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Summary:

60 Minutes just aired one of the more mainstream looks yet at the Silicon Valley cleantech rise and fall. While they got some things right they also got some wrong. My take here.

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As soon as 60 Minutes aired its story on “the cleantech crash,” on Sunday night, my Twitter feed immediately erupted in hand wringing and complaints (and yes, my feed is filled with a mix of environmentalists, cleantech advocates and investors). Full disclosure, I spoke with the producers of the 60 Minutes piece on background a few times over the past few months as they were putting it together, just to try to help them go in the right direction.

Contrary to the reaction of many of my Twitter friends, I think 60 Minutes got some key things right in the story, but they also got a couple of things wrong in there, too — most importantly they’re overlapping the Valley story with the government funding story. Here’s my take on their piece, which — to their credit — is one of the more comprehensive mainstream media looks at what was the VC cleantech phenomenon:

CleantechYUNoWorking

1). RIGHT: From a purely venture capital perspective, cleantech has been ugly and it has “crashed.” I don’t think you can argue rationally that this hasn’t happened; again, only in the venture capital, Silicon Valley ecosystem. And yes, there are a couple exceptions that emerged from the Valley that made it through, like Tesla.

As I’ve covered many times over the past six years, venture capitalists lost a lot of money on cleantech (Kleiner Perkins being the poster child of this), and many have now left the sector. At the same time, entrepreneurs widely know there’s very little money available for early stage “cleantech” startups anymore, and the limited partners that back venture funds don’t want the VCs to invest their money in anything called cleantech these days.

There was a very real bubble and bust that happened, though there are still firms around that have evolved and are sticking with it. Will it come back like the second wave of the internet? There will be some more successes in the future but I don’t think the equivalent massive amount of money from VCs will emerge again.

Green:Net 2010: Michael Copeland – Senior Writer, Fortune; Vinod Khosla – Founder, Khosla Ventures

Green:Net 2010: Michael Copeland – Senior Writer, Fortune; Vinod Khosla – Founder, Khosla Ventures

A lot of the 60 Minutes piece was trying to cover this Valley aspect and I think they did a good job of that. The VCs did lean on government connections and support at times, and they made a lot of mistakes.

Vinod Khosla is also the right guy to talk to, as he’s the enigma that says his firm is going to continue to fund the cleantech sector at an aggressive pace, despite the difficulties. It was probably pretty hard to find a VC that would admit on camera that she or he made a bunch of weak investments in cleantech and now, hat in hand, is exiting the scene.

2). WRONG: Unfortunately, playing up the taxpayer-funded government green-flop angle in the piece was both stale and overblown. It’s been covered ad nauseum not only in the political arena, but also in more mainstream pieces like the Wired one two years ago.

There were a few companies in manufacturing that were backed by the Department of Energy loan program that were clear mistakes — Solyndra and Fisker — but some of the other companies mentioned in the piece were either very minor losses or also still have promising tech that is being developed under a different owner. Leslie Stahl named 9 companies that didn’t do well for various reasons (not all from the loan program) and then dramatically declared she’s exhausted from naming them all.

An aerial view of Ivanpah with towers 2 and 3 in the background

As Michael Grunwald has pointed out in his book The New New Deal, government support — from the Department of Energy through the stimulus — has created a large amount of jobs over the years. Beyond the stimulus, solar panels and wind power have reached record levels in the U.S. in the last year and that’s also thanks to U.S. government support. Even within the loan program, there were more wins than the 60 Minutes piece let on, like the Ivanpah solar farm that created a lot of jobs outside of Las Vegas. The U.S. government needs to give more support to next-generation energy technologies, not less.

Part of the problem with the 60 Minutes piece is that it’s combining the story of U.S. support for clean power and energy efficiency, with the Silicon Valley story. They’re totally separate and different. The subhead of the piece is a prime example of the confusing aligning of those two things:

“Despite billions invested by the U.S. government in so-called “Cleantech” energy, Washington and Silicon Valley have little to show for it.”

Um, does that include the huge gains in wind farms and solar panel projects in the U.S., or does that just mean that Solyndra didn’t work out? Because, Solyndra happened in the summer of 2011; two and a half years ago. The underlying problem is that “cleantech” is a convoluted term that can mean many things, and isn’t all that helpful as an organizing group. Let’s figure out in 2014 if we should kill that term or not.

Algae Fuel via Aurora Biofuels

3). WRONG: The piece had a very, very light touch on Kior. The company’s stumbles are far bigger than explained in the story, from missing its volume production goals, to having a stock hovering between $1.50 and $2, down from an IPO price of $15 per share, to having a law suit from investors. Yes, it’s possible that they’ll pull through and meet expectations, but more likely is that they won’t. That’s just the realities of the difficult business.

4). RIGHT: Because it’s 60 Minutes they end on an upbeat aspirational note, with a statement from Khosla on being a dreamer:

In fact you need dreamers to stretch. I probably have failed more times in my life than almost anybody I know. But that’s because I’ve tried more things. And I’m not afraid to fail because the consequences of avoiding failure are doing nothing.

As I said in this piece about Kleiner Perkins, I think the VCs that put money into some of these cleantech innovations actually deserve a bit of our admiration, despite that some of the investments weren’t so wise, and many haven’t yet proven to be good for their funds.

They tried to bring us jetpacks, and they hoped to create some real fundamental innovation in sectors like energy that are super important for the world. The rest of their peers made money off of sectors that don’t necessarily have a direct benefit for society like gaming, social media, or online commerce.

Money is the goal in the end either way, but the Valley has always been about risk taking, and the cleantech VCs took the biggest risks out of anyone in the Valley of the past half decade. Hopefully there’s a next wave of these investors that are making smaller, quieter, and more informed bets and will some day show there’s a model in the Valley that will work.

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  1. Katie, best piece written on the 60 minutes segment hands down.

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    1. Thanks @Jigar Shah!

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  2. Albert Hartman Sunday, January 5, 2014

    Of course there’s a model for cleantech that will work. It’s unreasonable to think that in 100 years we’ll still be burning coal for the majority of our energy. And somewhere between now and then, cleantech comes into being. And it’s the dreamers and their backers, not the government and public opinion that will bring the cleaner energy future about.

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  3. Personally, I’m not convinced any of the “cleantech” companies Khosla invests in fit the description, so I’m disappointed they used him instead of someone like Steve Jurvetson.

    With Khosla Ventures, I see a bunch of energy companies that depend on finite resources that toss around words like “biofuel” and “fuel cell”, but I’m not convinced the technologies will ever make more than a relatively miniscule reduction in CO2.

    Sorry, I don’t believe the hype.

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    1. @Domenick_Y, Agreed, but I’m not sure Steve Jurvetson and DFJ want to be associated with cleantech despite that they’ve done considerably better than most. They shifted away from it awhile ago.
      http://gigaom.com/2012/04/27/and-the-greentech-vc-exodus-continues/

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  4. Who would have forecast that Solyndra would file for bankruptcy when loans were made? No person would have said, “Wait a minute! China will finance its own solar panel industry and beat the price of every other manufacturer in the world.”

    Investors are in for the immediate profit, so of course they stopped financing most of the ‘clean-tech’ companies.

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    1. A lot of people were waving the warning flags about Solyndra.

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  5. Nice review Katie,

    I don’t have an issue with anything you have said and you will probbaly agree with what I would add as it is inherent in some of the successes you mention, but hopefully you can take a minute to review the detail of my observation.

    I think CleanTech has on the whole been too ambitious. We are trying to jump from million year old fossil fuel to extracted oil from a banana skin.Why we should be aiming for that is an interesting question not unrelated to the Silicon Valley mentality. Also related to patents and protection and VCs wanting to deliver zillions of dollars of earnings.

    The article did also touch on the disconnect between maturity periods which was interesting. In effect, even the longest term investors were too short term and that brings me back to my observation.

    Why do we need energy?

    For electrical devices, for transport and for heating. Cooling as well depending where you live in the world. Other segments exist too involving industrial processes.

    Whilst the UK is a relatively cool climate versus the southern states, heat will still play a part in energy mix and if similar, in the USA will be around 50% of consumed energy demand.
    Is it not odd therefore that our CleanTech industry has focussed on clean electricity and clean transport fuel when either are smaller than heat?

    Consider also that heat is generally consumed at 21C (70F) and 60C (140F). The former for heating homes and offices and the latter for wash water.

    Why then do we need a fuel source that deliver heat at around 1000C (1800F)?
    The answer is we don’t but we do need 21C and 60C.
    Heatpumps are not new. They were being talked about in 1852 by Lord Kelvin, a Professor at the University of Glasgow. He was also involved in the Niagara Falls power company and in laying the first transatlantic comms cables. 1852!
    What a guy!

    Whilst we have seen the refrigeration industry grow from Lord Kelvin’s ideas, the heatpump industry has languished behind more convenient techniques relating to combusting coal, oil, gas, even biomass.

    Heatpumps are somewhat inconvenient, especially if sourcing the heat in a small quantity from air, (which is coldest when you need most heat from it) or need lots of expensive holes in the ground.

    Where some companies have realised this in Scandinavia is to use district heating and source low grade heat from surface water on a large scale. Waste heat from power stations, from sewage treatment plants, from rivers or even industrial processes and data centres is extremely valuable.
    Where we have taken this one step further is to use high integrity equipment and use the industrial working fluid ammonia. Aside from being more environmentally friendly than HFCs (hence their imminent phase down being 1400x as potent as CO2) we also get efficiencies around 25% higher than HFCs.

    Where does this fit CleanTech?

    Simple; the technology which whilst progressive, but hardly revolutionary could harness waste heat in any major USA city and deliver it as useable district heat at upto 184F. Enough for the entire city!!

    This would reduce the demand for fossil fuel, e.g. gas by nearly 60%. Yes we need electricity to drive the heatpumps, but as we are pumping heated water around a community we can make the systems demand side managed i.e. switch on when it is sunny or windy and off when not.

    Add a further twist that the same large 184F heatpumps can deliver desalinated water and district cooling at the same time, and maybe there is a warm weather solutions too.

    So; CleanTech needs to calm down a bit and deliver easier solutions before getting too adventurous.

    With returns on investment of around 25% quite feasible, I’d have thought that was enough to get the VCs interested.

    Check this out; hope the above was interesting.

    http://www.tinyurl.com/large-gshp

    Regards
    Dave Pearson
    Director of Innovation
    Star Refrigeration
    dpearson@star-ref.co.uk

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  6. Katie, agree with your piece, why confabulate the two? The goals of Silicon Valley investors and Washington are not aligned; Washington’s actions and funding are and should be about practical solutions to our energy sustainability issues, no matter how long term those solutions are in the offing. SV investors are about making a big score in the short term (with notable exceptions such as Khosla who has a principled philosophy). The only time these come into alignment is when startups use Washington’s backing of the sector to make their companies appear more valuable and thus attractive to investors.

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  7. Rick Steadman Monday, January 6, 2014

    Great article.

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  8. Katie,

    disagree on a few points.

    1. “I don’t think the equivalent massive amount of money from VCs will emerge again”. Trust me, we will see even MORE massive amounts, and in the very near future. Industries always fall in and out of favor in SV. Investors lost their shirt in early cleantech, just like early Internet, yet we see VCs plowing massively back into that space once again (with a mobile twist).

    Cleantech will come roaring back because a) energy/environment problems are only growing, b) a good piece of the painful cleantech learning curve is now behind us, c) investors are seeing homeruns again (eg. SolarCity 7x post-IPO), and d) hard times have pressured business models to be more rational and economics more compelling.

    2. Washington funding of cleantech and SV stories are “totally separate and different”. Let’s be honest and not try to ring-fence the losers. Government support programs were, and continue to be, a big part of the SV cleantech story.

    3. And “big gains in wind farms and solar panel projects”? Big gains for whom? If additional renewable capacity regardless of source and economics is the goal, perhaps. But with the current system of jacking up solar system costs to milk the ITC and other subsidies, layered with additional “investor tax efficiencies” of leasing, and topped off with creating an additional capital export + energy import dependency to the already debilitating US dependency for transport fuels…..cui bono?

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  9. “The U.S. government needs to give more support to next-generation energy technologies, not less.”

    Give support with what? The U.S. government has run huge deficits for years and is projected to run huge deficits for the foreseeable future. And you suggest that it invest money it does not have in supporting technologies that may or may not do anything to help?

    There are plenty of rewards awaiting those who develop next-generation energy technologies. The last thing we need is the U.S. government picking winners and losers and giving out prizes.

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  10. @Steve Geiger, I respectively disagree with your comment on a few points.

    1). What cleantech investors learned is that the sector is very hard to invest in and make money on the quick time table that VCs need. That’s why “cleanweb” has become such a trend because its basically just Internet and digital investing but with an energy/resource theme. From a VC perspective I think cleantech investing will look more like biotech, smaller, and with specialty investors. Other types of investors, like private equity (like the Silver Lake Kraftwerk guys) could take a different more long-term approach.

    2). VCs turned to government support as a way to help their portfolio companies get ahead, particularly if they were struggling. But most government incentives from US government don’t pertain to VC-backed startups, they support large companies building solar and wind farms, and go to science projects at universities. So talking about VC cleantech investing, and talking about US government support for clean power are two very different things.

    3). The gains are that there were a record amount of solar wind farms and solar panel systems built in the U.S. That’s important for lowering carbon emissions in the U.S. and moving the U.S. off of coal. Its also a win for solar investors.

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    1. please allow some clarifications:

      1. seems we disagree on whether we’ll ever again see previous VC cleantech volumes; fair enough, time will tell.

      2. yes, the US government’s support for VC-backed cleantech startups is a subset of its overall support to the sector, so if that’s what you mean by “different things”, ok. This doesn’t change the fact that many of these startups’ business models depend extensively on government support, and VCs make decisions based on this support, which sounds pretty entwined to me.

      3. Didn’t SV teach the world the difference between being a producer of technology and merely a user of it? Would be nice to see the US solar sector re-learn this.

      Question: does installing other people’s solar panels make the US a “solar leader”?

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