The “Blood and Gore” fund (because it was founded by Al Gore and David Blood), also known as Generation Investment Management, has been on a roll lately. The firm, founded in 2004 with $10 billion under management, funds both startups and public companies in sustainability, and has seen big exits from some of its startup bets in recent years, including smart thermostat maker Nest (sold to Google for $3.2 billion), and solar installer SolarCity (went public in late 2012).
At the Cleantech Group’s forum in San Francisco on Thursday, Generation Partner Colin le Duc laid out seven guidelines that Generation has adhered to when it comes to backing cleantech startups, but also public companies.
- Have faith: Have faith in our thesis and courage of conviction, said le Duc. While cleantech investing has gotten a bad rap, cleantech is actually one of the best performing sectors in terms of the public markets and the solar index is even more impressive, he said.
- Take appropriate risk: As fund managers and investors, le Duc and his counterparts are paid to take risk and reach a certain return with a certain level of risk. But he said that the problem with the first generation of cleantech investing was that investors took “inappropriate risk” and “did not stick to the investment mandate they were given.” He said to cleantech investors: “Take the risks that you were meant to take.”
- Use an investing thesis that fits the opportunity: Generation invests in both public companies as well as private equity in growth companies and startups. Essentially, it distributes its funds in various ways, which moves the risk around. The firm is also willing to continue to fund companies that need significant capital. SolarCity was one of its biggest investments and it needed multiple rounds over many years.
- Investing a lot of capital can be the right thing to do: Amazon was once a hated company in the Valley because it was a capital intensive play, said le Duc. But building up that technology moat is obviously extremely valuable now. “Building long term businesses need a lot of capital.”
- Intensely study sustainability: Sustainable solutions are growth markets, said le Duc, but investors need to know all of the many details about the markets, the sustainable solutions and the environmental affects and landscape. The cleantech community doesn’t focus enough on global environmental impacts like pollution and climate change, le Duc said.
- Understand incumbents and respect them: Incumbents, like utilities and oil companies, “matter a lot,” le Duc said. As an investor it’s important to understand what the incumbents are doing, but also important because incumbents buy companies.
- Business model innovation is key to disrupting markets: Instead of focusing on tech innovation, le Duc thinks investors should look at business model innovation. For example, SolarCity was a business model innovation, it wasn’t a solar tech investment.