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How Is the Capital Landscape Evolving? We Asked Four Experts

Grant Allen

Senior Vice President, ABB Technology Ventures

Arnab Sarker

1776 Health Columnist

The investment landscape seems to shift as rapidly as the seasons in D.C.—winter one minute, then suddenly spring the next. And while many of those changes bring new opportunities for startups, the prospect of knowing what’s going on in an industry can be daunting.

To clarify the current state of things across 1776’s core industries, we asked our network of experts and investors for their takes on the evolving landscapes.

Education

By Jean-Claude Brizard, president, UpSpring Education Group

There’s an old maxim in education that goes something like this: “Choose one educational philosophy and every 20 years it’s current.” Educators have always believed that access to solid pre-school education pays a handsome return to our society. With U.S. President Barack Obama pushing a 10-year, $75-billion investment in early learning, the new mayor of New York City making access to early learning a priority and other mayors following suit, it seems that the world has rediscovered the importance of birth to 5 years. The problem is that few are focusing on the efficacy of these programs and how they align to K-12 reforms.

Everyone is talking Common Core State Standards, big data, new assessments and the not-so-secret battle over market share between College Board and ACT. There is great need for coherence for schools and districts and how to best leverage a huge legacy budget item (About $15 billion in Title I Part A) to support all of these initiatives.

Let us leave these issues for another entry. The most exciting new push—another old is new initiative—is the national push around career readiness. Obama has directed the vice president to look at the issue, P-Tech has become a national phenomenon and California’s new, $250-million Career Pathways Trust fund adds to the Perkins Act and what schools and districts are already spending to help keep more students in school and better prepare them for careers and well-paying jobs. It seems that we may, one day, get all of our children to college and career readiness.

Energy

By Grant Allen, senior vice president, ABB Technology Ventures 

The fact is, the energy sector is alive and well despite many VCs (and LPs) fleeing. The Department of Energy’s Loan Program that supported Solyndra (among many others) has created 55,000 jobs, enjoyed a 97 percent success rate, and is expected to turn a profit for the government. If you’d invested in Tesla stock a year ago, you’d be up 375 percent and the investors who know what they’re doing—Khosla, Braemar, Westly, EnerTech and Chrysalix, to name a few—are sticking to their guns while corporate investors such as ABB, GE, Saudi Aramco and Schlumberger are playing bigger roles with new venture-capital funds sprouting every week.

This isn’t to say that cleantech isn’t evolving, though. It really is becoming a subset of a broader energy-technology/industrial-innovation category. In many cases, that means embracing the application of new technology by incumbents such as the automobile industry that, Tesla aside, are anything but clean. At its core, though, it’s looking at technology helping us get more out of less.

At ABB Ventures we, too, view cleantech as a piece of a much broader technology tapestry, in which some of the more promising areas look nothing like the capital-intensive deals of six years ago. Our two most recent investments are in the robotics space, one of which is developing 3-D-printed robot motor components and both of which drive energy efficiency and enhanced performance. We’ve deployed a large amount of capital into core renewables, including two bets in marine and two in wind optimization, but are biased toward capital-light software startups that can sit atop the hard metal and make it more efficient, cheaper, better.

For more on trends within the energy industry, look out for more thoughts from Grant coming later this week!

Health

By Arnab Sarker, operations manager, K Street Capital

When the Affordable Care Act became law in 2010, there were just 17 companies with Series A or later funding in the digital health space. Now, that number that has grown to approximately 150 in 2014, according to 2014 data from CrunchBase.

The trend is clear: Investing in healthcare no longer means just life sciences and devices. To be fair, bio-tech is still hot, increasing steadily by 8 percent to 875 Series A or later investments from 2012 to 2013. However, the industry has become more vocal about pain points in other parts of the revenue cycle—and both entrepreneurs and investors are taking notice.

Legislation such as the ACA and HITECH Act created the beginnings of an environment where providers and consumers have direct incentives to engage in markets that improve efficiency and value of care. Eight-digit investments in “new kids on the block” including 23andMe, FitBit and Oscar show that investors are interested in tech-enabled companies that blur the lines between B2B and B2C.

However, in particularly crowded spaces—electronic health records and wearables/home health, for example—investors are wary of those seeking horizontal integration across stakeholders. Companies with well-defined scopes that understand strategic timing are more likely to gain attention from a growing body of investors drawn in by the lower valuations and relatable value propositions.

The young and changing landscape makes returns difficult to predict, but recent IPOs from companies such as CastLight Health ($1.4 billion pre-IPO valuation) suggest that the health industry, and specifically digital health, is hungry for newcomers.

Smart Cities

By Ilana Preuss, vice president, Smart Growth America

Smart cities startups are popping up all over the country—and seeing a fair amount of success in getting funding. One of the busiest sectors within this group is real estate startups, from construction to leasing and everything in between.

Two startups making waves and getting investors are Storefront, the Airbnb for retail space, and Urban Compass, which is turning the apartment rental agent market on its head. Storefront closed a round of investment in 2013 that included 500 Startups and Mohr Davidow Ventures, among others. Meanwhile, Urban Compass has funding beating down its doors from the Founder Fund, Goldman Sachs and many others.

Civic startups are also gaining traction. HandUp, led by Rose Broome, is a growing startup that connects donors to NGOs supporting the homeless community. They are graduates of the urban accelerator Tumml and received angel investments from Jason Calacanis, Michael Birch, Urban.us and Eric Ries. Similarly, RideScout, a 1776 member that is the Kayak of transportation options, secured a round of funding with K Street Capital and from a mentor in the National Defense University Foundation.

Finally, startups building city data are a key growing sector. MapBox, the open source map data startup and a leader in this space, received a grant from the Knight Foundation and closed its first round of funding led by the Foundry Group in 2013.

Grant Allen

Senior Vice President, ABB Technology Ventures

Grant Allen is Senior Vice President of  ABB Technology Ventures (ATV), the venture capital arm of ABB Group. Investing since 2010, ATV has deployed over $150 million into a wide range…

Arnab Sarker

1776 Health Columnist

Arnab Sarker is an independent healthcare consultant, medical student, and former Director of Operations of K Street Capital. He writes/thinks/breathes about healthcare trends and how policy, technology and medicine can…

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