Blog Post

Missed Connection: Government Lab and VC Biz Model

A year ago, when the Department of Energy started its first entrepreneur-in-residence program with three well-known venture capital firms (Kleiner Perkins, Foundation Capital and ARCH Venture Partners), the DOE said it hoped the program would be able to spin out a cleantech company in 3-4 months. I remember thinking back then: Get real. The process of looking for a company to back is a little like dating and getting married — you just don’t put a several-month time frame on that sort of thing. The deadline seemed particularly unrealistic for cleantech, which has complex technology across vast sectors and new, unknown markets.

Now the first EIR at the DOE’s National Renewable Energy Laboratory (NREL) from Kleiner Perkins, Joel Serface, has finished up his tenure at the lab, about which he gives a fascinating report over on Cleantech Blog. As expected, he says that during what he called “the grand experiment” he learned a great deal, and “felt like a kid in a candy store.” But there weren’t any companies spun out during his time there. Serface says: “DOE’s calculus was that if they inserted a serial entrepreneur/investor backed by a brand-named VC firm into a lab that magic would happen and that an innovation would turn immediately into a company.” Not so much. He says: “Unfortunately, the EIR program was timed too short to reach its full potential and to get the first one of these ideas set up as a company.”

Instead, Serface found 30 promising technologies that could reach commercialization over several years and three technologies that he says “showed imminent promise.” Sounds like Serface knew what he was getting into before he took the leap:

When I agreed to become NREL’s EIR, I set the expectation with DOE, NREL, and KP that starting a company that KP would back within one year should not be expected. While there are a tremendous number of opportunities for commercialization at NREL, they need to temporally match a VC firm’s thesis, meet its perceived portfolio needs, or surpass its hurdle for innovation. Given enough time, many of the 30 technologies described above could be built into companies, but not necessarily into ones KP would fund over the period of the EIR Program.

The slow-moving academic environment of government labs and the business model of venture capital investing are like oil and water. Venture capitalists want a quick investment and relatively quick return on it. Academic labs generally take years to toil over R&D, which may or may not have a business application. The same can be said for cleantech venture capital investing in general — it’s particularly out of whack with the time frame of energy innovation. Largely because this is such a young market compared to IT or biotech, the VCs are still learning and will have to reshape their business models in order to reap big returns on energy investments. Kleiner will probably have to do that across the board, not just for this most recent EIR DOE program. It’s a learning experience for the entire industry, not just for Joel Serface.