Cleantech Overcoming Challenges, Rough Years, Tesla VC Investor Says

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of our lifetimes, is the development of hydraulic facturing and horizontal drilling. But more interesting than that is what the state of play was a decade ago,” Ehrenpreis said.

“There are so many important lessons and parallels to our sectors,” Ehrenpreis said. They include pessimism, incorrect forecasts, and underestimating the impact of government support. But also “mavericks challenging the incumbents and not listening to what the experts had to say.”

Cleantech sectors like solar, wind, and LED lighting have shown similar rapid advances in technology that are analogous to fracking. Innovation has driven down costs, leading to increased deployment. For example, the U.S. Energy Information Administration’s estimate of the amount of solar that would be deployed was low by a factor of 30.

—Incumbents are not innovating. Every major energy company and utility claims to be investing in new technology that is cleaner and more efficient, but tracking research and development dollars suggests otherwise, according to Ehrenpreis. Across the board, the energy sector invests about 0.3 percent of sales into R&D. By comparison, biotech companies invest the equivalent of 19 percent of sales, and software companies invest 14 percent.

The lack of investment means the industry is “underinnovated” and relies on technology Thomas Edison would recognize, Ehrenpreis said. That’s an opportunity for startups and investors as incumbent companies look to acquire innovative startups to improve their technology portfolio.

But it’s also changed the nature of clean tech investors. The venture capital investment divisions of major international companies have gained importance as traditional venture capital firms have lost interest, Ehrenpreis said.

That could be seen at the NREL conference. Germany-based BASF, the largest producer of chemicals in the world, Germany-based electronics and engineering conglomerate Siemens, South Korean electronics company LG, and Saudi Aramco, the state oil company of Saudi Arabia, all sent representatives.

“One of the most important ways of building out the cleantech industry is to bring together the entrepreneurs and the large corporates,” Ehrenpreis said. “Every year the bridge becomes stronger and more important. It’s not only the small companies that recognize it, but the big companies do too.”

It also has contributed to increased mergers and acquisitions activity, with a number of billion dollar-plus acquisitions in 2012.

—A different type of investor and entrepreneur. A few years ago, Ehrenpreis was proclaiming cleantech as the “third leg of the venture capital stool,” saying it would produce startups that would join IT/software and biotech startups in the portfolios of most venture firms.

Ehrenpreis didn’t say if he’d changed his mind, but he did note the routes successful cleantech startups follow to raise money is radically different than the software companies familiar in Silicon Valley. While they can draw on local angel investors and personal connections with VCs, cleantech startups are seeking money from international investors and targeting international markets.

“Where I am in Silicon Valley, most of the community that is largely focused on IT invests in local companies that hire local talent that build a U.S. revenue base to go public on a U.S. exchange. That had been the mindset, and nothing could be farther from a successful roadmap for our sector,” Ehrenpreis said. “It’s really globally where much of the demand and opportunities are.”

But if the sector has a challenge finding local investors, it doesn’t feel like it is having trouble attracting talented entrepreneurs and engineers, Ehrenpreis said. While that is an anecdotal measure, it feels like it indicates a shift in the industry’s fortunes.

“The pace of innovation is only going to increase as more brilliant, ambitious, determined people migrate into our sector,” Ehrenpreis said. “For so many years when I first got into the venture industry, the talent magnet was to IT and life sciences. There were few entrepreneurs who were thinking about spending their careers tackling energy problems. But now, we see some of the most accomplished entrepreneurs and executives from established industries deciding to invest their intellectual capital into our sector.”

“The flow of talent into cleantech is probably the best barometer of success in this decade and the best barometer of where we’re going to go in the next,” he said.

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