Last week Crain’s Chicago ran its very popular “40 Under 40 (the publication features 40 businessmen and businesswomen doing interesting things either as an entrepreneur or leader inside of a company) feature story and as we scanned the pages looking for either people we knew or companies of interest, we came across a gentleman named Jason Schmitt who manages ArcelorMittal’s Cleantech Venture Fund. ArcelorMittal you say? Yes, we had a similar reaction. Indeed the same ArcelorMittal from whom many of you buy steel.
MetalMiner recently caught up with Jason to better understand the mission behind the fund and why a steel company has set its sights on Cleantech.
MM: Tell us about the venture fund’s mission. Is it to make investments that are aligned with ArcelorMittal corporate strategy or for the Mittal family in general?
JS: The fund is dedicated to the corporation and not the family. We only invest in companies that have some tie to the core strategy. The venture fund invests in or focuses on three key areas:
- companies that can help ArcelorMittal reduce its carbon footprint and help it improve its own energy efficiency in the mills
- customer segments e.g. automotive and construction
- business development lines that are small now but will be bigger in the future (e.g. wind mills)
MM: Tell us about the fund’s current investments to date.
JS: We have made two investments to date: the first in a solar panel company called MiasolÃƒÂ©, a California-based developer of solar panel technology in which we made a $20m investment. (Ed Note: According to the ArcelorMittal website, “MiasolÃƒÂ©’s thin-film design, breakthrough production process, and use of flexible stainless steel substrate allows it to be a highly efficient provider of solar energy at prices competitive with non-renewable energy sources). The fund has also invested in an industrial software grid company PowerIT Solutions in Seattle who can perform electricity demand management (Ed Note: according to the PowerIT website the software manages demand control and demand response with applicability to foundries).
MM: Can you tell us more about the fund itself – it’s size and how you source deals? How does the company decide whether or not to make an investment?
JS: We have never publicly announced the size. We currently source deals through three strategic relationships also VC firms: Kleiner Perkins Caufield and Byers, Khosla Ventures, Bassemer Venture Partners. But we also talk to all the major capital players. We find it’s easier to talk to companies because we are a “strategic investor as opposed to a traditional VC investor. As far as we know, we are the only steel company doing this. Everyone is comfortable talking with us. We also receive random business plans. In addition, we partner with labs and different graduate schools working to develop some of these technologies. This fund reports into a seven-person investment committee, chaired by CEO Lou Schorsch, Flat Carbon Americas.
MM: What do you see as the primary risks for the companies you invest in?
JS: The biggest challenge is how you achieve commercial scale without the subsidies. This is what happened with ethanol. In terms of risks we are very cautious in thinking through the technology risk associated with the company. An earlier stage deal with a lot of technology risk – if we know the technology inside and out as a steelmaker, that helps us. We are not a manufacturer of solar cells. We won’t invest until a later stage if we can’t assess the technology risk.
MM: To what extent have you looked at the supply chains for key raw materials used in Cleantech industries (e.g. CIGS technology, hybrid vehicles)?
JS: Like any other investment we look at the supply chains. Have we looked at rare earth metals? No, we only look at plays like that if we thought it was critical to our own carbon footprint. We will look at our own raw material sourcing. If a new raw material from a sourcing standpoint would help our own carbon footprint, we have and would look at that.
MM: One of the comments in the Crain’s article refers to the fact that ArcelorMittal would like to have the most “energy efficient mills in the world. Can you explain to us how the company intends to do that?
JS: We have been very public about stating the reductions in greenhouse gas emissions from the steel industry. Since 1990, the steel industry has reduced its overall carbon footprint by 33%. What are the new technologies out there that we aren’t thinking about that we should bring in from an energy efficiency perspective?
MM: Some believe that clean-tech industries are largely “bubble industries that in fact many venture funds have withdrawn their investments from clean-tech. Are you looking at the sector differently than they are? Why are some investors pulling back when you appear to be moving forward?
JS: We don’t want to address the bubble question. But I would say it’s like any other nascent sector in the dot.com era there was a bubble but there are winners out there. One factual point I’d like to make venture inflows have dropped in Q1 and Q2 but in Q3 numbers are back up (Ed Note: This article supports Jason’s position). If you compare Q3 over Q1 and Q2 you are seeing big funds getting raised (Khosla) with money flowing in the space. Cleantech is some ridiculously large percentage of the total.
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