Monday, March 15, 2010

ARPA-E: VC, Angel Investor or All of the Above?

ARPA – E, that's Advanced Research Projects Agency for Energy. It's like DARPA, but instead of creating the Internet, it fosters transformative energy technologies. It's like a VC or an angel investor, but with a half-open DOE checkbook instead of private capital. It's even a little like the old depression era CCC, spending government reconstruction money on projects that employ people, but in this case they employ a few scientists who will lead us, eventually, to a greener future filled with high tech jobs, secure energy sources and stabilized greenhouse gas levels. ARPA-E is prepared to get involved with transformative energy technology anywhere from the laboratory stage to the difficult juncture between development and early commercial application.

Enough with the alphabet soup. What's new with ARPA-E, how much funding does it have and how is it being spent? On March 2, 2010 ARPA-E announced its third funding opportunity, with $100 Million available to focus on grid-scale energy storage, electrical power technology, and building energy efficiency. This came relatively hard on the heels of ARPA-E's December 2009 news releases establishing a fellows program and announcing a second funding opportunity, also with $100 million available, to focus on electrofuels, carbon capture, and batteries for electrical energy storage in transportation. 37 projects have been selected for funding (at cost to ARPA-E varying from $500,000 to $10 Million each) as the result of the initial funding opportunity, a relatively open ended call for transformative energy related proposals. The selected projects are too diverse to summarize. The winners include a mix of universities and private companies, small and large.

Is ARPA-E an angel investor or a venture capitalist? Of course, it's the government and it's not investing for a financial return. The cost of funded projects is shared with the project proponents, and the percent ARPA-E contributes varies depending on several factors, particularly on the technology's stage of development. The closer the technology is to the basic research stage, the higher the percentage of the tab ARPA-E will pay. DOE does get some rights in intellectual property developed with its funds, although the ARPA-E structure allows the bulk of the IP value to remain with the project proponents. The low end of that $5000,000 to $10 Million per project does not sound like much, but remember, ARPA-E isn't covering the whole cost, and in some cases projects might be able to attract private capital well before the technology is commercialized. So, the angel or VC answer, is, (as always), all of the above, depending on the project.

ARPA-E is more than a source of capital. ARPA-E Director Arun Majumdar writes, “We are determined to attract the best and brightest minds to solving the energy problem”. Top engineers and scientists are serving as reviewers for project selection, but now ARPA-E is seeking program directors, to guide funded projects and identify new areas for breakthroughs. So ARPA-E, like a successful angel or VC, is providing guidance and connections, but the focus remains technical. ARPA-E's funding is a drop in the bucket compared to what other nations, particularly China, are spending on energy research, but innovation isn't all about money. With the right choices on projects and people, ARPA-E can be the catalyst for the fill in the blank, think energy Internet.

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