Cleantech isn’t the Internet
June 26th, 2012
Like the change of the seasons, recent headlines have again declared the death of venture capital investments in clean tech. This is nothing new. We warned of a decline in early stage venture investment in November 2011. The reality that clean tech is not the Internet has firmly settled over Silicon Valley, Cambridge, Massachusetts, and other centers of venture capital. Despite this revelation from some outside the sector, as clean tech investor Rob Day recently noted, much is going right in clean energy right now. We’re seeing an era of booming U.S. solar. Installation of wind turbines in the U.S. was up 52% from 2012. Tesla launched sales of its Model S sedan. We may be getting closer to a game changer in battery technology.
Progress in clean energy, however, reinforces that clean energy is fundamentally different than the Internet business. Solar has to compete with coal; Google had to compete with your local library. Entering a big, established market can be great – there’s obviously demand. It also means, however, that a new company has to offer a better or much less expensive product than what already exists. In energy, that often doesn’t mean the best technology, but instead comes down to best economics. As with anything new, costs are certainly falling in solar, wind, and other clean energy technologies as we gain experience, but it can be an expensive, long wait. In the VC world, 10 years is too long to realize a return and $500 million is too much to risk on one company. Especially in a market with Instagram and Zynga, it’s just not reasonable to expect VCs to take the long, large risks.
So, what then?
While there is certainly some private capital still in cleantech, it can’t be relied on to shoulder all the risk of our clean energy future; alternative paths of technology development and commercialization are vital. Whether it’s incentivizing investment with new tax treatments, government loan programs, public-private partnerships, or completely novel approaches, some of the best minds are hard at work on finding solutions. With entrepreneurs figuring out the hard technology problems to make clean energy a reality, the capital will find a way to follow.