Sunil Paul was among the first of a now sizable group of Valley investors who segued from successful careers in the Internet to the clean tech world. He makes VCs who are just getting into clean tech investing today look like noobs.
Now 5 years after he made his investment in Nanosolar in the company of Google’s Larry Page and Sergey Brin, we thought we’d ask him for his take on the state of the clean tech investing world, and what his latest battles are – our favorite one:
“The clean-tech world has been built by environmentalists going to bat for technologists. They’ve really carried our water for us. At some point we will have to step up and be more engaged.”
Q. What was it like back when you first invested in clean-tech?
A. It was a lonely crowd in the beginning. I tried to put together a sort of power lunch in 2002 for entrepreneurs that moved from the Internet to clean tech, and the very first meeting had a total of 6 people. Now there are so many people doing groups like that.
I got into this because of Martin Roscheisen – another one of these guys who came out of the Internet world. He said ‘I’ve got this interesting company [Nanosolar]. It’s in solar, do you want to take a look?” I said ‘I don’t know anything about that, but because it’s you I’ll take a look. ‘
Well, I soon decided that this would be my main investment area. It had a lot of characteristics of the early Internet, which I also got into very early and started mucking around with back in 1991 or so. It’s easy to know what’s going on in those early markets because there isn’t that much to know. It had a rapidly changing institutional base and a rapidly changing technology base. And for someone who’s cut their teeth on disruption, it felt very familiar.
Q. What are things that have changed and things that have remained the same from your early clean-tech investing to today?
A. The quality of teams has improved dramatically. The amount of investor interest has also dramatically changed. In all my early investments, it was tough to get anyone interested. Now practically every firm, or every top-tier firm at least, has someone looking – and in many cases have already done deals and have someone dedicated to the task. All the deals and companies I made investments in back then, no one would touch, and now plenty of VCs would be interested.
Valuations are higher. Some of the risk has gone down – but always the biggest risk is that there is not going to be someone further on down the chain to invest, because all these companies require such large amounts of capital. If you’re the first person in, you’re always concerned that there is not going to be somebody after you.
One thing that has remained the same is that there are huge amounts of capital required for this business, which is very different from the Internet world. Two opposite extremes.
Another thing to realize is that compared to all the IT sectors, cleantech is a very slow moving industry. For example, batteries, which are fundamentally driven by product cycles at the customer level. Customers expect a product with a 25-year lifetime, or a 10-year lifetime – you’re not going to suddenly have a 6-month product life cycle. That is an important lesson.
Another important lesson is that engagement with government is fundamental. For IT or biotech, you didn’t have to think too much about government. But in the energy world that is just not the case. Regulations are changing all the time.
The clean-tech world has been built by environmentalists going to bat for technologists. The environmentalists have carried our water for us. At some point we will have to step up and be more engaged because this is an important battle.
Q. What is your investment strategy now?
A. Well the industry as a whole is investing in batteries, fuels and solar. There are a few other new emerging areas that people are starting to look at. One thing that’s interesting is that almost every clean-tech investor starts out by saying that almost every deal I do has to work without any subsidies from the government.
That was the attitude I had in the beginning. But it is not realistic. Why? Look at the history of any energy business that has been started and succeeded, they all rely on subsidies. Wind was built on subsidies. So it is not realistic to be a clean-tech investor and not think about the political equation.