Thursday, May 14, 2009

Capital from Capitol Hill? Federal Gold Rush Not on the Fast Track - Yet

When it comes to giving a lifeline to cleantech companies, Congress may be singing Kumbaya in public, but when it comes to the part about where the check in the mail, you'd better reach for your old Bryds album - the one with the song "To Everything There Is a Season: Turn, Turn, Turn" - on it.

Silicon Valley entrepreneurs and clean tech investors gathered today at the law offices of Sonnenschein Venture Technology Group to hear a panel of high level experts talk about the impact of the federal stimulus bill on cleantech companies in Silicon Valley. Though the event was billed with the come-on line "How to Grab a Piece of the Stimulus Bill's $50 Billion Cleantech Pie," the featured insiders from Capitol Hill, Wall Street, Chicago and the Valley were quite a bit more guarded in their expectations about the pace and direction of a federal gold rush.

Link to all photos on Flickr

The bottom line? Don't expect too much too soon from the government stimulus package, said DC-based Tom Jensen, head of Sonnenschein's renewable energy practice. "Be cognizant of the pace," Jensen cautioned. "Get mentally healthy with the concept of patience," he said, adding, "Don't waste energy expecting the government to act like the private sector."

Panelists said the country is in the midst of a major turning point - and that turning the Queen Mary takes time. "The new industrial policy decade is beginning now," said Deloitte & Touche's David Thelander, senior adviser to Deloitte's audit teams.

Thelander recommended that companies make sure from the start that they have "the necessary regulatory compliance resources in place to meet the new regulatory obligations - which may include the need to hire internal compliance staff...You need to have a process in place that shows you understand and can demonstrate compliance with the new requirements," he said, which includes plans to hire union labor. Using the example of a $3 million solar company seeking $75 million in loan guarantees, he said, "The winners here, in this huge shift, will understand regulatory compliance and build these requirements into their planning."

At the same time, panelists cautioned that businesses must be self sustaining and profitable in markets on their own and should plan on using stimulus funds purely as an accelerator.

Panelists said tensions exist over what the stimulus bill is designed to focus on - job creation - and what panelists were focused on - cleantech investment.

"The politics of creating jobs - that's the machine that needs to be fed - and fast," Jensen said of policy makers' current priorities. "It's jobs, jobs, jobs - get the money out the door to put people to work. There is a tremendous pulse in regulations and policy. It will be chaotic and they (the agencies’ staff) know that and they are doing the best they can."

"You have to understand that the cleantech community is still a small voice amidst many people with a century of highly capitalized investment in government. You're (the cleantech community) just scratching the surface in comparison," he said.

Jensen added that while government is gearing up to perform tasks at what is an accelerated pace, "most of the things you (the cleantech community) don't care about are the ones that have just been funded," referring to healthcare, labor, and state government.

In addition, the government needs time to ramp up, panelists said.

Trident Capital venture partner Mark Iwanowski and others said there are problems within the Dept. of Energy due to lack of staff.

Annette Walker of California CleanTech Open said the agency is doing its best to address the problems. "They have a small group over there but they're ramping up to have grant reviewers," said Walker. "They've found it’s really important to have high-quality reviewers in order to have a high quality program, so that's taking some time."

"There are lots of empty offices at the DOE, more than empty suits," joked Jensen.

On a more serious note, he said, "You have to understand no one in the government has ever done this on this scale - this is a once in a lifetime occurrence.”

Jensen and others pointed out that the new undersecretary of energy (Christina M. Johnson) has an academic background and has to get up to speed on running the alternative energy sector of the DOE. And, Jensen said, other appointees with more direct experience are still waiting for confirmation. In addition, panelists pointed out, no previous administration, including the Bush era DOE staffers, has ever had to initiate such a massive program at such an accelerated rate.

"People in government have been dealing with grant programs forever," said Iwanowski. "The same grantmaking activities have existed before at the DOE. But the challenge here is putting it in a tighter window (of time). The issue is accelerating all of this activity."

Iwanowski said the risk of acceleration is also one that's recognized by the DOE. "Nobody wants to risk too much and wind up in the Wall Street Journal for all the wrong reasons."

How should cleantech companies proceed in the face of these uncertainties?

Jensen said companies should not be confused about what lawyers and lobbyists can and can't do for client companies. "Don't pay people to read web sites for you. The agencies are pretty transparent. The information is on the web site."

"What you should pay people for is to help shape what the agencies are doing and to help you fit with what the agencies mean to be doing. Pay people who know where these things come from. Every rule has an agency behind it. Every agency has a culture behind it. Every culture is the result of an agency's history. We live in a world of the anthropology of law."

Said Jensen, "You should understand that we're at a hinge point in this story. An important part of the plot is happening right now. Right now the most important job skill for everyone in this room is peripheral vision. We are at the 90 day anniversary of the stimulus bill, and some major announcements may be rolling out very soon, even this week or next. But when we are talking about the stimulus bill, we're looking at policies which are the products of decisions largely already made on Capitol Hill.

"This week, this month - is when major decisions will be made in the Senate and the House. Energy and climate policy is all coalescing right now into major legislation. Waxman's revised bill is out today...Energy and climate change policy making and implementation of the stimulus bill changes in the stimulus bill are all taking place simultaneously. It's a process that is interactive - and because it is so complex it is obscure.

"There's no capital decision about energy and cleantech that's not at a very fundamental level being made by 535 members of Congress and the White House. There's no market left except as an incident of policy making."

At the same time that panelists acknowledged the stimulus bill’s focus was on job creation, there was little reaction to a question about partnering with green job focused initiatives (with groups like Green for All) or on projects focused on the priorities of green jobs czar Van Jones who recently moved from Oakland to DC to become Obama’s Special Advisor for Green Jobs, Enterprise and Innovation in the White House Council on Environmental Quality (CEQ).

It does not appear that government support for green jobs has intersected with the investment community’s traditional focus on IP and tech value creation, despite the federal funding preference to companies with a focus on job creation.

The stimulus bill is also meant to help stable companies create jobs, not to fund risky new ventures. When new regulations are written, ROI is expected to be a part of the DOE funding criteria, said Walker.

Panelists said no one knows whether it will be one month or one year before stimulus funds are being made available in the cleantech community.

“Dealing with the government is like working with a very, very large company,” said Annette Walker from California Cleantech Open. “It takes a long time to get the deal in place, but once you get it, it’s great.”

Right now, Walker said, is the time to “build relationships. The more we can know about who the players are, the better off we’ll be.”

And for those of you who read this far, please enjoy:

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