What is the Future of Cleantech?

Oct22009

As the climate change and energy policy bills meander their way through the U.S. Congress, interest in when, where and how to build a renewable energy future is still up for debate—and funding.

And, a lively debate it is. In an event organized by Applied Ventures, Cooley and the Silicon Valley Association of Startup Entrepreneurs (SVASE), I moderated some Silicon Valley venture investors, entrepreneurs and advisors as they chimed in on “What is the future of Cleantech?”

amat, cooley event

(L to R) Chris Moran, vice president, general manager, Applied Ventures, Wayne Hedden, co-leader Cleantech Practice, PricewaterhouseCoopers, Gordon K. Ho, partner, Cooley Godward Kronish LLP, Alex Kinnier, partner, Khosla Ventures, Dan Rubin, general partner, Alloy Ventures, Dylan Steeg, director, Intel Capital.

Panelists began by addressing the question, are all the BIG cleantech ideas already funded? Most of the participants agreed that opportunities still abound. According to Alex Kinnier, “The pace of innovation and ideas has not changed, but companies need to be more thoughtful to de-risk and partner early for results.” Dylan Steeg agreed, pointing out that there are lots of start-ups now targeting capital efficient plays using software for smart grid, automation, analytics and enabled services—all aimed at making processes and energy use more efficient. And as Gordon Ho observed, “Someone will figure out the technology—and lots of companies will benefit from downstream activities.” Dan Rubin added that there are supporting plays as some of these companies get off the ground and scale. Component and materials companies will be the beneficiaries.

What about the influence of government policies? Wayne Hedden advised, “Don’t depend only on government money or stimulus—we’re seeing a lot more partnerships between start-ups and big companies, like the recent BrightSource partnership with Bechtel. We’re also seeing start-ups more plugged into policies of various states and governments.” And, warned Alex Kinnier, “We recently lost a deal to the government—an entrepreneur chose to take money from the government instead,” he also cautioned that the government process could add significant delay and that no checks have been issued yet from the Advanced Research Projects Agency—Energy (ARPA-E).” The panel said that the best plays are those where the government money isn’t necessary to the venture’s success, but could accelerate a company’s efforts if government monies became available.

Another topic that sparked a lively debate was the tough financing environment the cleantech industry and the world is facing. Current investor’s roles can’t be underestimated according to Alex Kinnier, “Banks are looking at which investors are involved in a company as one of their decision points for future funding.” Dan Rubin advised, “We want to see companies get to breakeven without depending on stimulus money or expecting oil to be higher than $50 per barrel. All-in-all, cleantech start-ups face market, technology and policy risks, and the key is to identify the right time to invest.” Dylan Steeg added, “The bar has been raised significantly for companies to raise capital—and we’re seeing a lot of innovation all over the world, which also must be acknowledged.”

Cleantech start-ups face many hurdles, and exit strategies should be considered early on. The panel was hopeful that the A123 Systems IPO (initial public offering) would open doors for more IPOs (A123 has since IPO’d with a 50% boost on its first day of trading), but cautioned that IPO should no longer be the ‘holy grail’ or only exit for start-ups — primarily due to the financial reporting compliance requirements that make the IPO track extremely costly—companies should consider merger and acquisition instead, looking for opportunities to partner with the right strategic partners early on.

Overall the discussion was unanimously optimistic on the future of cleantech and cleantech investing as panelists expect more companies to look at the issue of carbon, oil and energy independence.

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