Venture capitalists see the light

SAN JOSE, Calif. — Clean-tech venture capitalists have taken a shine to Silicon Valley makers of LEDs and other bright lights, seeing a growing potential for these semiconductor-based light sources in streetlights and parking lots, in concert venues and gymnasiums.

And, soon, in your home.

According to the Cleantech Group, a San Francisco researcher and conference organizer, venture-capital investments into lighting technologies reached $100 million in 2008's first quarter. That ranked behind only biofuel and solar among clean-tech categories.

"The way we light things today uses 25 percent of our energy in the United States," said Alain Harrus, a partner at Crosslink Capital, a San Francisco venture firm with investments in two lighting companies, Intematix of Fremont, Calif., and Luxim of Sunnyvale, Calif. "The opportunity there is to switch to a much more efficient way of using the electricity."

Most consumers know LEDs as the twinkles on their Christmas trees, the numbers on their calculators, the source of light on their cellphones. But they're increasingly found in televisions, medical devices and streetlights. Some suspect they'll soon be used in new homes.

Several Silicon Valley companies — BridgeLux in Sunnyvale, Osram Opto Semiconductor in Santa Clara and Luxim — have either gotten major VC funding recently or have spoken publicly about new developments in solid-state lighting.

Investors are trying to find products that use less energy but do the job as well as existing sources.

Or better, said Tony McGettigan, the chief executive officer of Luxim.

"Edison's invention to banish the night was one of the most important inventions of the last century," he said during an interview at the company's headquarters. "But the light sources of today aren't exactly doing what you want them to do."

Changing bulbs

Governments are working to eliminate incandescent bulbs, which are inefficient energy hogs. A bill in California's Assembly to ban the bulbs failed in 2007, but the state has mandated improved lighting efficiency. And the energy bill signed by President Bush late last year requires a nationwide boost in efficiency, which most see as the end of incandescents in the United States.

Compact fluorescent lights, or CFLs, are touted as a replacement, but they contain traces of mercury, must be recycled and the light quality is imperfect, said Mark Swoboda, CEO of BridgeLux.

Advances with LEDs, including better white color and lower prices, have changed the formula, making them an increasingly realistic alternative. "Technology has broken the barrier," he said.

Wal-Mart, which sold more than 100 million CFLs to customers in 2007, is using more LEDs in its stores, said Matt Kistler, the company's director of sustainability.

Last longer, save money

Coupled with motion sensors, LEDs work well in refrigerators and freezers in Wal-Mart's grocery aisles, he said. They turn on when customers walk by, and turn off when nobody is near. They're cooler than incandescent lights, saving energy. They last longer, so Wal-Mart saves money.

"A lot of people see LEDs as that next great solution," said John Balbach, managing partner of the Cleantech Group. But, he cautioned, LED manufacturing remains in its infancy. It's where the semiconductor industry was a couple of decades ago, he said.

Makers tout the long-term ownership cost of LEDs, and the bulbs do last about 50,000 hours in some applications. They use about one-sixth the energy of incandescent bulbs.

But they cost more initially. And LED makers have to work with lighting-fixture manufacturers to incorporate them into new products, and that can take a few years.

In a recent survey consumers said they would be willing to pay more for an LED light — $4.70 per bulb, compared with $3 for a CFL and 50 cents for an incandescent bulb — if it used less electricity and had environmental benefits.

Much of the first-quarter LED investment money went to one company — Luminus, based near Boston. It raised $72 million. But investments continue. BridgeLux raised $40 million in April, for instance.

For years, said Michael Siminovitch, director of the California Lighting Technology Center at University of California, Davis, LEDs have been seen as a Holy Grail for energy-efficient lighting.

"LEDs have great promise, but we need to take a wide perspective," he said.