The partners at venture firm Mohr Davidow Ventures (MDV) say there’s a dirty little secret in the current cleantech investing climate: Much of the sector has been based on modernizing outdated industrial technologies and we’re missing out on a new transformational industry. In an article in Forbes this week MDV partners Josh Green and Will Coleman say that to create that type of transformational new cleantech sector, like the U.S. successfully did with computing, the U.S. government needs to step in and start funding basic and early-stage research.
I agree that what Green and Coleman call a dirty secret is a problem. For example, updating the power grid with information technology (creating the smart grid) is basically about getting utilities up to speed with modern digital technologies, which should have happened years ago. There’s no revolution there, it just makes sense for utilities’ businesses, for consumers’ needs, and for fighting climate change. Smart grid technologies will create a lot of revenues for the existing players, including large IT companies like Cisco and IBM, and some newer firms like eMeter and Silver Spring Networks. But the VCs are right — this isn’t a sector that the U.S. can use as a way to revitalize the American economy and maintain our lead in the global economy.
Green and Coleman want cleantech to follow the path of the computing boom, where the U.S. led (and still leads), and where venture capitalists in Silicon Valley have the cat bird seat to choose from entrepreneurs that have come from all over the world to the Valley to create innovations. The two say that if the U.S. government spent more on fundamental cleantech research and investments in early stage cleantech startups, it would help solve the problem. They point out that only one of the companies awarded funds in the first round of the advanced battery grant program was an innovative startup (both A123Systems and EnerG2 got funding).
That might be true, but the advanced battery grants came out of the stimulus package, which is emphasizing jobs and stimulating the economy in a recession. There would be unbelievable political backlash if the stimulus funds were invested in a bunch of high-risk, early stage Valley startups. I also don’t think the policy-makers handing out the grants are in a very good position to evaluate the merits of early stage startups that aren’t producing revenues or even products in some cases.
But I do agree with the partners that there needs to be more emphasis on Washington supporting more early stage cleantech startups and fundamental research. Whether that means creation of a “green bank,” more emphasis on the new ARPA-E programs, as they suggest, or even just vastly more funds for universities with strong cleantech programs and government labs with solid tech transfer programs.
At the end of the day the analogy between computing and cleantech is the problem. I doubt that transformational change driven by cleantech will look like the one that was created by computing and information technology, or even that the U.S. and Silicon Valley will dominate it. It will be vastly more global, with China likely taking a strong position in certain sectors. But more importantly cleantech is fundamentally about making existing systems and products cleaner, specifically electricity and transportation. The fact that a cleantech boom won’t likely follow the path of a computing boom is the real dirty secret for VCs. If cleantech venture capitalists are set on waiting for a recreation of the computing boom, they’re going to be waiting for a very long time.