CMEA Capital's on the prowl for cleantech investments

San Francisco, Calif.-based CMEA Capital is on the hunt for the best and brightest cleantech investments. But if the investors can’t find what they are looking for, founder and Managing Director Tom Baruch told the Cleantech Group they’ll create their own company.

The venture capital firm usually invests anywhere from $10 million to $15 million per company, over the life of its involvement with the company, he said. And these days, renewable fuels and chemicals from cellulosic precursors as well as algae are catching the attention of CMEA investors. Baruch said they are working on a stealth project in collaboration with a university in San Diego to genetically modify algae to produce chemicals.

“We’re working to see if we can build our own company,” he said. “We’re shopping for the right technologies and supporting some small research projects.”

CMEA has also invested about $15 million to date in Codexis, which makes producing biofuels, pharmaceuticals and industrial products faster through its next-generation biocatalytic chemical manufacturing processes. CMEA was involved in spinning Codexis out of Redwood City, Calif.-based biotech company Maxygen (Nasdaq:MAXY).

Codexis, which filed its S-1 in 2008 (see Codexis files for $100M IPO) and then pulled it due to market conditions (see Codexis withdraws IPO), has attracted significant private equity investment with IPO plans on the horizon again come 2010.

In March, global energy giant Royal Dutch Shell (NYSE:RDS.A) and Codexis expanded an agreement to develop better biocatalysts, with Shell increasing its equity stake in Codexis. The companies first announced the partnership in 2006 to investigate other biofuels, researching new enzymes to convert biomass directly into components similar to gasoline and diesel, with Shell taking a stake in the company in 2007 (see Shell partners with Codexis for next generation biofuel research and Shell, Codexis in biofuels agreement).

Baruch said he expects Codexis to turn a profit by the end of this year.

“We want to be involved in companies that are truly transformative—that change the way people do things and think about things, that have cost and performance characteristics that are a leap apart from what’s currently available,” he said.  “And frankly, if it’s not transformative I don’t want to do it.”

Baruch, who founded CMEA Capital in 1989, began his early-stage investment skills at the Battelle Development in the late 1960s and then at ExxonMobil in the 1970s and early '80s. Baruch formed CMEA Capital with New Enterprise Associates in 1989.

He currently heads CMEA’s energy and materials investments, which include fuel cells, solar power generation and management, biofuels and rechargeable batteries. He also serves as chairman and a member of the board for a number of CMEA’s portfolio companies.

He shared some of his investment insights and thoughts on the U.S. government driving the adoption of new clean technologies with the Cleantech Group:

CMEA's Tom Baruch remembers when the venture capital business was much smaller and harder in 1989.

How has CMEA played an active role in the cleantech sector, and why?

What we call the clean energy market represents a perfect opportunity to leverage the multidisciplinary skills we have at CMEA Capital and to spot areas of convergence across our individual investment practices in life sciences, information technology and energy and materials. We can impact the clean energy market by leveraging technologies like materials science where the CMEA team has unique skills. The outcome is a transformative reduction in the cost of storing and converting energy. CMEA has been investing in energy and materials for the past 21 years.

What do you think the government’s role is in supporting the cleantech industry?

Scalability is a key success factor in the commercialization of clean energy. Because the energy market is so large, manufacturing costs associated with implementation of new technologies for the storage or conversion of energy need to be reduced exponentially in relation to volume (learning curve or scalability). The government can play a role in helping to scale new technologies in applications like future fuels, energy storage and efficient energy. The government can also be a partner for the expansion of facilities via loan guarantees, tax incentives, regulatory initiatives and worker training. This assistance at the federal, state and municipal level will facilitate the adoption of new technologies (see SAIL-backed cleantech startups to secure $3B in government funds).

One of the most important roles for government at all levels is to maintain a vibrant educational system that is capable of producing young people who are properly qualified for successful participation in the emerging energy industry.

How can the government keep the U.S. competitive in this market?

The U.S. has a leadership position in venture capital and in the technologies needed for clean energy. The U.S. possesses a vibrant and world-leading venture capital community that can select the most scalable technologies and qualify the best products for clean energy. U.S. product leadership in clean energy is the result of our leadership in technology sectors such as information technology, materials science and genomics. Once the venture capital community minimizes the risk of failure, the selection of the most important new clean energy products for government partnering will become clear. The goal is to enable the U.S. to obtain energy at costs that are competitive to existing costs with minimum greenhouse gas emissions. This will enable the U.S. to establish a leadership position as a responsible member of the global community and enhance our balance of trade. The government can step up into its partner role to facilitate scaling.

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