March 2005 Volume IX Issue 3 Foundation Capital Charges Into Alternative Energy Some VCs are talking about the need to find deals off the well-trodden paths of IT; Foundation Capital is doing it. The Menlo Park firm recently backed a developer of water- and food-treatment technology and a startup providing energy-management technology. Those deals are part of the firm's strategy of identifying technology trends that can propel it into new areas, according to General Partner Warren Weiss. Take Novazone, for instance. Founded in 1996, the Livermore, Calif., company developed a highly efficient process for purifying bottled water. It then moved into the coldstorage industry to cleanse produce such as apples. "That step outside for us was pretty easy to make," Mr. Weiss said of Foundation's investment. That's because a key piece of the ozone machine is a wireless monitor, something Foundation knows plenty about. The firm was the only institutional investor in Novazone's $10.6 million later-stage round, its first venture financing. Mr. Weiss said he met the CEO at a local angel investing forum a couple of years ago. "We were the only one that had really been working on it," he said. Pervasive wireless networks are key to Foundation's investment in Boston-based EnerNOC, the firm's first foray into Massachusetts. The company is developing energy-management systems that ride on the wireless networks utilities are building to monitor meters remotely. Its technology can be used to manage consumption, for example by turning on a back-up power source or switching off non-essential equipment to reduce the load on the electric grid at peak times. "Those things are all being pushed very hard at a regulatory level as well as by the utilities," Mr. Weiss said. He and Foundation General Partner Adam Grosser were introduced to EnerNOC through another of their energy plays, Silver Spring Networks, San Mateo, Calif., a wireless equipment maker providing electric, water and gas utilities with meter-reading systems. Foundation led EnerNOC's $7.75 million second round, joined by first round investors Braemar Energy Ventures, Draper Fisher Jurvetson and Draper Fisher Jurvetson New England. There was competition for that deal but Mr. Weiss thinks Foundation won out because it had a strategy for the energy business. The fourth Foundation portfolio company that Mr. Weiss puts into this alternative technology basket is Dust Networks, which recently closed a $22 million second round led by Crescendo Ventures. Dust, based in Berkeley, Calif., is selling wireless sensors, but its first market is industrial buildings where its low-power devices can monitor the indoor environment and empower owners to save energy. Other drivers of Foundation's move into energy and environmental services besides wireless networking are the maturing of open-source operating systems and databases, falling chip prices and the pervasive Internet. But the firm needs to expand its corporate contacts, said Mr. Weiss, and has worked with General Electric's research arm to build ties.