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November 8, 2011

On November 1, SJF Ventures’ portfolio company CleanScapes, a Seattle-based recycling and waste collection firm, closed a merger transaction with another leading West Coast firm, Recology, the largest U.S. employee-owned company in the waste and recycling industry. The deal was a strong win-win-win for customers, employees, shareholders and the environment.  The two companies share a similar employee engagement culture and a pursuit of ‘waste zero’ communities.   The merger further proves that strong performing companies that do well by doing good, as CleanScapes demonstrated, can attract aligned acquirers that share a vision of building companies that create impacts beyond the bottom line.

SJF first read about the company in an article in Sustainable Industries about three years ago and was struck by the young company’s accomplishment of winning a $35 million annual contract with the City of Seattle.    Shortly thereafter, SJF’s Cody Nystrom and Dave Kirkpatrick met with the company and discovered a mutual alignment with management given SJF’s deep recycling and waste expertise and  positive impact mission.   SJF was the only venture capital fund invited to participate in an $11.8MM equity round and invested $1.92 million.

CleanScapes performed exceptionally well on the City of Seattle and Shoreline contract, which contributed to their success in winning two additional municipal contracts in the greater Seattle region.  The recent win with the City of Issaquah proves that a company offering strong customer service, a great place to work and a sustainability focus does not have to mean higher costs.  In fact, a recent article in the Issaquah Press indicates “Consumers could experience a rate decrease as the city transitions from the current hauler, Waste Management, to CleanScapes in early summer.”

Chris Martin started CleanScapes in 1997 in Seattle’s Pioneer Square neighborhood.  At that time the Company offered exterior cleaning services to businesses and properties seeking to present a cleaner, more orderly appearance to prospective customers, employees, and other stakeholders.  In 2002, frustrated by the messes, odors, and collection noise created by the dumpsters clogging Pioneer Square’s alleys, the CleanScapes team introduced an innovative pay-as-you-throw model for commercial garbage and recycling collection.   Called “Dumpster Free Alley Service”, this model replaced dumpsters with color coded bags which economically incentivized customers to reduce waste or divert trash to lower cost recycling streams.   Building on this initial model, the company has continued to implement new forms of environmental, social  and workforce innovation in waste management including: neighborhood waste reduction competitions, waste audits, CNG fleets, two-man driver crews and  sharing of key performance metrics  with employees and communities .  In short, CleanScapes has certainly created a unique platform in a space that has historically lacked innovation.

When SJF first approached CleanScapes in late 2008, they were doing around $12 million in revenue and about to embark on a significant growth plan.   The company only raised one round of capital and grew to over $47 million in sales by 2010 demonstrating a clear fit with SJF’s capital efficient, growth stage investment theme.   Another theme that aligned well with SJF’s expertise and interest was business model innovation in recycling and waste verticals.   SJF Ventures has developed a niche vertical within cleantech in recycling, asset recovery and reuse companies.    The SJF portfolio includes several successful companies in the segment outside of CleanScapes, including Salvage Direct (auto recovery), eRecyclingCorps (cell phone recovery and reuse), Optoro (returned retail goods recovery), and Living Earth (organics composting).    These firms, and many others like them, are using business model innovations to capture significant value from used goods that would otherwise be sent to landfills, generating incremental additional jobs, wealth, resource conservation and carbon reduction for the U.S. economy.

SJF Ventures is very pleased that Recology recognized CleanScapes’ unique value offering a strong return for investors and company shareholders.   CleanScapes employees will now have the opportunity to participate in the value of this new partnership through the Recology ESOP model, which we believe will motivate employees to help make the next chapter of CleanScapes as successful as the last.

Is your company creating great green jobs? Do you know a company who is a leader in green job creation? Apply now or nominate a company for a 2011 Green Jobs Award! The Green Jobs Award program identifies, celebrates, and promotes entrepreneurial innovators from across the country that are leaders in quality green job creation. The Award accelerates these sustainable businesses and demonstrates the potential of the green economy for all communities. Check out last year’s impressive winners here.

Privately-held companies with at least $500,000 in revenue and 10 employees, and with a business model that preserves or enhances environmental quality are eligible. Winners will receive media exposure and a package of pro bono business services provided by B Corporations. Program sponsorships are still available. The deadline for nomination is May 31, and the deadline for applications is June 15.  Nominate your own or another company today!

By Rick DefieuxThis article first appeared in Greentech Media. 

The most common objection to any form of industrial policy is that governments, as opposed to markets, are considered unqualified to select those sectors most worthy of investment. But what happens when governments do pick the right targets and then back that up with the resources, influence and patience needed to guide and support these fledgling industries to long-term success?

Central government programs in Asia, most notably in China and Korea, are indeed on the mark as they mobilize public policies and resources in order to subsidize and nurture their domestic cleantech industries. Emerging sectors such as solar power, wind power and electric vehicles are all characterized by the need to achieve scale before they can be cost-competitive. This makes the availability of subsidies a matter of critical importance. Additionally, extensive coordination between public and private interests (something best provided by central governments, the more central the better) is vital to creating the complex infrastructure required for a large-scale shift to renewable energy and electric vehicles.  (Read the remainder of the article on Greentech Media)

Rick Defieux has served as Chair of the SJF Ventures investment committee since co-founding the firm in 1999.  He is an advisor and venture partner at Battelle Ventures and 360ip, a venture capital and intellectual property management firm with operations in China, Korea, Japan and Singapore.

Last night SJF Institute and the Council for Entrepreneurial Development teamed up to present the first of four CleanLinks Forums in 2011. Moderated by Rick Bain, Director of Business Development at Cree, Inc., the panelists included Michael Shore, Founder, President and CEO of FLS Energy; Wayne Flournoy, Founder and President of Entex Technologies; and Mark Munday, President & CEO of Elster Solutions North America.  The panelists briefly described their own business models and then discussed key challenges facing cleantech entrepreneurs in the current economy. 

FLS, a solar generation company, has grown from 3 employees in 2006 to 70 today. The firm targeted solar thermal as one of the most effective ways to generate energy and has devised an effective business model. At Marine Corps base Camp Lejeune in North Carolina, for example, FLS is installing solar on all the new housing. The company owns and operates the solar installations to take away the up-front cost, then sells the base the hot water – at a lower cost than they would pay to heat the water with conventionally sourced electricity. “We are like a little utility on our clients’ roofs,” said Shore.

Entex, a wastewater treatment solutions firm serving industrial and municipal clients, was founded in 2004 and now has nine employees. Flournoy said that many, including Red Herring in 2005, have called water “the next oil.” Projects created immediately after the Clean Water Act of 1972 are ripe for updating, giving Entex a strong market for its custom solutions which are currently employed at 25 installations treating 60 million gallons a day. 

Elster, a worldwide smart metering firm serving utilities, is a 175-year-old firm with 38 locations, 7,000 employees, and a recent IPO. Munday said the firm is one of the world’s largest electricity, gas and water measurement and control providers. He described the concept of the Smart Grid as “a journey, not a destination,” explaining that his company’s products aid in the journey. For example, Elster provides energy management for all the Wal-Marts worldwide. 

The number one challenge for cleantech entrepreneurs is, unsurprisingly, money, according to Shore – how to raise money to fuel growth as well as managing cash flow. Although the national stimulus funds helped some cleantech companies, Shore stressed that it “is not the deciding factor.” Flournoy’s firm has been involved with half a dozen stimulus-funded projects, but he said the paperwork involved can be “unbelievable” and that some already funded projects stalled for long periods waiting to see if they could obtain additional funding from the stimulus, which slowed the sector’s growth. He believes that good projects will always be able to find funding if they can “deliver value on the macro level.” 

Due to currently high energy costs, Munday said it is cheaper for his firm to produce many parts destined for use in the U.S. here in this country rather than overseas. He touched on the topic of green job creation and said the stigma against technical colleges will need to be overcome so that many more Americans can utilize this resource to receive training to work in the green economy.  “These are good jobs that Americans can do very well if we’ll raise the status.” 

Shore agreed that hiring is not a problem at FLS Energy, and that “people are eager to work for a green company.” In fact, he said his firm is excited to be creating jobs in the current economy, but that FLS feels pressure beyond what a typical startup firm faces.  “We have a responsibility bigger than our company,” he said. “We have to make it work to demonstrate that a clean energy company can be successful.” – Anne Claire Broughton, SJF Institute Senior Director(Note: The next CleanLinks Forum is scheduled for May 24 on the topic of the Smart Grid)