Traditional office and residential buildings are energy hogs. Today, however, we’re seeing a new generation of cleantech entrepreneurs rethinking building design and manufacturing. While they’ve seen growing success, these entrepreneurs face many challenges in bringing their innovative companies to market.
According to Kevin Surace, founder of Serious Energy and chairman of Zeta Communities, “The built environment worldwide is responsible for about 40 percent of overall CO2, 52 percent if you include the making of materials that go into the built environment.” Several years ago Serious introduced software that manages buildings to save energy. What we need, he said, is better policy and a better investment environment that includes exit strategies for investors.
But doesn’t it cost more to be green? A former executive at eBay, Gary Dillabough, managing partner at the Wesley Group, said that when you see production costs coming down, it’s almost on parity now with traditional construction. As an example, he spoke of LED lighting, soon to be comparable to the cost of fluorescents. The great thing about LED lights, he said, is that they become a digital platform on your ceiling. “You can actually start to change the color of the light throughout the course of the day,” so people experience something akin to natural light. And natural light is what people want to work in, which can translate to greater productivity.
Ann Hand, CEO of Project Frog and a former BP executive, stated that a core tenet of her company is to deliver a bundled solution. “If you just prefabricate parts of it and spec the other stuff in, inevitably, like any other construction project, time and budget get away from you and the best parts are value engineered out.” She went on to say, “A big part of our value prop to our large customers is that we can guarantee a price per square foot, no change orders, a schedule usually about 50 percent faster than traditional construction and a very specific energy performance.” How can they get the lower costs? As an example, Hand referenced a low-bid project the company won at Hunters Point in San Francisco. Because it was a public project, Frog later had access to the bids they beat and found that, on average, only 18 percent of the bids was in materials, 30 percent was labor, and 38 percent was overhead and risk. “The fact that we’re able to control that bundled solution—strip out a lot of that fat that doesn’t need to be there—is an easy way for us to hit price points.”
Is this a place for VCs? “It doesn’t feel that way right now,” Dillabough said. “But I do believe that if you look at the economics, the valuations of companies are coming down right now, and as people are moving away from it—it’s a big counter-cyclic—now’s the time to actually double down.” He added that, “This is the right space at the right time, and we’re hoping that some of these companies will start to finally break through. And I think that we’re closer than some people realize.”
Surace went on to speak of companies competing for technology investment dollars, including such companies as Facebook. Why would a VC invest in Facebook instead of cleantech? For one thing, VCs are looking for earlier exits. “They’re running a financial game. Unfortunately the cleantech companies take a lot longer than two or three years.”
Dillabough is optimistic, however, comparing cleantech with a cell phone. “A few years ago this was just a communication device.” He tells investors that buildings can be so much more than just buildings. “We’ve got to shift people’s thinking to productivity and health. We couldn’t do that a few years ago and now I think we can.”
– Lucy Sanna
September 7, 2012
Photos by Rikki Ward
The Commonwealth Club of California