Why Cleantech Investing Has Morphed Into Energy and Sustainability

Advocates of cleantech investing often make the case that there are enormous opportunities to make the world cleaner and more sustainable. But what if labeling yourself a cleantech investor or entrepreneur is actually limiting?

That’s the question I walked away with after a panel of venture investors at the Energy Symposium at the Harvard Business School last week. The discussion reflected how investors have had to rejigger their strategies and reconsider the basic assumptions they held five or six years ago. For entrepreneurs, their thinking provides clues on how best to frame what your company does and how to approach VCs as potential investors.

First, a bit of history: in the early to mid-2000s, venture capitalists became enamored with cleantech and poured billions into startups, with a heavy emphasis on solar and biofuels, only to lose money after many of these companies failed. Because there have been few high-profile successes, cleantech, ironically, has become a dirty word for many of the limited partners who put money into venture funds. Most venture funds have shut down or deemphasized their cleantech activities.

Not Clamoring for Carbon Cap
One of the key flaws many investors made was operating on the expectation that government policy would favor clean technologies. There certainly are policies that do—there’s a 30 percent tax credit for renewable energy until 2017, for instance—but more sweeping measures, such as economy-wide carbon regulations or massive research and development programs, never materialized.

Nowadays, people don’t expect those types of programs to happen and act accordingly, said Michael Linse, who runs the Green Growth fund at Kleiner Perkins Caufield & Byers. Five years ago, VCs were hopping onto planes to lobby in Washington, D.C., in an attempt to influence federal regulations. Now, he worries about much more standard “growth capital” concerns, such as how much money startups will need to fuel their growth.

“(Specific regulations) will affect a lot of our portfolio companies but it’s not existential because the cost curves have spoken and will continue going down pretty dramatically,” Linse said.

Five years ago, people still debated whether solar, wind, and electric vehicles would have a significant penetration. Now, the question isn’t whether they’ll be adopted but how quickly, Linse said.

Fewer Co-investors
Before the word cleantech was even around, there were venture funds specialized in energy and perhaps materials as well. Now those stalwarts are finding it much harder to find co-investors, which becomes most acute when a venture firm has provided seed money and then needs growth capital in the form of Series C or Series D rounds, said Todd Wilson, a partner at RockPort Capital Partners.

“The number of investors in this sector is shrinking and has been shrinking,” he said. “As a firm, we need to make sure we have more capital reserved in this environment than we would have five or six years ago.”

And if a firm is reserving more of its money for later-stage investing in existing portfolio companies, then it’s probably putting less seed money into new ventures. That helps explain why early-stage venture capital in cleantech has shrunk dramatically.

On the other hand, large corporations, or so-called strategic investors, are becoming more active, even in Series B rounds, said Bill Lese from Braemar Energy Ventures. For a startup, strategic investors provide money and potentially access to their distribution or they can act as a first customer for a new product.

“Large strategics in energy have become very venture friendly in recent years where it used to not be,” he said. “It’s really changed the whole thing.”

Energy Writ Large
The growing importance of large corporations in cleantech exposes a less-publicized but significant change happening among investors and entrepreneurs in this area: a shift toward energy technology, in general.

Certainly, there are many cleantech startups with a mission of replacing fossil fuels. But a number of companies are developing technologies designed to make existing “dirty” industries, including energy, cleaner and more efficient.

Alphabet Energy, for example, earlier this month released … Next Page »

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3 responses to “Why Cleantech Investing Has Morphed Into Energy and Sustainability”

  1. John Tharp says:

    Great informative article on the current state of Cleantech Investing.
    Being the Founder and CEO of Hydro-Electric Farms, Inc. a start up hydrokinetic electrical generating company, I can, by personal experience, tell you how hard it is to attract the attention of renewable energy funders. We have invented a better system, we have been granted 4 patents, we have three more patents pending, we have built and tested prototypes and are now at the ramp up stage to build, final test and set up the manufacturing facility to produce and sell our 1st generation of EcoSeaGen underwater hydrokinetic electricity producing units. We are only two years from commercialization. Three years from profitability. We need the first institutional round of capital infusion to make this happen. This journey has taken years to get to this point in time. We know we need some help to make the next step. So to those of you who read the above article, and those of you who are in the article, if you would like to learn more of our journey, technology and current status, visit http://www.hydro-electricfarms.com and then contact us.
    Thanks for chance to delve a little into the other side of Cleantech Investing.
    John Tharp
    Founder and CEO
    Hydro-Electric Farms, Inc.

  2. Thanks for reminding us that capitalism will never save the world. Some people are simply devoted to finding new ways to exploit limited resources. Meanwhile, others are learning to grow our own food, pedal our own bikes, and care for our neighbors. We’re experimenting with a gift economy and imagining a future free of exploitation. You’re welcome to join us.

  3. Ofer Keren says:

    My name is Ofer Keren and I am an
    entrepreneur in the field of energy efficiency and sustainability.

    The main activities of my team during the
    last 15 years is improving processes and lean production in factories and large

    Our dream team has 200 years of experience in clean tech projects and activity.

    We set up a new business model for investors called 9/11

    that will provide first aid to startups that come to the point where the investor plan to give up.

    It is known that 9 out of 11 startups will close the door and lose their dream

    the clean tech will lose the investment and years of research and development.

    In the clean tech world we are familiar with re-use , reduce , re-cycle. triangle. Our new activity 9/11 will check the startup with the same basic tools of clean tech to find out what can be done.
    How can we re-use the personal, how can we reduce the product cost and how can we re-cycle the research in purpose to Multiply the chance to succeed. In the penetration stage 9/11 contracts will be risk free and we will be paid just if we were able to find a new market for the startup and The investor will be happy to pay for our efforts

    do you think it will work