DISCLAIMER The information in this Guide has been funded wholly by the United States Environmental Protection Agency. It has been subjected to the Agency’s peer review process. It also has undergone EPA administrative and general counsel review. It does not necessarily refl ect the views of the Agency, however, and no citation or illustration of any specifi c product, service, or enterprise in this document should be construed as a Government endorsement. EPA/600/R-10/028 U.S. Environmental Protection Agency Office of Research and Development http://www.epa.gov/ncer August 2010 This report was prepared by The Scientifi c Consulting Group, Inc., Gaithersburg, Maryland, under EPA Contract EP-C-05-015, Work Assignments 3-4 and 4-2. Paul Shapiro was the EPA Work Assignment Manager. Venture Capital 101: A Resource Guide for Commercializing Environmental Technology Table of Contents Acknowledgments ....................................................................................................................................... vii Executive Summary ...................................................................................................................................... ix I. Introduction ...............................................................................................................................................1 II. Overview of Venture Capital Funding .............................................................................................................3 A. History of Venture Capital Funding: 1946–1994 .........................................................................................3 B. National Trends in Venture Capital Funding: 1995–2009 ............................................................................5 C. Regional Investments in Venture Capital Funding .......................................................................................7 III. Investment by Stage of Development ...........................................................................................................9 A. Introduction ................................................................................................................................................9 B. Stage Descriptions .....................................................................................................................................10 C. The Stages at Which Venture Capitalists Invest .........................................................................................10 IV. Sources of Investment ............................................................................................................................. 15 A. Angel Investors ..........................................................................................................................................15 B. Venture Capital Funds ...............................................................................................................................18 1. The Investment Process and Success Rates .........................................................................................18 2. Types of Venture Capital Funds ..........................................................................................................19 3. Federal Government Venture Capital Funds .......................................................................................21 C. Institutional Investors ................................................................................................................................24 1. Types of Investors in Venture Capital Funds .......................................................................................24 2. Public Pension Funds .........................................................................................................................27 D. State Equity Investments ...........................................................................................................................29 1. Privately Managed Funds ....................................................................................................................30 2. State-Sponsored Funds .......................................................................................................................31 3. Direct-Investment Funds ....................................................................................................................32 V. Venture Capital Investment in Environmental and Clean Technologies ...................................................................35 A. Evolving Defi nitions of Environmental Technology and Clean Technology ................................................35 B. Tracking Clean Technology Venture Capital Investments...........................................................................38 C. National Investment in Environmental and Clean Technologies ................................................................41 D. Regional and State Investments in Clean Technologies ..............................................................................45 E. Investment Measurement Metrics .............................................................................................................52 1. Environmental Due Diligence ............................................................................................................52 2. Green Portfolio Partnership ................................................................................................................53 3. EPA National Advisory Council for Environmental Policy and Technology Report .............................54 VI. Obtaining Information About Venture Capital ...................................................................................................... 55 A. Information on Venture Capital Investments ............................................................................................55 B. National Associations .................................................................................................................................58 1. Angel Capital Association ...................................................................................................................59 iii 2. Community Development Venture Capital Alliance ..........................................................................60 3. Cleantech Group ................................................................................................................................60 4. National Association of Seed and Venture Funds ................................................................................61 5. National Association of Small Business Investment Companies ..........................................................61 6. National Venture Capital Association .................................................................................................62 C. State and Local Associations ......................................................................................................................62 1. Illinois Venture Capital Association ....................................................................................................62 2. New England Venture Capital Association ..........................................................................................63 3. North Carolina Council for Entrepreneurial Development .................................................................63 4. Ohio Venture Association ...................................................................................................................64 5. Silicon Valley Association of Startup Entrepreneurs ............................................................................65 D. Nonprofi t Environmental Organizations ....................................................................................................65 1. Environmental Entrepreneurs/Natural Resources Defense Council ....................................................65 2. Environmental Defense Fund .............................................................................................................66 E. Databases of Venture Capital Firms ...........................................................................................................66 1. BoogarLists .........................................................................................................................................66 2. VCPro Database .................................................................................................................................67 3. vFinance Database ..............................................................................................................................67 F. Published and Web-Based Resources ........................................................................................................67 G. Federal Government Sources ....................................................................................................................68 1. Small Business Administration ............................................................................................................68 2. Department of Energy ........................................................................................................................69 3. National Institute of Standards and Technology ..................................................................................70 4. International Trade Administration .....................................................................................................70