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.

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