EPAct Alternative Fuel Infrastructure Workshop

I attended the San Francisco EPAct workshop last week to learn more about the Californian alternative fuel network for one of my cleantech clients.  E-Cofueling has a diesel engine retrofit kit (heavy to light duty) that vaporizes ethanol in the combustion chamber increasing horsepower, torque and fuel mileage while decreasing emissions.  I went to get a better understanding of where ethanol (E-85) fueling stations are now, where they are planned for the near future and which fleets are using them.

The workshop covered alternative fuels such as: biofuel, ethanol, natural gas, propane and electric charging in California.  Stakeholders for each alternative fuel spoke about how their product was currently being utilized, how to best use it and what they thought the future looked like for their niche.  One of the speakers from NREL (National Renewable Energy Laboratory) noted that all federal vehicles with alternative fuel vehicle (AFV) capability are mandated to utilize alternative fuels if they are within 5 miles or 15 minutes of drive time (EPAct 2005 Section 701) helping to “fuel” the need for more Alternative Fuel stations.  It was also interesting to hear that there is a huge push for electric vehicles to be purchased by government organizations even though the ROI for them does not appear to be as strong as other alternative fuels.  It seems like electric is sexy and “in” right now and the politicians want to get on that wagon more than others even though it does not use a renewable fuel source.

It will be interesting to see which fuels become dominate over the next ten years in California vs. the rest of the country.  Each fuel that was reviewed at the workshop has merit but also liabilities that must be taken into consideration before a fleet owner chooses which way to go.  The larger fleets are trialing a number of different alternative fuel vehicles in order to make a real world assessment of what works for them, which seems like a good plan. 

Companies and government organizations which need to move large amounts of goods and that have plenty of money to spend are buying new more fuel efficient diesel engines or AFV’s.  Those that don’t have the money but still want to go green need inexpensive alternatives to retrofit existing vehicles.  Diesel engines are without question the backbone of the US trucking industry as well as municipalities, schools etc.,.  These engines as a whole last longer (than their standard gas counterparts) and there are millions of them on the road today.  E-Cofueling and other niche diesel retrofit technologies that can increase fuel mileage as well as reduce emissions, will have an opportunity to make a difference.

Groupon – I called this one!

When I first saw deal-of-the-day website Groupon in San Francisco a year or so ago I thought this is going to be a hit!  A company that can offer you major online discounts to restaurants and services in your home town, gives you Groupon “cash” to invite friends, uses Facebook / Twitter etc., has to be a winner unless they really screw up.

I started checking out this Chicago based company and liked their business model from the get go.  I cannot truthfully say that I thought a year later they would have a valuation of $1.2 Billion or that imitators would be popping up but I knew they had a solid chance to succeed if they stuck to their strategy.  As of the beginning of April they had over 3 million subscribers, are in approximately 40 markets and make money by getting a cut of the deal from the retailers (revenues expected to surpass 9 digits this year).  CEO Andrew Mason seems to have a good strategy in place.  But I’m curious how he plans to knock out the upcoming clone wars (my apologies for the bad pun – Mr. Lucas / Star Wars) which are already popping up in this space.  With the war chest he has in place ($50 million in cash) he might just squash them like Microsoft would (market leadership premium) or just continue to grow faster?

As far as I can tell there are not any patents surrounding Groupon, therefore the barriers to entry are manageable.  Silicon Valley Venture Capitalists always tell me they want something in “white space” but whenever you bring something like that to them they often have real trouble figuring out:

A. What is its value (nothing to compare it with)?

B. Are we brave enough to make the bet?

C. How quickly should we pull the trigger, or should we waffle and think about it?

The Groupon investors weren’t afraid of white space.  Early investors Eric Lefkofsky and Brad Keywell used some of the recent $135 million from Digital Sky Technologies (see Zynga) and Battery Ventures, to start a new VC called Lightbank which is re-investing in new social networking business such as Where I’ve Been and Poggled.  Both feel that the social commerce space has lots of room to grow and I’m betting their right.

Most importantly this new investment allows some of the early investors / employees to cash out now (atypical) while funding a global expansion.  Most investors / employees are first in last out waiting for their payout when the company IPO’s or more often is acquired.  Digital Sky seems to be on the forefront of this type of investment pattern (See Zynga, Facebook) and I expect it might be a welcome trend for entrepreneurs.

Notes: Previous to the $135 million “Series C” raise the Series B round of  $30 million was by Accel Partners and New Enterprise Associates.

Failures in this space of note: Mercata – Paul Allen – Vulcan Ventures