The Wall Street Journal today, using the more than $2 billion in clean venture investments as a springboard, does its obligatory “finding the green in clean” article. But the story does do a good job of pointing out the risky and uninformed nature of some of the recent investments sopping up cleantech dollars.
As the article notes and as we’re all pretty well aware, web startups can be built with a few employees, bootstrapped investment, and take several months to produce a product, while ventures like solar thermal (huge solar-based power plants) cost hundreds of millions of dollars, require dozens of employees with highly specialized knowledge, and take years to build and prove the technology. Though compared with cleantech investment, web 2.0 startups saw $317 million invested in the first half of this year.
The nature of cleantech venture investing — highly specialized science, huge project financing — is just difficult, plain and simple. Venrock’s Matt Trevithick explained it well to us recently when he said:
“Venture investing is a highly constrained model. It only works for certain things. It has been demonstrated to work for IT and health care. For energy, it is still too early to tell.”
The WSJ article notes some early failures, like six-year-old, Kleiner-backed Miasole, which raised more money in September and is still private. And so far ethanol investments are a pain point for the venture world, with Vinod Khosla giving a clear-headed quote when he says:
Overall, in clean energy, “I think there’s a lot of investment on little information.”
With few cleantech returns to show for much of the investments so far, what do investors have to look forward to? The risks are just getting worse as the value of VC-backed cleantech companies has more than doubled in the past two years, the article notes, citing data from VentureOne. No doubt we’ll see some savvy (lucky) investors find a “Google of cleantech” in the next few years, but perhaps what no one is really fully anticipating yet is the sheer size of losses that cleantech venture investors will likely face. One thing to remember, though, is that when it comes to cleantech, there’s always that underlying positive effect: the good of the planet.