Green Gold

In the course of doing research on cleantech VCs, ...

2010-02-18T13:32:06.041-07:00

In the course of doing research on cleantech VCs, I came across your interesting site.

I came to the very same conclusion you did: the rise of gas prices will fuel development in alternative energy and not until then.

The issue of risk is very complex since petroleum prices depends on supply, demand, refining capacity, and distribution besides foreign policy, regulations, monetary and fiscal policies, balance of trade, international relations, and currencies. Based on this, a company, new or seasoned, has to decide what funding they should put towards R&D with the possibility of whatever it invests can be overcome by events or another competing technology assuming there is an ROI at all.

An additional consideration is the infrastructure required to distribute energy (I’m thinking about cars). We’ll need new methods for storage and replenishment if we’re driving Tesla cars.

One commenter writes about the “myopic view,” but the difference between short-term and long-term is a crucial, risk-laden, and blurry threshold. Public companies have to manage quarterly performance, and executives are incentivized to meet their performance targets. For private companies, executives typically have annual targets, and all of this is made more difficult by the current economy. Never mind the internal difficulties a company might face by developing substitute, disruptive technologies while offering current technologies.

This is why venture capital funders are so important. They can look at promising opportunities with a longer time-frame to bring existing and new technologies to the fore. From what I’ve found so far, there is a lot of activity and funding in the alternative energies arena.

Very good comment after an excellent post. What I...

2010-02-18T05:36:07.249-07:00

Very good comment after an excellent post.

What I have been missing from the discussion is how much biomass that could be produced per year on a pice of land with sustainable methods.

One could see a 10x difference from nation to nation between how much biomass that could be produced per year on a set amount of land. Turn that biomass into biofuel and the difference would increase even more. With the right kind of biofuel the increase is less.

This does not lessen the need for a long term price plan where the government could be driving the long term adoption. But without the optimization of the production of biomass it could destroy valuable areas of nature.

I couldn't agree more. Capitalism is a highly effi...

2010-02-10T07:28:44.350-07:00

I couldn't agree more. Capitalism is a highly efficient system that motivates all players to work toward producing products and services that make the most economic sense--that is, they have the lowest costs and the highest prices.

This would be fine except that nowhere in the world do we capture the true costs of energy. At most we capture the true costs of generating and distributing energy (although this is heavily subsidized in most countries) but we never capture energy's full life cycle costs, including the cost of addressing environmental and social impact.

Consequently energy costs are so low that there is little motivation to develop clean technologies that would generate and distribute energy with lower full life cycle costs (but higher direct costs of generation) or reduce levels of energy consumption altogether.

Another factor contributing to unrealistically low energy prices is a myopic view of energy supply. For most of the developed world energy seems to be endless in supply and it is priced as such. If it were viewed as the finite resource that it is (under conventional methods of generation), prices would increase steadily as global demand increased and supply dwindled.

We see the same phenomenon with food in the US. Huge corporations are able to produce a fast food "meal" for incredibly low production cost. As such, millions of people choose fast food because it makes the most apparent economic sense. However, once again the full costs of unhealthy food are not captured; the long-term costs of acute healthcare for diabetes and morbid obesity far outweigh the price difference between fresh, healthy food and a Big Mac.

I'm a capitalist and I believe in the free market. However, the free market only works when costs are correctly captured: garbage in, garbage out. We do need a way to capture both the full life cycle cost of energy and to factor supply into its pricing. I don't know exactly what the solution(s) is/are but I suspect that world governments have a role to play.

Thanks for your comment Douglas. I would challeng...

2010-01-18T12:13:16.078-07:00

Thanks for your comment Douglas.

I would challenge, however, the thoughts in your blog post as a bit misleading. *ALL* venture investing was down dramatically in 2009. PriceWaterHouse Coopers MoneyTree data shows for the first three quarters of 2009 a drop of well over 40% in *total* venture investing.

As part of the overall drop, cleantech venture investing in 2009 also declined but, thus far, at a *lower* rate than overall VC investing (about a 33% decline).

In other words, in 2009 cleantech venture investments represented a *higher* percentage of total VC investments than in 2008. And, the total number of cleantech investments actually increased in 2009 even if the total dollars declined.

The enthusiasm for VC cleantech investing remains strong and growing. The environment for overall VC investing remains tepid but certainly much better than in 2009.

Thanks for your thoughts David. Big cleantech IPO...

2010-01-18T11:36:44.230-07:00

Thanks for your thoughts David.

Big cleantech IPOs will happen once cleantech companies show big profits. Hopefully this happen soon, or the excitement around cleantech will wane. As I recently wrote on my blog (http://preview.tinyurl.com/y9k4xea), many VCs are focusing on other opportunities in 2010.

It is great that you remain excited about this market space.

Hi David, I frequently work on mundane calculatio...

2009-12-26T10:49:36.606-07:00

Hi David,

I frequently work on mundane calculations related to annual de-rating of gas and wind turbines and other rotating equipment, and the net cost to achieve maximum service life. When I go back and look at the financial models used to justify wind projects in particular, and a number of renewable energy projects in general, they have very unrealistic figures related to both calcs. When these projects need service and/or replacement, they will probably not stand up well to the cost of other energy sources; without new rounds of subsidies, these projects will be dismantled, much like they were in previous rounds of sustainable energy development. Sustainble must mean sustainable across volatile fuel prices, volatile economies and changes in political leadership. We need renewable energy and cleantech, but it needs to be accompanied with the dry, dull economic analysis that makes these projects work in the long haul.

Economics may be dismal, but it is also crucial to advancing our collective success.

In response to the anonymous post from the solar m...

2009-12-18T15:35:48.628-07:00

In response to the anonymous post from the solar manufacturer. I appreciate you actually helping reinforce the point of my blog post even though you don't seem to realize it. As you state, the low price of the alternative is what makes it hard for you to sell. The only way that changes if it the economics of energy change and that is where the government should focus it's efforts and will the focus of a future blog post. You wouldn't need government handouts and you would have your economies of scale. The handout, if you win it, does not solve your problem it just slightly delays the time until you're back where you started.

I'm at a renewable energy company that is currentl...

2009-12-18T14:33:35.316-07:00

I'm at a renewable energy company that is currently chasing one of these grants. Fewer than 5% of our people have anything to do with this activity; it's mostly the C-class execs working on it (and if they weren't doing that, they'd be getting in our way).

And yet it's critically important, because we're in a chicken-and-egg situation. We make solar products at a particular $/W, based largely on the MW rating of our factory. At today's $/W, we're not terribly competitive, certainly not against fossil fuels. So our sales are weak while oil is at $75. What would it take to drive down $/W? Economies of scale, for one -- a bigger factory would get us to a $/W that's attractive to a buyer. Sales go up, and now we're in a better position to fund our own next factory.

So that's the situation: Can't get the sales because our product costs are too high. Can't drive down our product costs because we don't have the revenue to build a bigger factory. A gov't grant, in all its winner-picking inefficiency, would get this American manufacturer expanding -- until the politicians implement "market-based" policies (e.g. taxes, tariffs, etc.) that actually drive different behavior.

I would like to clarify that LED & PV Solar are no...

2009-12-11T17:29:22.942-07:00

I would like to clarify that LED & PV Solar are not "Clean Tech". They are "Renewable Energy" Solar is toxic and LED are also toxic. After its usable life. They are classified as toxic waste.

David, Is your argument that we should pity comp...

2009-12-11T09:17:19.098-07:00

David,
Is your argument that we should pity companies that spent a lot of time chasing these grants? I'll give cleantech executives the benefit of the doubt on this one: they probably took this risk because their normal revenue streams were frozen, if they existed in the first place. If, on the other hand, they chose to "neglect their real business and real customers" in pursuit of these grants, then they shouldn't be running the companies anyway. (I wonder how many VC portfolio companies this applies to?)

Sure, USFG grants aren't the silver bullet, but any serious plan for disruptive cleantech advancement includes a range of demand-pull and supply-push activities by the government. I agree with getting the price signals right, but focusing only on making carbon-intensive energy more expensive ignores the real challenges of bringing disruptive clean technologies to market.

Anyway, the real-world prospects of your alternative, that the USFG should focus _all_ of its energy on "changing fundamental energy economics," are tenuous at best. I'm looking forward to the next post, when the pathway for this alternative is described in more detail.

The instability around oil pricing is very frustra...

2009-12-10T14:03:39.211-07:00

The instability around oil pricing is very frustrating for many clean-tech startups and certainly affects our ability to build a defensible business model. This of course becomes critical for successfully attracting venture investment.
But apart from this issue is the difficulty of obtaining grants for less "sexy" projects which would result in significant fuel efficiency improvement as well as better air quality. What I am proposing is: rather than building more efficient cars or better/ greener alternative fuel which takes many years to not only come to market but to be generally mainstream, why not focus on decreasing empty car seats?
OK, don't roll your eyes :-) Is she talking about trying to get us all to carpool? Hasn't that been tried and failed except for amongst a few work commuters?
Yes and no - my startup looks at the issue differently and aims to resolve many of the barriers to ridesharing by offering social opportunities along with the green element.
My aim here is not to plug my company, don't worry. I just want to vent how frustrating it has been to find government funding for a very worthwhile solution. In order to find government funding support, first you have to find a grant proposal to match with and if you have an innovative approach to an old idea, there are no grant proposals to even apply for. Believe me, I have consulted with a lobbyist who has excellent contacts at the EPA, Dept. of Energy, etc. for a year now and still no grant match. I contacted the CA Energy Commision and was told that they were only funding alternative fuels, not transportation efficiency projects.
We started our company when the price of gas was $5/gal and the prediction was that it would go to $10/gal shortly. Then the economy collapsed while we were developing our technology using our own funds and sweat equity. Now we have the application but our customer base is not there.
The interesting thing is that when incentives are provided, ridesharing increases 35%. What a huge improvement in energy efficiency! Unfortunately we can't convince the government to fund this any more than we can get angel/vc funding. Any ideas?

You are so right. There is plenty of private secto...

2009-12-10T09:14:03.253-07:00

You are so right. There is plenty of private sector investment money out there. What prevents the VCs from jumping is risk and uncertainty. As a high tech executive I don't need large govt grants; I need them to set long term policy that provides a stable future for growth of high tech markets.

Suggestions:

1. Stop these short term renewals of ITC's for renewable energy. Having an ITC that expires in 1, 2, or 3 years and then is not renewed until the last minute halts VC investment in its tracks.

2. Provide a level playing field from a societal value standpoint for energy policy incentives. Historically the govt has played favorites based on lobbying. The current darlings are wind and clean coal with solar not far behind, and lithium batteries on the come. But again, they are making the mistake of picking winners. Just offer the incentives to any renewable energy production and/or storage technology with a low environmental impact. This would give a level playing field to ignored technologies like natural gas, hydropower including non-dam hydrokinetics, and storage technologies other than lithium batteries. What possible rationale could there be for wind getting a higher production tax credit than other renewable sources at 2 cents/kWhr? And make sure the policies address the intermittency of some technologies. The wider our portfolio of attractive solutions the better situated we will be for the future.

3. Implement the price of carbon legislation immediately, but also put a floor on the price of oil. There should be a long term floor of at least $100/barrel on oil. Without that, it prevents long term investments in new technologies because each time those investments get going OPEC drops the price of oil and the new businesses collapse. Energy from shale in Canada is a perfect example; that business has started and stopped several times.

David, Nice comment. You and I could probably exte...

2009-12-09T11:49:25.813-07:00

David,
Nice comment. You and I could probably extend these notes for many pages, but, to me, you were right on target.

There where a number of very interesting points i...

2009-11-04T21:15:56.448-07:00

There where a number of very interesting points in this article, starting with the shortage of experience cleantech entrepreneurs. I would like to point you to an interesting program funded by New England Clean Energy Foundation which has established a Fellowship for seasoned entraprenuerial executives into the clean energy space. www.cleanenergycouncil.org

I liked the Corollary of traditional to cleantech investments, however I would like to know why VC eyes cloud over on water. Water matters in the energy puzzle and is a big player and user in the scope of a solution. But we do not see it any any of these charts.

Peter Vicars
2009 Clean Energy Fellow

Right again, but you're getting perilously close t...

2009-11-04T13:11:39.479-07:00

Right again, but you're getting perilously close to blowing the cover off of one of the VC industry's most precious fables, that "VCs boldly go where no man has gone, to blaze new trails across the frontiers of science, to create new technologies and industries for the betterment off mankind!"

Actually, being human, and a rather risk-adverse lot at that, they mostly go where they know. It's hard enough making money at that, never mind the Star Trek thing.

And the problem with Cleantech, as you point out so well, is an awful lot of it just doesn't connect up well with people's technical backgrounds, or what's generated big returns in the past.

I haven't met many VCs that have figured this out yet, but your data points to it. A lot of VCs share a visceral reaction that most of the Cleantech space just isn't going to fit the investment, time to market, and ROI metrics that they've built their funds on, and the stories they've told their LPs.

Somebody is going to make money on this, but it won't be them.

The leaders need to have talented, cross-trainable...

2009-10-31T14:57:35.876-06:00

The leaders need to have talented, cross-trainable followers. The followers are not as hard to find as the leaders but they are hard to find.

Your comments are valid and maybe a tad fatalistic...

2009-10-31T11:27:51.422-06:00

Your comments are valid and maybe a tad fatalistic. We can't stand by and just say "oh well" and have a chicken or egg debate.

The reality is technology and skills will come out of the Universities. Students need to want to be engineers, yet we have a shortage there. Building the industry organically will take time.

So, you have to find solutions to bridge the gap. Cross-over skills from experienced leadership, is the shorter putt and with this level of experience and maturity comes the desire to learn and educate.

There are tools and strategies that help speed success throughout an organization. Effective leaders recognize this and surgically engage to keep their focus on what really will drive success.

Find the leaders and you solve the problem.

Banging the same drum. Here in New Mexico, about ...

2009-10-28T17:50:35.333-06:00

Banging the same drum.

Here in New Mexico, about $500,000,000 has gone to paving roads and digging holes to clean up waste sites. Very little if anything has gone to clean tech.

ARPA-E, on the other hand, promised
cleantech funding for commercializable products, got $415,000,000, got 3600 applications, and many months later split $150,000,000 among 37 winners (1% of the total of applicants). Many of these winners were universities, national labs, or large companies, hardly a stimulative result unless you call wasting the time of 3563 applicants stimulative.

I just found out about this blog today so I apolog...

2009-10-28T10:03:28.359-06:00

I just found out about this blog today so I apologize for repeating things that were said previously.
Here are some thoughts.

There is immaturity in the cleantech entrepreneurial ecosystem. There is also immaturity in the due diligence of the VC and government funding. From a scientific point of view, many dollars are chasing things that had no hope of working in the first place. An entrepreneur's elevator pitch may be simple and enticing, but the investors do not have the patience or the due diligence to determine whether the idea is scientifically possible or economically feasible.

The second law of thermodynamics is still true whether the government or VCs want to believe it. Lots of projects fail this second law--no free lunch--test. Yesterday's failure was an attempt to use trees that grow in brackish water to provide biological desalinization. It turns out that the trees die in sea water, won't make fresh water when the humidity is high in the green houses in which they are to be grown and, for the city of Los Angeles' fresh water needs, you would have to have a greenhouse 900 miles on a side with a really big dehumidifier.

@whitect
We are making engines that will be 60% efficient and produce electricity at less than $0.06 per kWh. A part of this engine is a control system. Our novel control system is actually a platform technology. We need computer talent to extend this technology in Clean Tech and beyond.

@skimilburn
We have two shrink wrapped technologies. I agree with your comment on technology depth. We have worked hard to get that depth. Most others have not done the work yet. In a narrow example,our particular technologies appear to require a year's worth of additional work on the part of a technology expert to understand them. This extra work is one of the things that makes our IP strong but is daunting to people who want to understand the technology in detail.

@Kris

In my day job, I do technology. At other times, I am a bird dog for people like you. My contact list is in the thousands and covers the people you are trying to find. My contact list is this large because I need talent across a lot of fields. I agree that finding the right talent and then enticiing them is difficult and time consuming. For instance, the world's supply of anaerobic biologists who can grow bacteria to convert cellulose to ethanol is very small. The experienced ones don't want to move.

@Adam
I am in New Mexico. There is a solution to your problem. Waiting is not it. The solution takes serious work. Contact me at eric.fairfield@gmail.com or look me up on LinkedIn for further information.

Great thanks to David and everyone else here. I hope that I am not wearing out my welcome.

I strongly agree with your assessment. Here in Col...

2009-10-23T13:40:42.913-06:00

I strongly agree with your assessment. Here in Colorado the problem is further amplified. While we do produce significant Cleantech IP and certainly have solid engineering talent in the area, we lack the executive training grounds that abound in Silicon Valley: leadership hot-houses like Cisco, Google, Apple, Yahoo!, HP, etc.

I am keenly interested in helping to lessen this issue for our state so that we can locally monetize our IP. While we obviously cannot conjure Silicon Valley's ecosystem, I believe we can positively affect the Cleantech economy by addressing the leadership problem for early-stage Cleantech companies.

Do you think there is a solution to this problem beyond patiently waiting for execs to learn by trail and error?

-- Adam Rentschler

The problem with getting the best talent is not li...

2009-10-21T10:12:12.005-06:00

The problem with getting the best talent is not limited to 'Green or Clean" tech. misalignment of talent with challenge is endemic, and works against the effectiveness across the entire economy. That said, "Green" talent is paramount importance not only for what it can do for the environment and investors, but for what it can do to "unlock" the talent market.

Talent markets, in short, are fictions. They don't exist. So-called passive job seekers (85% of employed workers) stay out of the market in good times and bad, afraid of repercussions from current employers, or just indifferent to moving on or up.

Employers also operate "talent lock ups." They allow managers to embargo talent but not insisting on "open" access to information about high performing talent within the organization. They intimidate talent, letting them know that "looking" could be considered disloyal. They practice "mushroom" talent development by keeping talent in the dark about both threats and opportunities from inside and outside the organization. In the end, they encourage "gaming" the system by having no effective process for making talent visible within their own operation (afraid competitors will steal them or other departments will tap key players).

Finally, in bad times (like now) we fall back on state and federal government sponsored programs that are geared almost exclusively to filling in the labor pool at the very bottom. High quality talent is effectively channeled to 'low paying' jobs. Lack of education and training opportunities in key 'growth' sectors is profound. You can, if you are a Native American find government training programs to train as a casino worker. Hmmmm.

So what's this got to do with 'Green?'

The Green Sector has meets all the conditions necessary to provide a "strange attractor," (the phenomenon the prompts new patterns to emerge from old ones in organic systems).

As you note, the 'Green Sector' is immature. It has not yet formed all of its capabilities, nor necessarily determined everything that will need to be "filled in". It will need to draw on "existing" talent and know-how to formulate many of its processes and procedures. It will have to have form "reciprocal relationships" with pre-existing entities throughout the socio-economic environment. It will grow and spread, not like a rising tide, but like a wind blown forest fire, skipping from here to there, and catching on wherever conditions are right. It will be local, but on a global scale. The talent needed will probably not be co-located with the task. There will have to be an open and sustainable flow of talent, capital, knowledge, and social resources. It will have to re-organize itself and learn new solutions for new problems consistently.

The talent market must reflect these dynamics. It must me open to talent that wants to be visible in the market, and visible to organizations with critical needs.

The 'big' staffing companies already get this and they are hopeful that they can acquire access to a global pool of talent and make it accessible anywhere, anytime, for any duration. Whether this is in the best interest of "talent." is unknown, but in the absence of a functioning and effective open talent market, it is a very likely specter.

An Open Talent Market for the 'Green Sector" (and healthcare, and the well-being of talent generally) is essential. The technology exists; it's been built, tested, functions, works. The hold-up is resistance from corporate HR self-interests, institutionalized indifference in the post-secondary education sector (that believes its obligations to society ends when students obtain a credential)and the deeply entrained belief that careers are a matter of luck rather than skill, knowledge and access. We seem to understand how important it is to manage our "financial portfolio" and the "significance of its value in a

I enjoyed reading your article, and agree with you...

2009-10-21T10:08:49.609-06:00

I enjoyed reading your article, and agree with your comments. I specialize in recruitment within the Energy and Cleantech sectors, and although there are an abundance of candidates in the market, it's still a challenge finding a candidate with specific skills sets that could add value right away and hit the ground running.

Within Cleantech, there are several sub niches, each with its unique product offering and supply chain. Each niche is also at a different stage of its development. For example, Renewable Energy (Solar and Wind) is at a bit more at an advanced stage compared to Smart Grid and Energy Storage, which are still in its infancy. Even within the sub niche Energy Storage, there's also variations in development - battery manufacturing has been around for a while, compared to those companies prototyping hydrogen or air-compressed storage.

Whether an entrepreneur who has successfully started a Solar company will succeed in another Cleantech niche, like Biofuels or Energy Storage, it's too difficult to tell at this point, since there aren't that many real examples or precedents that I can think off the top of my head. I'll do a bit more investigation on this.

I'm excited to see how this industry evolves over time.

I couldn't agree more with your comments on the la...

2009-10-20T10:27:47.051-06:00

I couldn't agree more with your comments on the lack of experienced human capital in cleantech, but why stop with the entrepreneurs and the angels? There aren't any VCs or investment bankers with deep domain experience and a fat portfolio of successful exits under their belts in the space either.

There aren't many "shrink wrapped" Cleantech product opportunities, most of it is capital intensive, long to market, durable goods. Cleantech opportunity/risk/time/capital metrics just don't compute for people with deep expertise in "technology", (one of the most misused terms in the world), and I think its a big challenge for them to map their skill sets to the new world.

In the natural order of things, cleantech will generate angels and then VCs from the pool of wealthy entrepreneurs who've bootstrapped their businesses to lucrative exits and are ready to lend their expertise and capital to the next wave. That's going to take a while, and the Chinese will get there first.

As a professional who has marketed High Tech / Ent...

2009-10-20T08:05:10.549-06:00

As a professional who has marketed High Tech / Enterprise Software both in Silicon Valley and on the East Coast for the past 15 years, I wonder if you see sufficient synergies between High Tech and Clean Tech to tap leaders in my industry for this CleanTech Challenge.

Many like myself are contemplating a career change into Clean Tech companies, and consider our horizontal skill sets to be directly applicable to the needs of this new vertical market. I sense the VCs and Clean Tech leaders don't quite have the same confidence.

The article attached got me thinking about this potential migration - and I think there is plenty of Human Capital available, at all levels, if Clean Tech is willing to think outside their comfort zone.

http://earth2tech.com/2008/05/05/25-who-ditched-infotech-for-cleantech/

Have to agree with Jeffrey-don't know how stimulat...

2009-10-07T15:24:50.770-06:00

Have to agree with Jeffrey-don't know how stimulating it is to pave roads. Would have liked to see a quicker start with the stimulus package, and more directed toward hi tech/ green tech.