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Summary:

Did the polar vortex scare them all away from D.C.?

Was it the polar vortex that scared the VC's away? No.

A few years ago I would run into numerous venture capitalists from Silicon Valley on the flight over to the Department of Energy’s annual ARPA-E Summit. Not so much anymore.

This year’s summit seemed like a ghost-town when it came to VCs, with a sprinkling of corporate venture firms representing and a couple of lone Valley investors that are both contrarian and energy stalwarts. There were certainly many energy-enthusiastic researchers showing off technologies and roaming the halls at the event, but Silicon Valley money is no longer so eager to fund these moonshot ideas.

The ARPA-E Summit highlights early-stage high risk energy tech projects, many of which the DOE has given small grants ranging from several hundred thousand dollars to a couple million dollars, depending on the project. But given their substantial losses on cleantech over the last few years, these are exactly type of projects that VCs don’t want to back: high technology risk and lab-scale projects. If they touch energy it tends to be digital energy like Opower (which is going public) or Nest (which was sold to Google for $3 billion).

Exit

The VC exodus is a bit of a problem for the ARPA-E program itself. In past years ARPA-E directors have pointed to follow-on funding from venture capitalists as a sign of success for the program. While additional funding from VCs doesn’t guarantee a successful company, it does give the company access to capital to grow and scale up and also means the (one hopes, seasoned) private investors have looked at the research and find the technology promising, validating the approach.

The lack of private investors willing to back crazy energy ideas is also bad news, obviously, for young startups that have found some early success. As companies scale they’re now having a more difficult time funding the capital-intensive commercialization stage — building a factory, or even a demo factory. This could leave a whole bunch of startups out in the cold that have made it to an adolescent, teenager phase, and have removed the technology risk (it works!) but haven’t yet made it to commercialization.

Some data shows that in some respect corporations have stepped in to fund energy innovation — from GE to Shell — but my gut is that corporate VCs aren’t anywhere close to filling that hole that’s left by the Valley exodus. Corporates are conservative by nature and many of them followed the VCs into cleantech.

  1. double the tax incentives for the new clean energy ideas, or make it the law that 5% of all silicon valley VC’s funding must go into them, try if for a year, and when one or two catch the consumers eye, the PR machine of the VC’s will sell them to the boss’s, amen

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  2. Felix Hoenikker Friday, February 28, 2014

    corp VCs havent stepped in, they’re just the ones left because a lot of them don’t have responsibilities to fund returns but are budgeted on an annual basis. Usually a bottom line rounding error for those size corporations and more of a pr move than expected return.

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  3. Corporate VC won’t save this situation. They are slow to invest, have all sorts of internal machinations that complicate their relationships with start ups and they can typically only invest in one company of a kind. Some understanding of history is in order…before the flood of VC money into what came to be called Cleantech (or Greentech), VC money in energy and related categories amounted to just about 1% of the total VC investment pool. Maybe ag deals and a few other kinds of companies that get associated with Cleantech (e.g. transportation) will bump that number up a bit. But it won’t be significant. And it certainly won’t alter what you observed at ARPA-E last week.

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