Monday, May 18, 2009

VCs and Clean Tech: A Match Made in Heaven?

This is my first post on the Eco-Investor blog. I thank Pam for giving me the opportunity to contribute to the blog.

I begin with the following question: Are VCs and clean tech a good match?

Many VCs have concerns about investing in clean tech.

1. Clean tech companies tend to have high capital requirements. In this environment, many VCs are shying away from capital intensive companies.

2. Clean tech has highly complicated distribution networks. Few clean tech companies provide stand alone products. Instead, most clean tech products are connected to other parts of the energy system. For example, in the United States at least, smart meters and most renewable energy sources are tied to the grid. For many clean tech companies, several pieces must fall into place for them to succeed.

3. Some of the end users and constituencies (e.g., utilities) are resistant to frame breaking change. In fairness, some utilities (e.g., PG&E) are actively promoting energy efficiency programs and searching for new technologies and solutions.

4. Clean tech companies may take long to scale and grow. One VC told me that in this respect, clean tech companies are similar to life sciences ventures. He does not invest in either type of company because of the long gestation period.

5. Some VCs view companies that take stimulus money as not independently viable. These VCs see stimulus money as a stigma.

On the flip side, are VCs the optimal source of money for clean tech entrepreneurs? What funding sources might be better for clean tech entrepreneurs, and why?

In order to accelerate the process of building clean tech companies, these questions need to be openly discussed by investors and entrepreneurs.

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