The Problem With Cleantech VC Investing


There’s a problem with cleantech venture investing, according to the folks at cleantech VC firm @Ventures, who put together this slide presentation. They point out there’s been almost no exits. And few failures, too, so basically there’s little to help gauge the market. While I would somewhat argue with the lack of failures part (first-gen biofuels have seen some large failures, including the bankruptcy of VeraSun, the crash of the ethanol market and the stumbling of Imperium), it’s true that there’s been a lack of information to help guide VCs on what works and what doesn’t, as cleantech startups generally take longer to mature.

So with little direction, the result is: Here come the lemmings. It’s the same thing across all of venture investing; the herd mentality often sways funding trends. But as @Ventures notes, in cleantech there’s too much focus on industries like solar, biofuels and transportation; too much concentration on later-stage investments; and as money gets stuffed into states like California and New England, large parts of the country of being virtually ignored.

So what’s the answer? @Ventures says that overall, there should be fewer funds investing in the space. (Perhaps true, but very convenient coming from a firm that has its own skin in the game). Specifically there should be fewer funds focused on later-stage, larger deals, and instead more of the smaller funds doing similarly smaller investments in innovative areas outside of the standard solar and biofuels. And bring on the early-stage seed/angels that can be “scouts” to help guide the generalists in the official rounds. Who’s the Ram Shriram of cleantech? (I always thought Sunil Paul) . Just remember, readers, that @Ventures has invested in solar startup Advent Solar, biofuel startups Cobalt Biofuels and Propel Biofuels, and many others.



This is a bit of a strange post. The arguments themselves seem to reconcile the behavior.
– There’s no prescribed development cycle for clean-tech companies. If 2003 is the starting point for VC investments (after the bubble aftermath) then we’re only in year #5. Who says it takes 5 years to get to an exit in solar, wind, or biofuels? Med Devices can take 10 years. Consumer internet can be 2-3. Clean-tech may be in the middle.
– It makes sense, then, that VCs would invest in late-stage companies if their funds are already in year 5 (they cash out after 10 years). It’s the closest path to an exit relative to investing early stage.
– The reality may be that the Venture model isn’t well suited for these scale companies. The capital required to implement these three industries are significantly higher to generate returns. New solar companies need to build manufacturing facilities; Next gen biofuels companies have extremely very high capital costs relative to the volume of product they produce (and are still small with respect to the overall fuel market). VCs, in their current format, may not be the right investment method to develop these technologies to scale.
– So what if there are few failures. We may not have waited long enough for them to reach their full commercialization cycle. That’s okay .

None of this seems like there’s any dire situation or really any cause for concern.

Comments are closed.