and the cap and trade initiative. California needs to continue to do this in the future.

One other unique thing- we have just outlawed incandescent lights. They will be illegal to sell in California by 2011, and we will quickly replace them with fluorescent lights and eventually LED lights.’

Which investment areas of particularly interest?

‘Our largest investment is in Tesla motors and they opened a showroom in London just two weeks ago. We have a major investment in the firm Recyclebank- leading recycling firm in this country, which also started in the UK last week. We also have a major investment in a firm called Lunera Lighting who we envisage will be one of the winners in the LED lighting space.

‘So far we have invested in US companies, but we are looking for the best companies wherever we can find them. We are looking at more and more things in China.’

What looks promising out of China?

‘A lot: wind, solar, industrial energy and waste energy recycling. We are seeing more cleantech ideas coming out of China than any other country, except the US. That means we all need to spend more time in China.’
What are the main challenges you faces?

Investors put their trust in us so we must stand by the smartest investments possible, and we must return shareholders investments at a good return. If we do that then more money will come into the space and will hasten the time it takes to solve global environmental problems.’

How can you see the space evolving over the next five, ten and twenty years?

‘I am utterly convinced cleantech is not a bubble. This is a huge and growing family of industries that is going to get very large.

Point two, whichever companies and countries discern this most quickly and plan for the future will do extraordinary things- that means literally national economies will rise and fall depending on how quickly they understand the size and scope of what’s occurring here.

Third, if you are a young person I believe there is no greater opportunity to change the world than to be involved in cleantech. What is so fascinating to me is that almost virtually every government on the planet is putting mandates and incentives and regulations in place to make this happen quickly to deal with this greatest problem of the age. It is very exciting; it is a great place to invest and a chance to change the world. What more could you ask for?’

Copyright © 2009 NewNet

Tags: private equity, venture capital

This story was published on Wednesday, December 23rd, 2009 at 7:01 pm and is filed under investors, profiles. You can follow any responses to article entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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