L.A. Cleantech Incubator is getting room to grow

Inside a cavernous warehouse downtown, crumbling brick walls, exposed wiring and a gaping concrete pit suggest anything but the future of clean technology.

A group of Los Angeles nonprofits, utilities and universities aims to change that when work begins this week on what’s slated to become a hub of collaboration and green innovation in the city’s arts district.

Headed by Los Angeles Cleantech Incubator, the La Kretz Innovation Campus will take up 3.2 acres of the so-called Cleantech Corridor, a four-mile swath along the Los Angeles River that is intended to house environmentally conscious manufacturers and other businesses.

The dilapidated warehouse, 60,000 square feet and nearly a century old, will expand on the incubator’s current home next to the Urth Caffe on Hewitt Street.

The new digs, expected to open early next year, will house open-air conference rooms, bays for individual companies to occupy, labs to test sustainable technologies and a manufacturing workshop. Entrepreneurs will pay $500 a month for each workstation, sparing them the expense of budget-busting leases. Outside, what is now a vacant parking lot will become La Kretz park, outfitted with picnic tables, patches of grass and Wi-Fi.

That’s the eco-minded vision of the incubator’s executive director, Fred Walti, and chief operating officer, Neal Anderson. Walti said he would like to see L.A.’s urban area become a “frontierland” alternative to Silicon Beach, as the booming tech sector around Santa Monica and Venice is known.

“We’re going to rebuild L.A.’s industrial core with tomorrow’s industry,” Walti said.

The expansion comes at a difficult time for the clean-tech sector.

Venture capital funding, which has declined over the last few years, has dropped sharply for fledgling clean-tech companies, according to a recent report by PricewaterhouseCoopers and the National Venture Capital Assn.

Venture capitalists are on the lookout for money-efficient companies that can grow quickly, often in online media and software. But getting a high return in a short amount of time is harder to do in clean tech, Walti said. As a result, venture capitalists who do invest in clean tech look for more developed companies.

“That’s left a vacuum of early-stage investment for [clean] technology all over the country, certainly in L.A.,” Walti said.

There’s also stiff competition from companies in other countries, said Tom Solazzo, U.S. clean-tech leader for PricewaterhouseCoopers. “The local clean-tech companies are really playing in a global market.”

In addition, Los Angeles is arriving late to the party. Silicon Valley, with its more advanced technology community, attracted more venture capital financing in the first three months of this year than Los Angeles and Orange counties did in all of 2012, the report found.

The incubator launched in 2011 as a nonprofit offshoot of the city’s Cleantech L.A. initiative. Funded by the city’s Community Redevelopment Agency and Department of Water and Power, it has nurtured 18 companies, many of which were born in its partner institutions: UCLA, USC, Caltech and the Jet Propulsion Laboratory.

Walti said the start-ups — covering industries such as solar-thermal technology, energy storage and transportation — have already pulled in $13.7 million in investments.

The participating companies take full advantage of the incubator’s all-inclusive approach.

“We have access to the resources and the connections and the ability to use local government, yet we’re run by entrepreneurs,” Walti said. “There’s not a lot of distance between decision and action.”

The incubator works with its companies “from garage to Series A financing,” a process that begins with an online application. Staff members recruit the help of outside experts during a six-week vetting process, looking for companies that are likely to succeed while boosting L.A.’s economic outlook. They invite promising applicants to two-hour meetings to resolve any concerns about their business models.

Once the entrepreneurs move into their designated office spaces, they meet with incubator mentors once a week for at least an hour. They’re guided on how to test prototypes, where to find their ideal reference customers — the first client they can use as an example in future sales pitches. As a group, founders attend seminars, covering topics such as whether to form a limited liability corporation and how to select a board of directors.

“Almost every one of these seminars I sit in,” Walti said, “I think, ‘Gee, I’ve made all those mistakes.’”

The La Kretz campus, with an expected cost of $43 million, will give the incubator room to spread out — 30,000 square feet of the warehouse will be shared with DWP demonstration labs, an upgrade from the incubator’s current 3,000-square-foot home.

Despite close quarters, the program appears to have worked so far.

One incubator company, Skyline Innovations, which installs solar-thermal systems for large residential buildings and low-income housing, has tackled more than 60 commercial-scale systems. The privately held company declined to report revenue, but a marketing representative said Skyline’s 2011 sales were four times those in 2010, and 2012 numbers doubled the previous year’s.

Another member of the incubator family, electric car charger provider 350Green, already had 600 stations in 20 markets when it was bought by Car Charging Group Inc. in Miami in July. Walti said the management team will have a home on the La Kretz campus to develop its next business.

Starting new companies, after all, means generating more jobs. Walti cited a study by the entrepreneurship nonprofit Kauffman Foundation, which used U.S. census numbers to show that on average, firms less than 5 years old collectively added 3 million jobs in their first year. Older firms lost about 1 million jobs annually.

Research also shows it’s cheaper to create jobs through incubators than through community development. A study commissioned by the federal Economic Development Administration found jobs created by incubators cost about $180 each, compared with $3,000 for those that come from local projects. The study found 87% of incubated companies were still functional after five years, and 84% of them stayed near their incubator.

The Los Angeles incubator tries to focus on burgeoning companies dedicated to solving what Walti calls societal “pains.” With the region’s emphasis on sustainability and finding practical solutions to environmental deterioration, Walti said, L.A. provides an ideal living laboratory.

“That’s what the whole corridor concept is all about,” he said. “We’re actually going to build companies that produce things. And while we’re doing that, we’re going to be making the planet better. What’s wrong with that?”

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