Tech-focused private equity firm gets energized

February 24, 2011, 11:51 PM UTC

Silver Lake today became the latest private equity firm to jump into the energy investment space, announcing a new growth equity platform in partnership with Soros Fund Management. It will be led by Adam Grosser, a veteran venture capitalist who spent the past nine years with Foundation Capital — where his deals included perennial IPO candidate Silver Spring Networks.

The Menlo Park, Calif.-based firm has been sniffing out the energy space since 2007, and in late 2009 began quietly working with Soros to put together a strategy and investment team. But things didn’t really get moving until Grosser became a free agent, and the two sides began talking.

“What I quickly realized was that my personal aspirations and where the best investments were going to be made was in the global arena, and it was going to take a very long time to build that up from scratch,” says Grosser, in reference to his original plan to open a new firm (he met with several prospective investors, and late last year filed with the SEC to raise $210 million). “It had never occurred to me when I set out to do something new that I’d align myself with a fantastic technology-focused private equity firm, but it turned out that our interests and passions were very much in concert with one another.”

The specifics of those interests are still a bit vague at this point, including how much the new group — named Silver Lake Kraftwerk — is planning to invest. What we do know is that it plans to immediately be on the ground in both California and China, with the possibility of putting boots on the ground in locales like India and Brazil. Expect about 20 staffers overall, including Cathy Zoi, who recently resigned as the Obama administration’s Acting Under Secretary for Energy and Assistant Secretary for Energy Efficiency and Renewable Energy.

Grosser estimates that around half of the firm’s deals will be in companies that have received past VC funding, while the remainder will be companies in which Silver Lake will represent the first (and hopefully last) outside investment.

“Part of our goal is to take the best of what’s been created by others, be the last money in, scale out the business and prove the model so that the company needn’t be dependent on someone else to come in on top of us,” explained Greg Mondre, a Silver Lake managing director.

He added that many of the firm’s new investments will have a tech-enabled component, based on Silver Lake’s traditional core competency, but that it isn’t a requirement.

Both Mondre and Grosser declined to discuss fundraising, except to say that Silver Lake Kreftwork investments will not be made out of existing Silver Lake funds. I’d expect that they’d probably look to raise between $750 million and $1 billion, in order to compete with other energy-focused growth equity efforts from firms like The Blackstone Group and Kleiner Perkins.

What is particularly interesting here is that Silver Lake is willing to jump into a space that, so far, hasn’t shown a great ability to produce returns. Successful clean-tech IPOs are few and far between, and M&A exits are even rarer. It’s possible all of that will change as oil prices continue to rise — after all, the original cleantech funding boom was born of high barrel prices — but that’s just speculation that could disappear once (if?) MENA’s revolutionary spirit tamps down.

One oft-noted example of cleantech’s IPO malaise is smart grid company Silver Spring, one of Grosser’s portfolio companies at Foundation Capital. Dow Jones reported early last year that the company was eyeing a mid-2010 floatation at around a $3 billion valuation, but it never materialized. The short-term hang-up was a technical problem with PG&E clients, but that was resolved months ago.

In discussing the overall environment, Grosser noted that plenty of private companies are acknowledged to be successful even though they haven’t yet gone public. He used Facebook as an example. I countered that Facebook could list, but has actively chosen not to do so. His reply: Silver Spring is in the same situation.

Methinks there might be another post in that last part…