Nancy Floyd is the founder and managing director at Nth Power, a venture capital firm established specifically to invest in clean energy startups. Floyd began her career as the first professional recruitment of a woman at the Vermont Public Utilities Commission. In 1982, Floyd founded NFC Energy Corporation, which developed over $30 million in wind projects and sold the company, generating a 25-fold return within three years. She then went on to help found a telecoms company, which was sold to IBM in 1987.
Nth Power now has $430 million under management and successfully exited investments through nine M&As and four IPOs since the firm started investing in 1997.
Solar, energy efficiency, smart grid and advanced transportation all feature in Nth Power’s portfolio. Last year, Evergreen Solar, one of its portfolio companies, filed for bankruptcy with $485.6 million in debts. Nth Power successfully exited when the Massachusetts-based solar company went public in 2000.
Q: Why did you target the energy industry with your fund long before energy security and climate change became the policy issues they are today?
If there’s one industry that could use new technology, it’s the energy industry, and specifically the utility industry.
Deregulation of the power industry had happened in the UK, New Zealand and Australia and the writing was on the wall that it was going to happen in the US.
The thesis was that through investing in a VC fund we would be funding new products and services that would help differentiate the power utilities in a deregulated market or open market. That was really the only market driver at the time.
We started the firm in 1993 when there was only that market driver which helped us go out and tell a good a story about why we should apply the VC model to new energy technologies.
Today deregulation is completely off the radar screen.
I wouldn’t have done venture of any other flavor. We are now investing out of our fourth fund and have invested in 56 companies.
Q: Who did you seek out to invest in this new VC sector?
There were no funds dedicated to this sector that we did not go to the normal investor who invests in VC like the pension funds or endowments. We specifically went to corporate investors who cared about what we invested in.
We visited 197 investors around the world over three and a half years and nine of them signed up in the first fund. Eight of them were corporates: Electricité de France, Synergy which became Duke Energy, ABB, Chevron, Dow, Accione, Meridian Energy in New Zealand, Itochu and Mitsui. Then there was the national pension fund of Sweden, where the fund managers had seen the investment potential in the energy industry after the deregulation of that power market.
These corporate investors are certainly getting wind on what’s happening and since we started, all of our small companies are selling globally almost from day one. The ability to work with some of the incumbent players and scale globally, quickly and cost effectively is really key.
There are some people who believe this business is about game-changing technologies and bypassing the incumbent players. But I just don’t see that is going to work over the next decade – you’re not going to displace utilities, the major oil companies or the Emerson Electrics, Honeywells or GEs of the world.
I see some truly gamechanging technologies sitting in our portfolio that literally would decimate an existing business. They might go public but they are still going to be in partnership. I don’t see them bypassing the incumbents in the next decade, but it does not mean you cannot have a Google-like return.
Q: What was California’s wind industry like in the 1980s?
In 1982 when you drove through the Altamont Pass you had a lot of people like me in old station wagons with wind monitoring equipment – but there was nothing on the hills. I would drive up at the weekend and dig the controls out of the ground. It was like the gold rush days, everyone driving around in beat up trucks hauling equipment around.
People who know me have a hard time believing that I would have been out there on a Sunday digging out controls and putting up anemometers in rattlesnake guards.
I’m from the east coast and I’m digging up the controls for the anemometer that’s in the ground. Not wearing gloves and out come two scorpions. I was very lucky not to have been bitten. I was a little naiive in those days.
To have been in the roles of our CEOs and founders is a really critical skill set to have because frankly I’ve made every mistake in the book that you could that helps you when advise on how to avoid same mistakes.
Some of the first projects were well conceived, some of them were ill-conceived. There wasn’t the operating experience and there were a lot of turbine failures.
It was really exciting – we were building a new industry. And to think that we are at the size of industry that we are today even in this country, never mind globally, is just astounding.
Q: VC and the energy industry are both male-dominated. Did you have to become an Iron Lady to be taken seriously when presenting to boards?
It was very daunting at first. When I had to present to the full board of Synergy which is now Duke, I was really terrified. Neil Armstrong was on the board, but I knew not to ask for his autograph. He’s a very humble man.
But these board members don’t want you to be like them. I found it really energising to go into those board meetings after that.
They gave us $10 million, the top end of what we were asking for and Synergy [Duke] became one of our anchor investors.
But you get to a point in your career where not only is the playing field level because you have so much domain expertise, but in fact it’s a positive because there are so few women that you stand out. And you’re in a position of really building a strong brand for yourself and your firm.
But to say that there weren’t struggles along the way, of course there were. I’ve always said the key is to be better prepared than anyone else.
Look for the second part of this Q and A on Breaking Energy, and read more about venture capital in the energy business here.
Photo Caption: Windmills near Banning, California.