Apr 3, 2011
“Competitions like the Clean Energy Prize help to develop talent from the dozens of teams from top schools that see clean energy as a viable career direction, rather than walking the well-trodden paths to consulting and finance or big boring corporate jobs,” says Pedro Santos, who co-founded OsComp Systems. While a student at the MIT Sloan School of Management, Pedro served as a lead organizer of the MIT Clean Energy Prize, a clean energy venture creation and innovation competition with teams competing from more than 60 US universities. As the 2011 Clean Energy Prize gets under way, Pedro agreed to share his perspectives with MITER.
MITER: Your company, OsComp Systems, has won several awards, grants, and competitions. As a cleantech entrepreneur and a former organizer of the Clean Energy Prize, what do you feel is the value to energy markets of these competitions? What is the value to the Department of Energy and NSTAR as sponsors?
Pedro Santos: Competitions inspire talented people to go after their ideas. While organizing the Clean Energy Prize and participating in several of these competitions, I’ve been struck by the large number of people who participated and got bitten by the entrepreneurial bug, who may not have otherwise started up or joined the sector. The monetary value of these prizes is really just there to tempt participants to think deeply about their ideas, incubate them, and move their ideas closer to viability. $200,000, which is what the Clean Energy Prize distributes, is really just a drop in the bucket. It’s insufficient as a seed round of financing to the winners. But the activities that each competing team goes through help to build a better team and develop a monetization strategy, which is crucial.
The result is a huge multiplier on sponsor financing. The DOE and other agencies that sponsor these events end up seeing a huge return. The public funds invested in these competitions end up leveraging significant private capital for the teams I’ve seen compete and win in the Clean Energy Prize over the last three competitions. The winners have raised over $50M in private investment, an 80X multiple of what the sponsors have put into the Prize.
MITER: As a co-founder and CEO of OsComp Systems, how do you feel that winning awards like the Clean Energy Prize, the MassChallenge Competition, and the Rice Cleantech Innovation Prize have helped you to launch?
Pedro Santos: Winning these awards helped us in two ways. First, they paid for proof-of-concept of the technology. Oscomp’s technology helps increase the efficiency of our natural gas transportation infrastructure by delivering on near isothermal compression cost-effectively . Having the money and time to develop the technology before seeking private financing allowed us to command a higher valuation when we actually started fundraising. This was an enormous help. A high valuation for the company helps us to provide attractive equity positions to our team – that’s an important motivator. Second, winning competitions helps to get your name out there as a successful startup. When you’re an early stage startup, having people be able to find you and perceive you as credible is a big factor in attracting partners and investors critical to long-term success.
MITER: Since winning the Clean Energy Prize last year, what have been some of the successes and challenges that OsComp Systems has experienced as you ramp up your business?
Pedro Santos: Once you start working on your company full-time, especially coming out of graduate school, you realize who you need on your team. Naturally, team composition changes, since you quickly determine who is really committed and willing to give up other promising opportunities to stick with the startup. Not everyone has the stomach to take the risk. You also evolve in understanding who you need and what skills and talents are really critical.
There are technical challenges, of course, but these aren’t the biggest hurdle. The real challenge is the people challenge: building teams and the relationships your company will need with partners and mentors.
MITER: Much has been made of the “Sputnik moment” for clean energy in the US at a time of budget cuts across federal and state governments. Many observers of US energy policy suggest that breakthroughs in clean energy sources, battery technology, and smart grid deployments will require more adequate public financing and regulatory support as well as a significant boost in basic research and development dollars. What is your view?
Pedro Santos: I’m a strong believer in the role of government in supporting the ecosystem that allows a clean energy market to develop, rather than taking bets on individual technologies or companies. By funding and supporting early-stage technology development and basic research, the government can increase the number and quality of startups that reach growth stage. Currently, there aren’t enough companies that are getting to scale – there is still too much uncertainty at an earlier stage. There’s a lot that governments can do to help lift the uncertainty.
Basic research is a leveraged use of public dollars in a couple of ways. First, it creates high quality technology options (for example, cheaper or more efficient solar) for industry to use, creating distributed gains for the sector. It also spreads gains among a broader set of organizations. One country that is doing a great job at this is Norway. Norway has produced a disproportionate number of companies in the cleantech space relative to the size of its economy. They’ve done this by investing heavily in basic and early applied research, some of it very un-sexy and un-cool, like hydrocarbon technology. The payoff for the public and for cleantech entrepreneurs has been significant.
Investing in basic research would help many more companies to compete. The public benefits when there are many firms following many leads in the hunt for cleaner, cheaper energy. Supporting research also protects public dollars from downside risk of backing an individual company. The private sector is set up to bear losses from startup failures in a way that the public can’t afford. My perspective is that markets provide a Darwinian selection method to let the fittest companies, people and ideas survive. The government’s role is to ensure that enough basic research gets done and enough ideas get launched so that markets have a strong pipeline of quality companies to choose from. So while I’m a fan of loan guarantee programs, I think the real payoff for the public comes from supporting research and development and providing small grants to a large number of early-stage technologies. Eventually, this gets us a much higher number of companies getting to scale that need the loan guarantees in the first place.
The 25 semifinalist teams in the MIT Clean Energy Prize will be showcased on May 3, 2011, when the finalists in each category will be named. The Grand Prize ceremony will take place on May 9, 2011.