Monday, September 28, 2009

Cleantech Stimulus Not Very Stimulating



The way the Obama Administration used the economic crisis to drive a major policy and spending shift regarding clean technologies was very deft politics.  The cleantech stimulus (which represented over $45 billion of the $787 billion stimulus bill) was sold in large part as a piece of the solution for our immediate need of job creation. 


So, you might be surprised to discover that the cleantech stimulus bill has actually slowed many investments into clean technologies.


As a venture capitalist I have the luxury of talking with many executives of venture funded cleantech companies and their customers.  I have heard firsthand from executives in smart grid companies, utilities and battery companies that many stopped or significantly slowed their planned purchases and/or investments this year to await the outcome of the massive federal grant programs.   Smart meter companies, arguably the most mature in the smart grid space with several already public, took a direct hit from this.  For example, Itron (ITRI) specifically attributed some of its soft 2009 performance to delays resulting from the stimulus bill (see http://www.beaconequity.com/technical-trading-overview-for-itron-inc-itri/).  Some venture funds also held off on investments in early-stage cleantech ventures, waiting to see which ones would win dilution-free government funds.  (For related info, see http://earth2tech.com/2009/09/16/how-the-stimulus-funds-could-hinder-a-smart-grid-buildout/, http://www.bizjournals.com/boston/stories/2009/07/27/story2.html.)


Why the sluggishness?  If I were to tell you I might pay for half of the new furnishings for your home, would you rush out and refurnish your house, losing the potential opportunity to have me foot half the bill?  I’m guessing you’d wait to hear more.  And that is exactly what so many cleantech companies have done.  It’s rational.  It’s good business sense. And so our grand cleantech “stimulus” actually has, in the near term, caused a further slowdown in the cleantech sector at the time when the economic stimulus was mostly needed.


Now, I hope you realize that the government is notoriously slow and inefficient (and, some would argue, ineffective as well).  The DOE is setting new records for speed in getting grant solicitations out the door, yet only about $600M of the tens of billions DOE has to allocate in cleantech stimulus funds have actually been transferred from the government to private companies, according to Matt Rogers, the senior advisor for Recovery Act Implementation at DOE, who spoke recently at the Boston Cleantech Forum.


Here we are seven months after stimulus was passed, and the reality is that the bulk of the short-term “stimulus” won’t flow to the job-creating private sector until a year or more later – well after the stimulus was critically needed.  In the smart grid area, DOE has said it expects initial award announcements in November.  Keeping in mind that it typically takes many months after an award announcement to get a contract in place and that many of these are matching grants that will be paid on a reimbursable basis, it is not unreasonable to believe that it will be March 2010 -- or later -- before any of these funds flow to the private sector.  And that assumes the November target for announcements doesn’t slip. 


Some would say that these are long-term investments and putting them in the stimulus bill was simply the expedient way to get the funding to the private sector.  But the combined objectives of making rapid awards to stimulate the economy and making wise long-term investment decisions are fundamentally conflicted.  In other words, cleantech stimulus may have been good politics but was likely bad policy.  For example, very few industry people with hands-on knowledge of the real-world demands, needs and technology have been able to participate in the selection process with DOE bureaucrats, who largely have only book knowledge to rely upon in trying to hand out money to the “best” proposals.  Why?  Because most knowledgeable business people face a conflict of interest due to their own company’s proposal submissions.


A large portion of the cleantech world is waiting to hear from the federal bureaucrats who are picking the winners (and, yes, although it is a Republican cliché, thereby designating the “losers”).  These awards are so large that they will have a significant impact on which companies in certain sectors (such as batteries and smart grid) ultimately will succeed.  The cleantech stimulus was not a stimulus but rather a down payment on the Administration’s plans for continuing direct government spending in clean technologies.  So whether cleantech company executives like these grants or not, I assure you they are all applying. As the lottery saying goes, you can’t win if you don’t play!

Friday, September 25, 2009

The Green Gold Blog Launch


After joining Access Venture Partners over two years ago and heading up our cleantech investments, I contemplated starting a blog.  But there are so many blogs (especially in cleantech) that I decided to hold off until I was certain how mine would be different, insightful and valuable. While many of the cleantech blogs are informative, two things have inspired me to finally launch this blog, “Green Gold”.

First, in my travels to find great cleantech companies in which to invest, it has become glaringly evident that many more first-time entrepreneurs have entered the cleantech world than other, more established venture categories.  However, the human ecosystem around growth-oriented, venture-funded cleantech companies is simply not as mature as in more traditional areas of venture capital investment.  As a result, the cleantech community doesn’t yet have the more robust support systems and business relationships found in other sectors that would allow these new entrepreneurs to more easily network with and identify seasoned mentors, who could help them navigate the start-up and venture capital mazes.  While there are fantastic cleantech news and information blogs out there, almost none cater to the issues that entrepreneurs face in building a successful cleantech business.
 
Second, with all the political hype around cleantech it has amazed me how little dissent or critical thinking is arising on the subject of cleantech policies.  Having worked briefly on Capital Hill for a Democrat and in the Executive Office of the President under a Republican, I like to feel I have a balanced view – or at least equal disdain for both parties!  I am firm believer that vibrant debate of policy leads to better policies being implemented. The Obama Administration has made cleantech a mantle of its first year in office, which is fantastic for those of us who believe in the critical nature of finding cleaner technologies.  But much of the discussion on cleantech is being driven by the dogma of the left or the right rather than by a clear view of what is truly needed and of what will generate the desired results.

So, with those two thoughts in mind, welcome to the Green Gold Blog!  Why “Green Gold”?   Well, yes, it is a catchy and convenient title given my last name!  But of equal importance, for cleantech to be successful in spearheading meaningful change in the market and in our lives, I fundamentally believe it must turn Green into Gold.  The largest leaps in technology that have affected our everyday lives – the automobile, television, computer and World Wide Web to name a few – sometimes have their R&D seeds paid for by the government (but often not), but their growth into useful every-day tools is driven by the pursuit of profits in the free market. Real change in using clean technologies will come as the free market has the profit motive to create the change.

Through Green Gold I will endeavor to compel cleantech junkies (like me) to *think critically* about cleantech policies, whether those policies are coming from the left or the right.  In addition, I hope to provide useful business insight and guidance to cleantech entrepreneurs who, through their technologies and businesses, will bring about the much-needed revolution in how we produce and consume energy. Entrepreneurs are encouraged to post their questions to me through the Green-Gold blog site; some of my posts will answer questions about start-ups, angel capital, venture capital, and building successful cleantech businesses.

One final promise to my readers:  You will only see a new Green Gold article when I have something insightful to share.  I won’t bury you with content, but hopefully when you see a new post you will find it worth the time to read. 


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