A few years ago I would run into numerous venture capitalists from Silicon Valley on the flight over to the Department of Energy’s annual ARPA-E Summit. Not so much anymore.
This year’s summit seemed like a ghost-town when it came to VCs, with a sprinkling of corporate venture firms representing and a couple of lone Valley investors that are both contrarian and energy stalwarts. There were certainly many energy-enthusiastic researchers showing off technologies and roaming the halls at the event, but Silicon Valley money is no longer so eager to fund these moonshot ideas.
The ARPA-E Summit highlights early-stage high risk energy tech projects, many of which the DOE has given small grants ranging from several hundred thousand dollars to a couple million dollars, depending on the project. But given their substantial losses on cleantech over the last few years, these are exactly type of projects that VCs don’t want to back: high technology risk and lab-scale projects. If they touch energy it tends to be digital energy like Opower (which is going public) or Nest (which was sold to Google for $3 billion).
The VC exodus is a bit of a problem for the ARPA-E program itself. In past years ARPA-E directors have pointed to follow-on funding from venture capitalists as a sign of success for the program. While additional funding from VCs doesn’t guarantee a successful company, it does give the company access to capital to grow and scale up and also means the (one hopes, seasoned) private investors have looked at the research and find the technology promising, validating the approach.
The lack of private investors willing to back crazy energy ideas is also bad news, obviously, for young startups that have found some early success. As companies scale they’re now having a more difficult time funding the capital-intensive commercialization stage — building a factory, or even a demo factory. This could leave a whole bunch of startups out in the cold that have made it to an adolescent, teenager phase, and have removed the technology risk (it works!) but haven’t yet made it to commercialization.
Some data shows that in some respect corporations have stepped in to fund energy innovation — from GE to Shell — but my gut is that corporate VCs aren’t anywhere close to filling that hole that’s left by the Valley exodus. Corporates are conservative by nature and many of them followed the VCs into cleantech.