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Has Cleantech Moved Beyond VC?

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Some of the best ideas on our GigaOM network, sometimes come from readers in the comments section. In response to my piece last week on Why the LinkedIn IPO is Bad For Cleantech, writer and environmentalist Bill Hewitt, I think hit a nerve when he suggested: “Clean tech has gone beyond VC.” Is the cleantech ecosystem now officially better served by investments from strategic and corporate investors, later stage private equity, and government energy research and development funds?

In some cases, it seems like: yes for sure. Now that the cleantech investment cycle seems to be fading down a bit for new and early stage investments, it’s looking like the timelines and horizons outside of venture capital sometimes are just better suited to investing in winners that will take time (decades) to create the next generation of energy infrastructure. As Pike Research founder and analyst Clint Wheelock put it in another comment on my LinkedIn post, while “the Silicon Valley VC crowd may be backing away from cleantech for a while, which is a natural part of the hype cycle. . . . It’s a big world out there, and there are many ways in which cleantech is not fully compatible with the VC model anyway.”

The idea that building and getting returns from capital-intensive cleantech infrastructure companies takes longer than the venture capital 5-year or so investing model, is something that we’ve brought up at length (Greentech Investing: Not Working for Most). But given that cleantech investing is relatively new, it’s been hard to determine if that sentiment was true or not. It’s looking more clear now, but still is an over simplified statement.

Clearly it’s not true for all VCs, and a lot of the specialists and investors who have been investing in cleantech for over 5 or 6 years, continue to raise cleantech funds, and are finding ways to make it work. Vinod Khosla is raising another over $1 billion fund, though he hasn’t specified if Khosla Ventures will put the same amount of money into cleantech companies this time around. VantagePoint Venture Partners, Westly Group, and Braemar Energy Ventures are all raising new cleantech funds.

I guess my question is, will there be a new wave of more informed VC cleantech investors down the road that will have more success than the first wave, finding a combination of investments that work, from later growth stage investments, to IT-based cleantech (dubbed cleanweb or cleantech lite)? Or does cleantech just not work for most VCs? Does a second wave of cleantech investing, we described as cleantech investing 2.0, involve the general venture capitalist? Will there be another up in a couple years? A cleantech investor friend who I had coffee with earlier this month, told me to get used to the ups and downs, which he pointed out can change dramatically with government policies, energy prices and political sentiment. What do you think?

Image courtesy of PetroleumJelliffe.

3 Responses to “Has Cleantech Moved Beyond VC?”

  1. Great article. This is something all VCs are struggling with, including us. Clearly the cleantech venture model of the last 3 years has not worked. Investing in capital intensive cost road maps and disruptive science projects proved to take too long and cost too much money for any risk/return to make sense and the IRRs just aren’t there.

    I don’t think this means that VC no longer has a role – just that it needs to adapt its model. There’s really two ways to get at a risk/return that makes sense. Move up the stage curve, as a lot of VCs are doing and investing in rounds that will yield 2x-3x in short time frames, or invest in capital light models early where there is little technology risk but more execution/adoption risk. This is essentially the Greenweb/Cleantech 2.0 model, which I think will be a big winner for some folks. Solar, EVs and lighting are growing at 30+% CAGRs and there will be innovative business models to help accelerate adoption.P

    People have talked about the Greed vs. Fear cycles of investing. While the broader tech space is in a greed cycle, cleantech is somewhere in between – and historically, it’s easier to make money in fear cycles when investors are cautious.

  2. Samer Zureikat

    The last phase of Cleantech investing may have been characterized by an “us against them” attitude where some VC-backed innovations sought to replace, instead of compliment, conventional power solutions. Several Cleantech innovations that survived the last VC-investing wave have been those that have found buyers or partners in the conventional power business (e.g. Ausra-AREVA).

    Cleantech VC still has a role to play in demonstrating the commercial scale of promising energy innovations.