10 Comments

Summary:

Amidst all of the champagne cork-popping, and bubble talk in the wake of the LinkedIn IPO Thursday morning (high-five to Reid Hoffman) I’ll offer up this downer of an article: the LinkedIn IPO is bad for cleantech.

greenenvy

Amidst all of the champagne cork-popping and bubble talk in the wake of the LinkedIn IPO Thursday morning, (high-five to Reid Hoffman) I’ll offer up this downer: The LinkedIn IPO is bad for the cleantech industry. No, not for the future progress of green technologies in general; LinkedIn’s stock shooting up over 100 percent on the first day has nothing directly to do with how cheap solar panels can get, or if people will embrace electric cars.

But as a second bubble appears to be growing around venture capitalists investing in web companies, the generalist venture capitalists that tested the greentech waters several years ago are now fleeing, returning to investing in the web, and are also having a nasty case of envy over the returns the consumer web companies are delivering their investors. The killer LinkedIn IPO — one of the biggest web IPOs since Google — will only increase that shift.

It’s a sentiment we’ve pondered before (Cleantech Officially Less Cool Than Groupon). As Kevin Surace, CEO of Serious Materials, said last month during a panel at the SolarTech summit, “No one in cleantech is worth (billions). Yet you can create this small online team that creates billions of dollars in market cap [Groupon].” LinkedIn now has a market value of more than $9 billion for what is basically a very successful website for resumes and job listings.

As I wrote earlier this week, cleantech seems like it’s in a bit of a slump. (I tried to put a positive lens on it: Why the Future of Greentech Needs to Sound Awesome.) But green technologies like next-gen biofuels, electric cars, and nuclear (post Fukushima) are crawling along. European countries (the largest market for solar) are revising their solar subsidies, kicking solar firms in the gut in the last quarter. The bad news has been piling on, from battery maker Ener1 writing down its investment in EV maker Think (EVs happening too slowly), to NRG Energy writing down its investment in expanding a nuclear plant (all nuclear construction is on hold for the time being). Top that off with funding for clean energy from the stimulus package dwindling, no energy legislation in the U.S., and the likelihood that the Department of Energy won’t get an increased energy research and development budget for several years.

It’s not a shocker that a chunk of the investors that made bets on greentech seem to be exiting. Last month, Mass High Tech published an interesting article looking at 10 venture firms that made five or more new cleantech deals between 2003 and 2008, then completely pulled back from new cleantech investments after 2008. Kleiner Perkins has reported reversed course slightly from greentech. Surace acknowledged the same thing during the SolarTech panel: “What you’ve seen in the past year is degradation in new startup funding. Venture capitalists are still doing follow-up rounds, but this space is collapsing from four to five years ago.” The bulk of the so-called almost record spending on cleantech last quarter went to capital-intensive companies that needed follow-on rounds like EV-maker Fisker, and solar companies Solyndra and BrightSource.

With less venture money going into new and early-stage greentech companies, the overall greentech funding from venture capitalists will likely start to dwindle. There are only so many later-stage, growth rounds that can go to already established “winners.” Private equity, government funding, corporate investors and other forms of investing will have to step in at all phases, to keep greentech entrepreneurs and startups going.

But if the second consumer Internet bubble actually happens — as the LinkedIn IPO seems to suggest — and makes enough VCs and entrepreneurs rich off the web again, those investors that got locked into a multitude of bad greentech deals can’t help but have investors’ remorse.

Image courtesy of Mrs Logic.

  1. I just couldn’t get your article’s first paragraph. The stupid eye is very annoying.

    Share
  2. @Mike, its the green-eyed monster of investors that want in on the new web bubble.

    Share
  3. Scott Dunbar Friday, May 20, 2011

    Thanks for the great article. Though I am far from an expert in these matters, I think that social media is the next bubble. I wish I had bought LinkedIn stock yesterday, but if I had, I’d be selling it today. If it is shocking that small online teams can create companies worth billions, that is probably because they are not worth billions. Groupon’s business also has a low barrier to entry, an easily imitable business model, and little brand loyalty. It will also be overvalued. I believe cleantech companies provide a more measurable value and are thus not as subject to overvaluation. It is too bad that cleantech is trailing social media, but hopefully when it does take off it will not be subject to bursting.

    Share
  4. Or maybe the problem is that many large companies have discovered they can save money and simultaneously go cleaner and greener without needing to buy any new technology or ideas. They simply look at their process and improve them. They don’t need products or services supplied by start-ups. The same goes for my own personal behavior. Reducing energy use, purchasing more carefully and re-using and recycling is something I’ve done for years. I have no need for another company to help me with it.

    Share
  5. Very thought-provoking piece. I think the most interesting point was the one Kevin Surace made: scalability is the key to making very valuable companies with very little upfront resources. I would expect to see significantly more greentech startups in the future that focus on using the web to provide scalable solutions that make a positive environmental impact.

    It reminds me of a popular blog post by Chris Dixon: “Predicting the future of the Internet is easy: anything it hasn’t yet dramatically transformed, it will.”

    Share
  6. Just so we are clear how things work. Things get way over hyped for around two years and then the bottom drops out as the hype moves to a new area. Companies that have established a value can continue and all the companies that weren’t worth it fail. Sometimes the growth will sustain itself for a little longer but the general pattern is always the same in tech. Why we fail to see this and want to believe that we are on the verge of steady, continuous growth is another issue but we human tend to crowd around things until they get more attention than they deserve, then get bored and move on.

    That greentech has a future is as true now as ever. Gas is over $4/g. Renewables are needed more than ever with nuclear discredited and natural gas looking worse and worse due to fracking. Global warming is only going to get more intense and that will mean we need better, more efficient solar, wind and storage. Nothing happens as fast as business plans need them to happen in order to justify tens of millions of dollars of investment but we will shift to renewables over time and every startup that can craft a business model delivering defensible value to this process will have merit. Can it meet the scaleability and hype of internet stocks? No. That however is not the standard that investors should be looking at. They should be looking solely about price performance in comparison with alternatives in the traditional fossil fuel sector and the value they could add delivering a solution for that market.

    And don’t forget, a lot of these internet people want a way to spend their billions and many of them care a great deal about all things green. ie: Paypal => Tesla. Google => all kinds of green initiatives. New internet boom => next round of green tech.

    Share
  7. You want my opinion? Clean tech has gone beyond VC. If Siemens, GM and Ford, IBM and Google, the US Dept. of Energy, and hundreds of other big concerns, globally, for-profit, academic, non-profit and government among them, are on board, we really don’t need our VC brothers and sisters anymore to take their 30% vig and move on. http://climatechange.foreignpolicyblogs.com/2010/02/05/the-technology-driven-economy/

    Share
  8. Clean tech companies don’t have high valuations because they are not holding the likely chance of high profits.
    Most cleantech is much more costly that conventional tech, like solar power, wind power etc, all cost much more that the conventional competition.
    They can’t survive without government subsidies, and the government is broke.
    The global warming bubble is crumbling as the population wakes up from the propaganda making subsidies even less likely.

    Share
  9. While reading through this post, I had some of the same thoughts that I later saw in Bill Hewitt’s comment. I can certainly see how the Silicon Valley VC crowd may be backing away from cleantech for a while, which is a natural part of the hype cycle. But as Bill points out, it’s a big world out there, and there are many ways in which cleantech is not fully compatible with the VC model anyway. Many of the most promising areas of cleantech are infrastructure-centric, and the traditional VC approach is not conducive to capital-intensive businesses.

    As someone who works primarily with large global energy and technology companies, I can say with certainty that their interest in cleantech-related investments, expansion initiatives, and real-world project deployments is on an upswing. In fact, there are a number of mainstream conglomerates and industrials who are gearing up their focus on cleantech areas, as well, and spending in key sectors is already increasing substantially on a year-over-year basis. Availability of more traditional financing (such as project finance) is also loosening up considerably. In short, while VC hype cycles come and go, and while some sectors will continue to experience ups and downs (and let’s face it, some of these areas, exciting as they may be, are simply not viable businesses) the underlying fundamentals of the broader cleantech business are quite healthy.

    Share
  10. Katie Fehrenbacher Sunday, May 22, 2011

    @Bill Hewitt and @Clint Wheelock, Very interesting points, thanks for those.

    Share

Comments have been disabled for this post