Even though I agree with most of what was written in this article, I have problems with the last paragraph. VCs need to look for that diamond in the rough. A deal with a utility is a check-box item that says that yes this company has some traction. Beyond that it means very little. So much of this market is still in chaos. What is the right technology, the right standards, the usability of the product and user adoption, etc. Answers to those questions will determine who is the horse for the long race and who is just a short sprinter. I completely agree that the VCs need to do the legwork and look at the bigger picture for the long term.

Some companies with good connections might get that pilot project but it does not mean that the product is usable. I recently saw one product with an optical sensor that attaches to a regular meter and transmits data to a monitor in the house. One utility is actually giving this product to residents and maybe collecting grants from the stimulus package. This product SUCKS! It does NOT work. I tried to make it work a few times and finally gave up. The point is that just because the company was able to get a pilot project means nothing since I seriously doubt whether the users (residents) will adopt their product.

The VCs can help companies in this space by getting the standards defined quickly. The best company for the VCs would be one with a great team, great technology that works, is based upon what the standard will be and does not have a pilot project. Then the VC can use their connections to help the company get that pilot project. I have read about a few companies that have pretty interesting products and technology. However, they don’t seem to have the right marketing/sales and don’t have much of a traction. Others seem to have some traction but I am not too sure on the product functionality and usability. Its a typical conundrum of a startup. And it basically boils down to the team. The team needs to be well rounded and synergistic.