About Andrew Williamson

Andrew Williamson is a Director at Physic Ventures. Andrew invests in companies that are developing technologies, products and services to enable consumers to adopt more sustainable lifestyles. Among the portfolio company investments managed by Physic Ventures, Andrew is on the boards of Chromatin, EnergyHub, Gazelle, Impinj, Novomer, RecycleBank, and WaterSmart. Prior to joining Physic Ventures, Andrew spent 10 years leading materials science research and development projects at the Department of Energy's National Renewable Energy Laboratory and Lawrence Livermore National Laboratory.

It’s Time to Save the University of California

I view myself as a product of the University of California.  UC is the reason I came to California and it’s one of the reasons I’ve continued to make this state my home for the past 12 years. My wife and I moved to California in 2000 when I was awarded a Lawrence Fellowship at Lawrence Livermore National Laboratory (part of the UC campus system) and my wife was offered a postdoc position in Neuroscience at UCSF.

For the next 7 years, I ran a nanomaterials research group at LLNL, during which time, I had the opportunity to form academic research collaborations with faculty at UC Berkeley, UCLA, UC Riverside and UC San Diego.  In 2005, I decided I wanted the next stage of my career to focus on commercializing the science and technology that I had been researching.  So again I turned to UC and I enrolled in the Executive MBA program at UC Berkeley.  For the last 5 years as a Partner at Physic Ventures, I’ve been investing in startups developing technology in the field of Sustainability.  I maintain my close ties with UC, guest lecturing at Haas, working with UC faculty to commercialize UC inventions, and hiring numerous UC science, engineering and business graduates into the startups that Physic Ventures invests in.

So over the last 12 years, I’ve had the opportunity to engage with UC as a student, a researcher, a teacher, and now an investor in the California economy.  From all these vantage points I can state categorically that UC is one of the greatest University systems the world has ever known.  It sits at the pinnacle of academic achievement, it is an engine of innovation for the California and US economy, and it currently provides a world class University education to over 222,000 students.

UC isn’t the only world leading University that I’ve experienced.  As an undergraduate and PhD student, I was fortunate to receive one of the best University educations available. I studied Natural Sciences at the University of Cambridge and then I stayed at Cambridge to complete a PhD in semiconductor Physics. Like UC,  Cambridge is a public University, but no one would argue that it’s anything but elite. Cambridge admits a mere 3000 students per year, only half of which come from public schools.  In contrast, the UC system is a truly public system, offering the opportunity of a world class education to all California high school students.  It specifically offers a local eligibility program that guarantees admission to a UC campus for the top 9% of students in a high school class.  This is what really impressed me with UC when I arrived in California.  It is one of a handful of University systems that maintains elite academic standards and offers broad availability to hundreds of thousands of California students.

So why am I writing this homage to UC?  I’m writing because I believe that state imposed UC budget cuts risk fatally damaging one of the crown jewels of the state that I’ve adopted as my home.  According to Lt. Gov. Gavin Newsom, who is on the board of trustees of the UC system,“This is the code red we’re in. We’re not cutting into muscle or tissue, we’re cutting into artery.”

In response to initial budget cuts in 2007, UC took all the usual actions.  It increased tuition rates, it increased the percentage of high fee paying out-of-state students, it cut less popular classes and instigated a faculty pay freeze.  Now there is nowhere left to cut.  However, every year for the last 5 years, state support for UC has continued to decrease, tuition rates have increased way above the rate of inflation, and academic salaries continue to decline compared to those at other institutions.

It seems like every month I’m hearing about another former UC colleague who has left for a better salary, larger research budget, or fewer bureaucratic constraints at another University system.  Every year we hear about more middle class students declining places at UC in favor of less rigorous academic institutions with more affordable tuition rates.

Watching this decline of UC is like watching a train wreck in slow motion.  It doesn’t have to be this way.  It is simply a matter of priorities.  As always happens, politicians make funding decisions based on short term political calculation.  The impact of this slow bleeding of UC will not be obviously apparent in the short term, but rather it will be felt over decades.  As fewer middle class students can afford UC tuition rates, academic standards will decline and California’s work force will slowly become less competitive and innovative.  As world class researchers leave UC for Texas, Massachusetts, or perhaps Asia, this research based catalyst for innovation in CA will move to other states, along with the job creation and economic value that follows.

I don’t pretend to have all the answers to California’s fiscal troubles, but I’ll leave you with one statistic as food for thought.  In a recent blog, Fareed Zacharia pointed out:
In 2011, California spent $9.6 billion on prisons, versus $5.7 billion on higher education. Since 1980, California has built one college campus; it’s built 21 prisons. The state spends $8,667 per student per year. It spends about $50,000 per inmate per year.”
Clearly something went wrong with our state’s priorities and it’s about time this crisis got the attention it deserves.

Sustainable Food and Ag Investments

Last week I spoke at the 2012 AgReturns conference in San Francisco. This was the latest installment in the conference series that used to be titled Ag 2.0. I guess the organizers changed the title to inspire attendees to drive for exits and financial returns in this nascent sector for venture investment!

The conference featured presentations from entrepreneurs and investors from the food and Ag sectors. Topics included precision agriculture, sustainable Ag inputs, Ag-biotech, and food and Ag consumer products and services.

My talk was on the correlations between venture investing in Cleantech and AgTech. A couple of years ago I used to sit on panels with titles such as “Is AgTech the new Cleantech?” Given the sparsity of positive investment returns to date in the Cleantech sector, I’m not sure that being the “next Cleantech” is necessarily the right direction for AgTech. An alternative question might be, “Is Food/Ag the next exciting vertical for Tech?“. However, there are definitely some valuable lessons to be learned from the last 5 years of Cleantech investment which can be applied to the more nascent AgTech sector.

Look for scalable, capital efficient investment opportunities

If the industry can extract one key lesson from the last 5 years of Cleantech investing, it’s that the best opportunity to produce venture-level returns comes from companies with scalable, capital efficient business models. Just as Cleantech has its multi-$100MM solar manufacturing, wind and biofuels sectors, there are plenty of opportunities to sink 9 figures into investments in the AgTech sector. Since speaking at the AgReturns conference I’ve received business plans ranging from multi-$100MM fertilizer production plants to designs for new combine harvesters. There are, however, a number of emerging AgTech businesses that leverage low cost sensors, ubiquitous cloud-based data, and supply chain logistics to produce scalable businesses that look a lot like the promising resource efficiency and demand reduction companies emerging in the Cleantech sector.

Look for focused go to market strategies

One of the challenges with bringing new solutions to market in the Ag sector is a fragmented customer base that is extremely conservative towards adopting new technology. Selling new irrigation/fertigation or SaaS software solutions directly to farmers is slow, inefficient and not cost effective. Several speakers at the Ag Returns conference gave examples of how they’ve succeeded in using co-ops, contract grower groups, and established channel partners to solve this challenge.

It’s all about the team

I’ve always been a “back an A Team with a B product, rather than a B team with an A product” investor. One of the challenges for the AgTech sector has been a lack of experienced entrepreneurs. This is beginning to change as entrepreneurs from the Cleantech, Biotech and IT sectors identify opportunities in some of the leading AgTech startups. This is a positive development for the sector, which should accelerate the growth of category creating companies.

We need some exits to validate the sector

The Cleantech sector languished for several years until some of its marquee names (Tesla, Solazyme, First Solar) demonstrated the returns that could be achieved. At the AgReturns conference, John Ryals from Metabolon presented an excellent summary of the returns in the AgTech sector to date. Unfortunately, the list of exciting exits is still relatively short. Everyone talks about the 13X return from Athenix and then struggles for a second example. As I’ve discussed in a previous posting, one promising opportunity for value creation is likely to be where the Cleantech and AgTech sectors converge in the production of biomass feedstocks for bio-conversion to fuels, chemicals and materials. Just before the AgReturns conference, Ceres had a public offering of $65MM at a market cap of $350MM. The other leading biomass seed and production companies, Chromatin (a Physic Ventures portfolio company) and Mendel, are also showing great progress.

Areas to watch

At Physic Ventures, we believe there are a number of attractive investment sectors emerging in AgTech and FoodTech. In the AgTech world, we believe that consumer demand for safety and transparency, coupled with increasing regulatory pressure creates an attractive opportunity. There will be large markets for companies developing solutions that make the food supply chain safer, reduce wastage and provide transparency to consumers.

In the FoodTech sector, Physic Ventures recently led the Series B financing of Yummly, a leading website providing information on how to select, procure, and prepare healthy, nutritious and delicious food at home. I will cover the context for this investment and the range of new opportunities it highlights in a future posting. Needless to say, this is a great example of how Food and Ag are emerging as a promising vertical for applying the modern toolkit of consumer facing tech solutions.

The proliferation of collaboration

Regular readers of this blog know that collaborative consumption and the share economy are investment sectors our venture fund, Physic Ventures, is particularly bullish on.  These sectors sit at the intersection of resource efficiency and the enabling technologies of social graphs, cloud data storage, and mobile computing.  Collaborative consumption startups are disrupting numerous industries, such as transportation, housing, and entertainment.

In the last year, we’ve seen an explosion of entrepreneurial and investment interest in these sectors.  Two excellent books written by Lisa Gansky and Rachel Botsman and Roo Rogers have catapulted Collaborative Consumption and the Share Economy from novel concepts to everyday buzz words.  Lisa’s book and accompanying website have cataloged over 5000 startups in the Mesh ecosystem. Last week also marked the one year anniversary of the Collaborative Fund, setup by Craig Shapiro specifically to invest in this sector – Happy Birthday guys!

While I’m delighted to see collaborative consumption receiving the increased attention that it deserves, I’m increasingly concerned by the saturation of some collaborative consumption sectors with me-too startups that have no differentiation, no barriers to entry, and in many cases no viable business model.

Consider one industry where collaborative consumption got started early – transportation.  This sector got off to a healthy start.  There were two early, for-profit entrants in the B2C car sharing sector; Zipcar and Flexcar.  In 2007 they merged creating one company that went on to build sufficient scale for a successful IPO in 2011.  Then the P2P car sharing model began to receive attention and in the space of two years we’ve seen the launch of Relay Rides, Getaround, Spride, Wheelz, Whipcar and numerous others being cooked up in incubators around the world.  All of these P2P car sharing companies have essentially the same business model, minimal IP, and they’re competing for the same customers in the same geographies.

In addition to car sharing, there’s also a promising market for ride sharing.  Physic is a fan and user of Zimride, which has been steadily growing in this sector since 2008.  Last week, a recent graduate from Y-Combinator, RideJoy, was funded to compete for exactly the same market as Zimride.  When asked in TechCrunch how RideJoy is differentiated from ZimRide, RideJoy said “Our focus is really on crafting a great user experience, fostering a warm community and delivering amazing support.”  The last time I checked, Zimride had a pretty great user experience, community and customer support, so it remains to be seen how RideJoy is planning to differentiating itself.

We’ve seen this story play out before in many other consumer internet sectors.  Before E-Bay emerged as the leading online auction company, there were numerous startups offering the same online auction service, with limited switching costs, and no established brand loyalty.  Eventually network effects kicked in and everyone wanted to list on the site where all the customers were.

Here’s a prediction:  As more P2P car sharing and ride sharing companies compete for the same customer, there will first be downward pressure on margins as new entrants try to compete on price.  This will drive the less well funded companies out of business.  Then someone will create the “Kayak of ride sharing”, which will put additional downward pressure on margins by forcing competitors to explicitly compete on price, perhaps to the detriment of quality.  This will drive consolidation in the marketplace and eventually one or two leading companies will emerge.  This rapid process of creative destruction can be healthy for the eventual winners and may lead to better services for consumers through increased competition.  However, it makes it extremely hard for institutional investors to identify potential winners and commit the level of investment required to create a truly great company.

I encourage entrepreneurs interested in the potential of collaborative consumption to think about how to build a business with a differentiated model and barriers to entry.  This doesn’t have to be IP.  It could be exclusive partnerships in the ecosystem, a trusted consumer brand with long term loyalty benefits, a business model with inherent network effects from increased scale, or a sticky component to the product offering.  Within the Physic Ventures portfolio we have several examples of how to achieve this.  Recyclebank established itself as the leading recycling rewards company by signing long term, defensible partnerships with municipalities.  Gazelle became the leading reCommerce company by offering “crazy-awesome” customer experience that built long term loyalty, along with long term partnerships with retailers.  EnergyHub is democratizing residential energy efficiency through cloud based services that run on its proprietary hardware.

Finally, entrepreneurs could also think about building a collaborative consumption business in sector that is less crowded than transportation, accommodation, or travel experiences.  For example, the founders of Cloo are unlikely to see any competition in their sector any time soon!

2012 Sustainable Living Thesis

Physic Ventures follows a thesis driven investment practice.  At the beginning of each year we review the recent science and technology developments, markets trends, and regulatory drivers that influence our investment practice. We use these to develop a thesis for which sectors and business models we expect to provide attractive investment opportunities.

Throughout the year we select some of these sectors to perform a deep-dive landscape analysis.  We talk with numerous companies in the sector, their customers, their suppliers, and their competitors.  We develop a position on what we think the leading company in a given sector should look like.  If there’s already a company that fits our model, then we’ll explore whether we can invest in that company.  If such a company doesn’t exist and we think the opportunity is large enough, then we recruit the entrepreneurs, acquire the technology and identifying the partners to create a category leading company.

Here is the first draft of our 2012 Sustainable Living investment thesis.  For regular readers of this blog, you won’t be surprised to see an emphasis on investments in resource efficiency.  We continue to look for opportunities to increase adoption of the traditional 3Rs: Reduce, ReUse and ReCycle, as well as focusing on the collective behaviors of Collaborative Consumption and the Share Economy.

One area that we’re paying increased attention to 2012 are opportunities at the intersection of Big Data and Sustainability.  This trend is driven by the growth in ubiquitous connectivity, low cost cloud-based storage and computation, and an industry recognition that businesses providing data-enabled resource efficiency are both capital efficient and rapidly scalable.  This sector is often referred to as Green IT.  I prefer the description of Spring Ventures founder, Sunil Paul, who calls this sector the CleanWeb: “a category of clean technology that leverages the capability of the Internet, social media and mobile technologies to address resource constraints.”  Irrespective of it’s name, in 2012 we expect to see businesses harnessing the power of cloud storage and computation to address resource constraints in sectors as diverse as energy, materials, food, water, and transportation – just to name a few.

We’ve already made a great start to building a portfolio in this sector with companies like EnergyHub, Gazelle, GoodGuide, Recyclebank and WaterSmart.  We look forward to adding several more in 2012.  It’s going to be a busy year!

If you think we’ve missed an exciting sector or business model within sustainability, let us know where you think are the opportunities for highest impact.

Sustainable Reading Rules

This is my catch-up reading week.  Before I can get to The Economist’s “World in 2012″ I have a dozen 2011 editions still to read.  I also have a stack of books on my wish list to polish off before I can start 2012 informed and ready to go.

This year I bought an iPad and a Kindle, so I have a least 4 options for accessing all this content; buy the e-book, order on Amazon, drive to Barnes and Noble, or borrow from the library.  I wondered if there is a meaningful sustainability impact between each of these options so I did some research to establish my own best practices.  Here are my sustainable reading rules for this holiday season.

Option 1
If your desired book/magazine is available at your local library then this is by far the most sustainable option.  One caveat – if you have to drive more than a few miles to the library then the sustainability benefit is lost due to emissions from your car.

Option 2
If you already own an iPad or Kindle, then the impact of buying the e-version of a book, magazine or newspaper is much lower than the impact of the paper version you could order from Amazon or buy at Barnes and Noble.

Research published in the Guardian estimates the CO2e emissions of a newspaper or magazine range from 4-10 lbs, depending on the type of paper stock, whether it’s recycled or land filled, the energy efficiency of the paper mill, and the transportation distance.  Similarly, the average CO2e emissions of a paper book are 9 lbs, according to the Green Press Initiative.

To incentivize readers to make this switch to more sustainable reading, one of our portfolio companies, Recyclebank, recently partnered with Barnes and Noble to provide reward points for switching to e-books.

Option 3
If you don’t already own an e-reader, then you might be able to justify buying one for reading books/magazines more sustainably, but this depends on how many books/magazines you will read on it.  So how many books/magazines does it take to offset the emissions of an iPad or Kindle and allow you to play Angry Birds free from carbon guilt?

Apple has published a detailed environmental analysis of the impact of the iPad and iPad2.    They estimate the life cycle CO2 emissions of these devices to be 286 and 231 lbs, respectively.  This is broken down in the figure below.

Source of iPad2 Carbon Emissions

Comparing these emissions with the impact of paper books suggests that buying 20-30 e-books instead of paper books will offset the emissions from producing, shipping and using an iPad.  In a 2010 New York Times opinion piece Daniel Goleman and Gregory Norris argue that when other factors such as health and societal impact are considered, one probably needs to offset 50-100 paper books with e-books to fully balance the impact of an iPad.  If you also switch to receiving your newspapers electronically, the offset will happen much quicker.  Substituting a daily delivered broadsheet for e-newspapers offsets the emissions of an iPad within a few months.

Unfortunately, the equivalent data for Kindle devices is not available.  During its 2011 annual shareholder meeting, Amazon rejected a measure proposed by Calvert Asset Management for more disclosure on how the company deals with climate change.  Amazon claimed that preparing a climate-change report would not be “an efficient use of time and resources.”  For a company with $34B in sales to claim that it doesn’t have the resources to conduct a $100,000 LCA of its products isn’t credible and I suspect we’ll see some CO2e numbers from Amazon in 2012.

If you decide to buy a Kindle/iPad for reading e-books, magazines and newspapers, make sure to maximize its useful life.   If you want to upgrade to the iPad3, Kindle Fire, or next Nook, that’s fine, but make sure to trade in your old device so someone else can continue reading e-books on the device.  At Physic Ventures, we’re delighted to see another of our portfolio companies, Gazelle.com, experiencing fantastic growth providing exactly this type of consumer electronics recommerce service.  Another sustainable, and cheaper, alternative is to buy a used device on Gazelle’s store.

Option 4
If you decide to stick with paper books, check out some of the great new collaborative consumption companies, like swap.com, that provide access to a wide range of used books.

The Good, The Bad and The Ugly of Black Friday

2011 produced an eventful Black Friday shopping season.  Here are a few thoughts on the sustainability impact of the last few days.

The Good

Patagonia launched one of the most thought provoking print campaigns in recent memory. Here is their ad which ran in the New York Times this weekend:

As Marc Gunther describes in his blog posting, this is one of the first serious attempts by a consumer goods company to get its customers to think about Sustainable Consumption. Patagonia point out on their website that although this jacket is one of the most sustainable available options, made from 60% recycled polyester, it still uses 135 gallons of water and emits 20 lbs of carbon dioxide to produce it. Clearly, Patagonia customers are some of the most progressive consumers out there, so this is only the tip of the iceberg, but it’s a thoughtful step in the right direction.

The Bad

High street retailers partnered with the mainstream media to whip consumers into the most ridiculous frenzy in their quest for bargains this Black Friday.  The stories of people biting each other, using pepper spray, and being robbed at gun point are beyond belief.  This pursuit of pointless consumption, whatever the cost, couldn’t be in sharper contrast to Patagonia’s efforts.  We need the retailers and the media to start promoting a more sustainable alternative to Black Friday.  At Physic Ventures, we’re investing in several emerging models for sustainable consumption focused on the reduce, reuse and recycle thesis advocated in Patagonia’s Common Threads campaign, and new collective models of collaborative consumption.  After scenes like this Friday, it’s time to redouble our efforts to promote these sustainable alternatives.

The Ugly

My favorite scene from Black Friday 2011, was the mob fight for $2 waffle makers at a Wal-Mart store.  Here’s the graphic footage:

As my wife, rather uncharitably, pointed out, given all the builders butt on display in this video, the last thing these folks need is waffles! On a more serious note, I did a quick Craigslist search for waffle makers and found 20 on sale in San Francisco alone for $0-5. If these folks really needed cheap waffle makers, there is a sustainable and cheap way to get one through re-use. Unfortunately, I think this incident is more about consumption for the sake of consumption and most of these waffle makers will be used once and then live forever in a landfill. The folks at Patagonia must be pulling their hair out.

Inspiring Sustainable Living

Unilever is a strategic Limited Partner in the current Physic Ventures fund.  We invest capital on behalf of our strategic partners and work with them to add growth resources to our portfolio companies.  Unilever is a global consumer products company with over $60 billion in annual revenues from food, beverage, home and personal care brands that are used by more than 2 billion consumers every day in over 180 countries.  Unilever is also a global leader in sustainability.  Last year Unilever published its ambitious Sustainable Living Plan which aims to double Unilever’s revenues by 2020 while simultaneously halving its environmental impact.

This Sustainable Living Plan has two components.  The first is to make each product more sustainable by greening supply chains, manufacturing processes and distribution networks.  The second goal is to reduce the environmental impact of consumers using Unilever’s products.  For a consumer goods company, it is this consumer usage which has the greatest environmental impact.  For example, the carbon emissions and water usage from taking a shower with Dove shampoo or doing laundry with Persil detergent are far greater than the environmental impact of manufacturing those products.

Changing the way consumers select and use products turns out to be more challenging than greening the production of those products, so Unilever has been doing a lot of research into this consumer behavior.  This week Unilever released a new report on how Unilever plans to inspire its consumers to adopt more sustainable practices while using its products. They have identified 5 keys to inspiring sustainability: make sustainability habitual, provide consumers with sustainability information, make sustainability rewarding, make it desirable, and make it easy.  Here’s a short video summarizing Unilever’s approach:

At Physic Ventures, we have developed a Network Innovation model that uses the insights developed by our strategic partners to inform our investment practice.  We provide reciprocal insights to our strategic partners by sharing the technologies, services, and business models in which we are evaluating an investment.  Once Physic has invested in a company, we work to facilitate partnerships with our strategic partners, like Unilever, to accelerate the growth of that portfolio company and help our strategic partners achieve their growth and sustainability goals.  Unilever’s recent report on how to Inspire Sustainable Living provides two great examples of how this Network Innovation Model works.

In 2009, Physic invested in GoodGuide, the leading source of information on how the health, environmental and social performance of products aligns with consumers’ preferences and values.  GoodGuide is delivering on Unilever’s finding that consumers make more sustainable choices when they understand the sustainability benefits of the products they are choosing.  GoodGuide is also helping CPG companies understand which sustainability values are the most important to consumers.

Another Physic investment that was influenced by our discussions with Unilever’s sustainability team was our investment in Recyclebank.  Earlier this year, we identified Recyclebank as the leading company providing consumer rewards for taking a broad range of every day green actions. This approach perfectly aligns with Unilever’s finding that rewarding sustainable choices helps reinforce those behaviors.  Since completing our investment in Recyclebank, Physic was delighted to help facilitate a partnership between Recyclebank and Unilever based on Recyclebank’s rewards service.

In addition to these two examples of Physic portfolio companies that are now working with Unilever, Physic has recently made a number of other sustainability investments where our investment thesis was based on similar themes to Unilever’s plan to Inspire Sustainable Living.  For example, our investments in companies such as EnergyHubGazelle, and WaterSmart all align with the themes of making sustainability habitual, desirable, easy, and rewarding.  As I have discussed in previous posts, we believe these are enduring themes that can harness the technology of social connectivity, mobile access to information and collaborative consumption to help us all adopt more sustainable lifestyles.

Focus on Feedstocks

Chromatin sorghum bio-power crops in CA

Earlier this week one of our portfolio companies, Chromatin Inc., announced a Series D round of financing, led by BP Alternative Energy Ventures.  The proceeds from this financing will be used to accelerate the expansion of Chromatin’s bio-energy business.

This financing round marks a seminal moment in Chromatin’s transition from a company founded on a genomic technology platform to a vertically integrated biomass feedstock supplier.  For the first five years since its founding in 2001, Chromatin distinguished itself by the quality and scale of its technology licensing partnerships with leading Ag-Bio companies, such as Monsanto, Syngenta, Bayer and Dow.  In 2008, Chromatin took the strategic decision to apply its technology to its own set of products and it surveyed the landscape of crops to select which were the most promising candidates for development.

Chromatin identified sorghum, an ancient crop which has been grown around the world for millenia (including 5 million acres of grain production and 10 million of biomass production here in the US), as an attractive target.  Sorghum is a robust crop that grows on marginal land with minimal irrigation and can yield high cellulose, starch or sugar content.  Sorghum has yet to be developed with modern breeding technology to the same extent as other crops, such as corn, and therefore has great potential for improved yields and enhanced properties.

Chromatin’s 2008 decision to focus its development resources on sorghum proved to be prescient.  In the 3 years since Chromatin began building its sorghum business, sorghum has become recognized as one of the most attractive biomass feedstock crops.  Agricultural land capable of producing feedstock inputs for the coming generation of bio-fuel, bio-chemical, and bio-material companies is a scarce resource and crops, such as sorghum, that can grow on marginal land and don’t compete with food crops are highly prized.

In 2010 Chromatin acquired Sorghum Partners and immediately positioned itself as one of the leading suppliers of premium sweet and forage sorghum seeds.  As Chromatin applies its breeding and trait technology to this germplasm it expects yields to rapidly increase.  Chromatin is also working on new varietals that provide custom feedstocks for bio-power, bio-fuel and bio-chemical applications.  For example, its bio-power strains of sorghum are optimized to maximize the BTUs per acre available from the crop, while simultaneously minimizing moisture and ash content.  These bio-power optimized strains have already exceeded the energy capacity of wood and are rapidly closing in on the energy content of coal.

So what comes next?
Chromatin is collaborating with Constellation Energy to perform the first trials of “closed loop” sorghum bio-energy crop production in California.  In these trials, Chromatin’s bio-energy sorghum strains are grown in fields surrounding Constellation’s power stations in CA (see photo above).  This sorghum is then harvested and burned for power, with the goal of replacing some of the coal needed to generate the state’s power.  As all the carbon released while burning this sorghum was captured during its growth, this is carbon neutral or “closed loop” energy production.

In addition to high BTU sorghum for bio-energy production, Chromatin is also trialing high sugar content, sweet sorghum.  This crop provides an ideal alternative to corn and sugar cane as the input to fermentation conversion processes used to produce bio-fuels and bio-chemicals.  As the next generation chemical companies such as Amyris, Solazyme and Gevo scale up their production, they are going to require sustainable sources of sugars as inputs to their fermentation processes.  Sweet sorghum is a leading candidate to provide this supply, and, unlike sugarcane, has not been a source of sugars for food production.

This is an exciting time in the energy and chemicals world.  In 2011 we witnessed the first wave of bio-tech fuel, chemical and materials companies coming to the IPO market with a range of technologies to convert carbohydrates to fuels, chemicals and materials.  Several of these companies received >$1B market cap valuations in anticipation of the huge demand that is predicted for their first facilities when they come online in 2013.

Now the industry is turning its attention to how those carbohydrates are going to be sustainably produced without competing with food crops.  Chromatin’s sorghum provides one such solution to producing biomass feedstocks on non-food producing agricultural land.  As Chromatin applies its revolutionary breeding and trait technology sorghum is poised to transition from being an ancient crop to the high tech crop of the future.

The Recyclebank Ecosystem

As a kid growing up in the UK in the 70′s, I used to help my Mom collect Green Shield Stamps.  I earned one stamp for each 2.5 pence I spent on products in participating stores.  I collected the stamps in specially designed books and exchanged them for rebates on everyday items.  I still remember this commercial for the program

Well 30 years later the world has moved on and now there’s a new Green Rewards program that doesn’t require consumers to stick hundreds of stamps into silly little books.  Earlier this week one of our portfolio companies, Recyclebank, announced the launch of the Recyclebank Ecosystem, a network of companies working together to motivate and reward people to take online and offline green actions.  This 21st century version of Green Shield Stamps expands the use of the Recyclebank reward points that Recyclebank has been providing to millions of US and UK consumers since 2006 to reward and incentivize recycling.

Initial partners in the program include established retailers such as Barnes and Noble and Macys, as well as next generation service providers such as ThredUp and RentTheRunway.  It is the inclusion of these new collaborative consumption companies in the Reyclebank Ecosystem that particularly excites me.  As I discussed in a previous posting, we are seeing an explosion of startups adopting business models that are collectively described as Collaborative Consumption.  These include Product Service Systems, such as RentTheRunway and Redistribution Markets, such as ThredUp.  Recyclebank Reward Points have the flexibility and convenience to become the universal currency and reward program that powers this new generation of collaborative business models.

Recyclebank also announced this week that it is partnering with Transport for London to develop a program to reward people for cycling and walking in London.  This is a great example of how broad this new Green Rewards Ecosystem can become.  We anticipate partners working with Recyclebank to reward everyday green actions ranging from recycling, to clothes sharing, to reading ebooks, to taking public transportation and a host of other new business models yet to be thought of.

Troll Trouble

It has been an interesting week in the usually sleepy world of patents. Google’s $12.5B acquisition of Motorola Mobility and Apple/Microsoft’s $4.5B acquisition of 6000 Nortel patents highlight just how high the stakes have risen in the smartphone patent battle.

While all the media attention is focused on these sensational, multi-billion dollar patent battles between industry titans, little attention has been paid to how the dysfunctional US patent system is affecting early stage innovation and entrepreneurship. Eric Schonfeld’s recent TechCruch posting references a PWC study which describes how successful so called “non-practicing entities” have become in filing patent law suits. Ten years ago, the majority of patent settlements were paid to “practicing entities”, i.e. operating companies whose IP was judged to have been infringed by a competitor. In recent years, “non-practicing entities”, commonly referred to as trolls, have refined their strategies and identified friendly Texas jurisdictions which provide them with larger and larger payouts. This has encouraged yet more trolls to get into the game of acquiring patent portfolios and the whole situation risks spiraling out of control.

Within our portfolio of tech startups at Physic Ventures, this rise of the trolls is having two serious negative consequences:

Trolls are imposing an “Innovation Tax” on startups
Several of our portfolio companies have been hit by frivolous patent infringement accusations by trolls. Typically, the troll will write to a startup and accuse them of infringing an extremely broad patent related to widely used technology, such as Wi-Fi. The trolls have done their research and figured out the maximum that a startup could afford to pay for a license and they offer the startup the chance to take a license on those terms. The startup is faced with the unpleasant choice of succumbing to this shake down and paying the “license fee” or risking far higher expenses by defending themselves in a potential suit. These license fees consume extremely scarce cash resources, typically at a time when a startup is just launching its first product and needs to preserve every last dollar for product development, marketing and BD.

Business partners are practicing “Defensive Partnering”
Trolls get really excited by the opportunity to shake down a large corporation who can afford much higher license fees than a startup. As a result of increased Troll activity, we’ve observed several examples of potential partners that are reluctant to work with a startup unless that startup indemnifies the larger partner from any patent infringement costs associated with the startups product. Startups simply can’t afford to do this and so mutually valuable partnerships end up not getting signed because of a potential patent trolling.

It is important to point out that these unhealthy dynamics are almost exclusively related to the IT industry and software, in particular. Our investments in materials science and life science continue to focus on developing IP that will be valuable to potential partners and acquirers. While the glacial pace of the USPTO is a frustration to these companies, their business model still functions well.

Perhaps it is time to rethink how IP in software and tech is protected.  We should be able to continue supporting and rewarding tech innovation, without stifling it with frivolous and opportunistic exploitation of the current patent system.