Venture Capital Firms Looking For Softer Cleantech Deals

The fall-out from the Solyndra scandal has spread to the venture capital and institutional investor community, which is becoming wary of investing in high risk, capital intensive renewable energy start-ups.

They’re turning their attention to the place where they’ve long felt comfortable – investing in companies that produce innovative software. In cleantech, that means investing in software that addresses climate change, such as making buildings more efficient.

"A lot of people see Solyndra as a symbol of what they do not like in green investments or government involvement in tech," says Nathan Hultman, director of the environmental policy program at the University of Maryland and a fellow at the Brookings Institution. "If the VC’s pull back, then a lot of these companies are going to have to fold, or at least put their plans on hold," he told the NY Times.

Institutional investors are especially spooked by Solyndra’s bankruptcy – the pension funds, endowments and foundations that typically invest in venture capital funds.

While it’s much cheaper to invest in a software company than one that’s developing a new form of energy, it’s hard to understand the sudden fear produced by the Solyndra situation. VCs have always said that a majority of their investments don’t work out – so why the hoopla over one company going bankrupt?

The lack of energy policy in the US, expiring subsidies and widespread denial of climate change are also holding renewable energy industries back, making investments riskier.

Companies VCs Like

Examples of the kinds of companies investors currently favor include car-sharing service RelayRides, which facilitates car owners renting their vehicles to others – using software.

The business addresses climate change by giving people transportation options other than owning cars. It focuses on reducing individuals’ carbon footprint by modifying behavior, rather than inventing new forms of energy.

Another company is Clean Power Finance, which runs an online marketplace for financing residential solar panels. Transphorm makes sofware that minimizes power loss in industrial motors to data centers.

Climate Corporation helps farmers deal with climate change (and plans to expand to other businesses) by simulating the weather for the next two years, and facilitates buying insurance and receiving payments for bad weather.

FirstFuel Software remotely analyzes a building’s electric use and generates an energy-saving plan. And Opower gives utilities the ability to communicate directly with customers.

Some VCs Holding Their Ground

Still, some cleantech VCs are still committed to commercialize the "next big technology," like Khosla Ventures, which raised another $1 billion fund this month, over half of which will invest in cleantech.

"We have identified the ‘Clean Dozen’ companies in cleantech that can achieve unsubsidized market competitiveness," said   founder Vinod Khosla in announcing the new fund.

The firm will continue investing in breakthrough cleantech areas such as bio-refineries for energy and bioplastics, solar and batteries.

Khosla says efficiency software doesn’t do enough to address climate change. "They do the 5 to 10 percent improvements here and there. "What we need is the 100 percent or 400 percent improvements," he told the NY Times. 

Who will fund technology innovation if not the government and investors? Unfortunately, that will put the US further and further behind, as India, China and other countries take the lead.

At a recent conference, John Doerr, another iconic cleantech investor, partner at Kleiner Perkins Caufield & Byers, said: 

"A wave of anti-science sentiment in the U.S. government – through the lens of ignoring global warming and a reliance on fossil fuels – could hamper  innovation in the clean technology space. "We have to put this partisan bulls-t behind us."

"We shouldn’t kid ourselves about the lone entrepreneur in the garage creating an industry," commented Pete Thiel, founder of Tesla. "We have this myth that the IT industry got started on its own – no, there was federal funding, just like what we need for clean technology."

"The thing that scares me the most about America at the moment is the anti-science movement is gaining ground," he said. "If we don’t have presidents or an informed electorate that can make decisions based on science, we’re gonna be in a bad situation," says Doerr.


Cleantech Investments Grow 12% in Q3, US Leads the World

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Comments on “Venture Capital Firms Looking For Softer Cleantech Deals”

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