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.