Science is the new cleantech in the Valley but without the righteousness

8 Comments

Credit: Planet Labs

I get slightly annoyed when articles come out bemoaning how Silicon Valley hasn’t been tackling hard problems. I’ve written a variety of “get off my lawn” rebuttals a couple times on Gigaom before, but these articles still keep coming out. Most of them, while partly true, ignore that venture capitalists spent tens and even hundreds of millions of dollars investing in the “cleantech” wave between mid-2000 to 2012 and were trying to tackle hard problems. Many of them ended up losing a good deal of money.

The about face and the cleantech reversal was a totally reasonable response from a group of people who were losing other people’s money, jeopardizing their firms’ chances of raising future funds, getting pressure from limited partners, and watching easy, fast money being made in the internet.

Lab, image courtesy of Thinkstock / YanLev.

Lab, image courtesy of Thinkstock / YanLev.

But guess what? For some of the Valley’s most cutting edge VCs, tackling hard problems and investing in these scientific and energy innovations is once again starting to be new and cool again. But make no mistake: it’s not going to be called “cleantech” this time around, and here’s hoping it won’t be bogged down by the type of subtle “righteous” mindset that characterized the first cleantech wave.

Valley investors are now starting to embrace the term “science” as an overarching rubric for energy innovation, but they are also including things like materials science, health startups, and space exploration projects. And this move is not just because we at Gigaom finally changed our cleantech channel to the broader moniker Science & Energy.

Science is now hip everywhere these days, as you can see by the re-emergence of the show Cosmos, the excitement over big science breakthroughs in recent years like the God particle and Mars Rover, and the cult popularity of science nerd figures like Bill Nye. I would guess that job applications by young people to work at NASA are up significantly.

A nearly exact replica of the Curiosity rover lives in a garage at NASA Jet Propulsion Lab. It emerges about once a week to test new tasks and features. Photo by Signe Brewster.

A nearly exact replica of the Curiosity rover lives in a garage at NASA Jet Propulsion Lab. It emerges about once a week to test new tasks and features. Photo by Signe Brewster.

This week Recode reported that the Founders Fund plans to launch “FF Science,” which will use a portion of its $1 billion fifth fund for seed-stage investments in energy, life science, nanotech, and space. Founders Fund has backed some of the more successful internet companies like Facebook, Airbnb and Spotify, but also has supported science-heavy companies like Elon Musk’s rocket company SpaceX and satellite startup Planet Labs.

Before you get too excited about Founders Fund’s commitment, the article noted that the combined spending of FF Science and another seed allocation called FF Angel will probably be around $50 million. Together. Such a small commitment means the fund has to find startups super early and also tend toward more capital efficient companies.

Lux Capital is a firm that has long embraced this type of science investing. It has backed nuclear waste cleanup firm Kurion, electronics startup Transphorm, solid state transformer company Gridco, as well as Planet Labs. Last year it closed on its third fund to invest in what Bloomberg described back then as “unpopular science startups.”

A rendering of the Dragon V2 landing with its new type of thrusters.

A rendering of the Dragon V2 landing with its new type of thrusters.

That was in February of 2013. These are not unpopular opportunities anymore. Everyone wants to be in a SpaceX or a Tesla (hint, maybe just back Elon Musk).

But startups like these are as hard to fund as many of the cleantech companies were and are (solar makers, electric car companies, battery breakthroughs). The pharmaceutical industry, and drug development, are like the energy industry in that they take a long time to get to market and are highly regulated. Space and aeronautics are like that, too. These types of innovations can also take significantly more capital to get to market.

Science is just hard, particularly compared to investing in internet companies. Yo might be ridiculous but it didn’t take long to create as well as make its creator money.

Dispersing Dust Protectant, Common Pool Area. Cleaning up Fukushima.

Dispersing Dust Protectant, Common Pool Area. Cleaning up Fukushima.

But now that science is becoming hot in the Valley again, a lot of the lessons from cleantech should be remembered. One of the main ones is the lesson of righteous investing.

Investor passion is a good thing, and passion for doing something good, for helping fight global warming and for saving the planet is also good. But I think the drive to be known as an investor that made the world a better place actually distorted the barometer those cleantech investors used to find and fund successful startups. Investors now looking to back science startups should keep that in mind.

Another thing to remember is that Moore’s Law has spoiled us for the rate of progress. Other sectors outside of digital — in energy, materials, health and space — aren’t necessarily delivering the type of predicted, rapid progress that computing, chips, connectivity and the internet have delivered. You can take a graph and reasonably plot how much chips, sensors, broadband, and on-demand computing will cost you in a certain year. Try doing that for the cost reduction of batteries (well, Elon Musk is also trying to do this).

Solar panels, Image courtesy of Jon Callas, Flickr Creative Commons

Solar panels, Image courtesy of Jon Callas, Flickr Creative Commons

And of course, science is a much bigger bucket than cleantech was. Cleantech has been relegated to innovations that fought global warming and made resources like energy, food and water cleaner and more efficient. That’s still awesome, and it’s something that I will continue to be dedicated to covering.

But climate change has always been a contentious topic, particularly in the U.S. That’s one of the reasons cleantech became a sort of dirty and politicized word. I know there’s a variety of groups that are embracing new terms like digital energy, cleantech 2.0, cleanweb, and the like to try to bring back cleantech in some way. Yet the umbrella term doesn’t really matter if we’re all focused on the same thing: breakthrough innovations for tough science problems that can disrupt industries, and maybe if we’re lucky, change the world.

8 Comments

Stephan Dolezalek

How about some simple math and history (I guess that’s the Science part): Most attractive venture returns leverage one of two things; 1) a fundamental invention that meaningfully changes the cost/performance paradigm of an important product or service (see last five years’ change in the price of solar or, before that, the perfection of the personal computer), or 2) designing a product that delights consumers (Tesla, Nest, Apple, Google).

Problem with CleanTech was and is that we were working hard to force the price/performance changes (rather than their being the result of a happy invention); as we did, at great cost, in solar and are still trying in batteries. Secondly, we were largely trying to solve industrial problems that involved big corporate buyers, complicated supply chains and utilities — all slow moving and unlikely to pay “bubble” prices. Products like Tesla’s Model S, Nest’s thermostat, SolarCity’s cheap solar leases, Uber’s car service, or the upcoming products from Wink (if they live up to the hype) all make consumers happy, can be rapidly adopted and can build bubble levels of enthusiasm.

Leveraging breakthrough inventions with great consumer products and services is how venture funds deliver expected returns. That’s neither “CleanTech” nor “Science & Energy;” that’s Econ 101.

Girish Nadkarni

Excellent article and plenty of room for thought. One way of looking at this is to recognize that there is a difference between investing to making a proven technology more efficient (e.g. semiconductors) and working on as yet unproven technology. While the former is certainly something VCs can fund, the latter should be the domain of governments, large companies and universities. In fact, there is a spectrum of technology stage and risk where governments, large companies and VCs have different roles to play at different stages. One of the less discussed problems is that large companies are no longer investing in moon shots.

w

I think she’s right. Science and Energy makes since from the investor vantage point. It also shifts the focus away from consumers to solutions.

skloos

The term science is quite broad, and includes all fields of science, not just those that relate to energy. From an investing view, Science would include bio/healthcare/medical, as those are driven by science-based discoveries, right? Some are including firms like Uber and Airbnb in the cleantech bucket, and while that might be overreach, there’s no way that those firms would be under the banner of ‘science’. Cleantech was an odd term from the start and some avoided its use and instead referred to the space as energy, water, waste, and agriculture – long-winded but not confusing.

Katie Fehrenbacher

@Rob Williams. Thanks for the comment and you’re entitled to your opinion. I think maybe you’re not getting the article. I’m not saying cleantech should rebrand. I’m saying it’s already happening. Branding and marketing are at the core of Silicon Valley and if you don’t think that’s true, then you haven’t spent time with startups and VC firms. The Valley is also cyclical, and obsessed with the next hot thing, so I’m chronicling the rise of a trend I’m seeing. You don’t have to think that’s a positive trend.

I think cleantech investing has been righteous. You don’t have to agree with me on that. I’ve been watching and writing about these companies and investors for 7 years. Righteousness isn’t necessarily a bad thing, but I think it’s been a barrier sometimes for figuring out smart investments.

And yes, there’s been some big successes. Feel free to go back and read any of the articles I’ve written on these wins on a reoccurring basis for many years:
Ivanpah: http://gigaom.com/2014/02/13/the-hoover-dam-of-solar-is-now-live-in-the-desert-of-california-why-its-so-important/
Model S: http://gigaom.com/2013/08/26/a-decade-later-tesla-now-officially-a-threat-to-the-auto-industry/

Rob Williams

Wow, I was liking your articles until this one. Typical B school response to failure: rebrand! Sorry, clean tech is not righteous. Finally, the failed parties offering explanations for their failure after the fact always seems unsatisfying, especially when they are introducing their new love interest. During this period, clean tech achieved amazing things. People laughed when Warren Buffet acquired a railroad. He did that because it was a smart choice. It was a smart choice because it was a more efficient means of doing something important. Turned out that was the most successful acquisition in BH history. Ivanpah opened, the Tesla S became a smash. Really is too bad VCs didn’t figure out a way to claim all those victories (and with them a huge percentage of the profits). But according to you, now that nerds are popular again, their funds are secure. Fantastic.

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